10-Q 1 bsprt-2018q1x10q.htm 10-Q Document
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 March 31, 2018
 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 April 30, 2018 was 31,709,387.



TABLE OF CONTENTS



i


PART I
Item 1. Consolidated Financial Statements.

BENEFIT STREET PARTNERS REALTY TRUST, INC.

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

 
March 31, 2018
 
December 31, 2017
ASSETS
(Unaudited)
 
 
Cash and cash equivalents
$
57,670

 
$
83,711

Restricted cash
10,151

 
7,997

Commercial mortgage loans, held for investment, net of allowance of $1,548 and $1,466
1,627,851

 
1,402,046

Commercial mortgage loans, held-for-sale, measured at fair value
69,465

 
28,531

Derivative instruments, at fair value
821

 
132

Receivable for loan repayment (1)
48,454

 
49,085

Accrued interest receivable
8,925

 
8,152

Prepaid expenses and other assets
4,378

 
4,007

Total assets
$
1,827,715

 
$
1,583,661

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Collateralized loan obligations
$
690,765

 
$
826,150

Repurchase agreements - commercial mortgage loans
501,310

 
65,690

Other financing - commercial mortgage loans
20,573

 
25,698

Repurchase agreements - real estate securities

 
39,035

Derivative instruments, at fair value
515

 
357

Interest payable
2,251

 
1,544

Distributions payable
3,866

 
3,917

Accounts payable and accrued expenses
5,291

 
4,510

Due to affiliates
2,970

 
6,421

Total liabilities
$
1,227,541

 
$
973,322

Commitment and Contingencies (See Note 8)


 


Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding as of March 31, 2018 and December 31, 2017

 

Common stock, $0.01 par value, 949,999,000 shares authorized, 31,600,114 and 31,834,072 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively
318

 
320

Additional paid-in capital
699,888

 
704,101

Accumulated other comprehensive income (loss)

 

Accumulated deficit
(100,032
)
 
(94,082
)
Total stockholders' equity
600,174

 
610,339

Total liabilities and stockholders' equity
$
1,827,715

 
$
1,583,661

 
 
 
 
(1) Includes $20.2 million and $48.7 million of cash held by servicer related to CLO loan payoffs as of March 31, 2018 and December 31, 2017, respectively.

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

1


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for share and per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Interest income:
 
 
 
Interest income
$
29,408

 
$
18,879

Less: Interest expense
18,674

 
5,428

Net interest income
10,734

 
13,451

Expenses:
 
 
 
Asset management and subordinated performance fee
2,241

 
2,312

Acquisition fees and acquisition expenses
65

 
624

Administrative services expenses
3,196

 
855

Professional fees
2,226

 
767

Other expenses
1,325

 
606

Total expenses
9,053

 
5,164

Other (income)/loss:
 
 
 
Loan loss (recovery)/provision
82

 
612

Realized (gain)/loss on commercial mortgage loans held-for-sale
28

 
247

Realized (gain)/loss on commercial mortgage loans held-for-sale, measured at fair value
(2,304
)
 

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

 
29

Unrealized (gain)/loss on commercial mortgage loans held-for-sale

 
1,350

Unrealized (gain)/loss on commercial mortgage loans held-for-sale, measured at fair value
(635
)
 

Unrealized (gain)/loss on derivatives
197

 

Realized (gain)/loss on derivatives
(1,246
)
 

Total other (income)/loss
$
(3,878
)
 
$
2,238

Income/(loss) before taxes
5,559

 
6,049

Provision for income tax
263

 

Net income
$
5,296

 
$
6,049

 
 
 
 
Basic net income per share
$
0.17

 
$
0.19

Diluted net income per share
$
0.17

 
$
0.19

Basic weighted average shares outstanding
31,670,518

 
31,740,256

Diluted weighted average shares outstanding
31,684,832

 
31,750,045


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
(Dollars in thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Net income
$
5,296

 
$
6,049

Unrealized gain (loss) on available-for-sale securities

 
1,388

Comprehensive income attributable to Benefit Street Partners Realty Trust, Inc.
$
5,296

 
$
7,437


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
(Dollars 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, 2017
 
31,834,072

 
$
320

 
$
704,101

 
$

 
$
(94,082
)
 
$
610,339

Common stock repurchases
 
(421,809
)
 
(4
)
 
(7,826
)
 

 

 
(7,830
)
Common stock issued through distribution reinvestment plan
 
187,851

 
2

 
3,571

 

 

 
3,573

Share-based compensation
 

 

 
42

 

 

 
42

Net income
 

 

 

 

 
5,296

 
5,296

Distributions declared
 

 

 

 

 
(11,246
)
 
(11,246
)
Other comprehensive income
 

 

 

 

 

 

Balance, March 31, 2018
 
31,600,114

 
$
318

 
$
699,888

 
$

 
$
(100,032
)
 
$
600,174



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
(Dollars in thousands)
(Unaudited)



 
Three Months Ended March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
5,296

 
$
6,049

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Premium amortization and (discount accretion), net
(1,006
)
 
(634
)
Accretion of deferred commitment fees
(346
)
 
(538
)
Amortization of deferred financing costs
7,966

 
694

Share-based compensation
42

 
15

Change in unrealized losses on commercial mortgage loans held-for-sale

 
1,597

Change in unrealized losses on commercial mortgage loans held-for-sale, measured at fair value
(635
)
 

Change in unrealized losses on derivative instruments
197

 

Change in unrealized losses on real estate securities

 
29

Loan loss (recovery)/provision
82

 
612

Origination of commercial mortgage loans, held-for-sale
(123,522
)
 

Proceeds from sale of commercial mortgage loans, held-for-sale
83,050

 
11,790

Changes in assets and liabilities:
 
 
 
Accrued interest receivable
(427
)
 
688

Prepaid expenses and other assets
(1,617
)
 
(41
)
Accounts payable and accrued expenses
781

 
291

Due to affiliates
(3,451
)
 
(323
)
Interest payable
707

 
100

Net cash (used in)/provided by operating activities
$
(32,883
)
 
$
20,329

Cash flows from investing activities:
 
 
 
Origination and purchase of commercial mortgage loans, held for investment
$
(374,657
)
 
$
(93,884
)
Receivable for loan repayment
631

 

Proceeds from sale of real estate securities

 
24,681

Purchase of derivative instruments
(520
)
 

Principal repayments received on commercial mortgage loans, held for investment
149,711

 
80,079

Net cash (used in)/provided by investing activities
$
(224,835
)
 
$
10,876

Cash flows from financing activities:
 
 
 
Common stock repurchases
$
(7,830
)
 
$
(9,459
)
Repayments of collateralized loan obligations
(141,950
)
 
(49,456
)
Borrowings on repurchase agreements - commercial mortgage loans
$
681,559

 
89,085

Repayments of repurchase agreements - commercial mortgage loans
(245,940
)
 
(5,801
)
Borrowings on repurchase agreements - real estate securities
39,146

 
196,503

Repayments of repurchase agreements - real estate securities
(78,181
)
 
(210,968
)
Repayments on other financing - commercial mortgage loans
(5,273
)
 

Payments of deferred financing costs

 
(334
)
Distributions paid
(7,700
)
 
(10,365
)
Net cash (used in)/provided by financing activities
$
233,831

 
$
(795
)
Net change in cash, cash equivalents and restricted cash
$
(23,887
)
 
$
30,410

Cash, cash equivalents and restricted cash beginning of period
91,708

 
123,069

Cash, cash equivalents and restricted cash, end of period
$
67,821

 
$
153,479


5


BENEFIT STREET PARTNERS REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)


 
Three Months Ended March 31,
 
2018
 
2017
Supplemental disclosures of cash flow information:
 
 
 
Interest paid
$
10,001

 
$
4,634

Supplemental disclosures of non-cash flow information:
 
 
 
Distributions payable
$
3,866

 
$
5,562

Common stock issued through distribution reinvestment plan
3,573

 
5,734

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

 
45,513

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash at end of period:
 
 
 
Cash and cash equivalents
57,670

 
148,372

Restricted cash

10,151

 
5,107

Cash, cash equivalents and restricted cash, end of period
$
67,821

 
$
153,479

 
 
 
 

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
March 31, 2018
(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 investments secured by properties located within and outside the United States. The Company was incorporated in Maryland on November 15, 2012 and commenced operations on May 14, 2013.
The Company made a tax election to be treated as a real estate investment trust (a "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. The Company, through a subsidiary which is treated as a taxable REIT subsidiary (a "TRS") is indirectly subject to U.S federal, state and local income taxes. The majority 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”), as amended and restated by the Amended and Restated Advisory Agreement executed on January 19, 2018 (the "Amended and Restated 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 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 Company invests in commercial real estate debt investments, which may include first mortgage loans, subordinated mortgage loans, mezzanine loans and participations in such loans. The Company also originates conduit loans which the Company intends to sell through its TRS into commercial mortgage-backed securities ("CMBS") at a profit.
The Company may also invest in commercial real estate securities. 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 collateralized debt obligations ("CDOs").
Note 2 - Summary of Significant Accounting Policies
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.
Certain prior-period amounts have been reclassified to conform with current presentation. In the opinion of management, all normal recurring adjustments considered necessary for a fair statement of the results of the periods presented have been included. The current period’s results of operations will not necessarily be indicative of results in any subsequent reporting period.
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, 2017, which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 16, 2018. There have been no significant changes to the Company's significant accounting policies during the three months ended March 31, 2018.

7

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(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
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 Company has historically incurred both acquisition fees and acquisition expenses payable to the Advisor. Pursuant to the Advisory Agreement, the Advisor is entitled to 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 acquisition of real estate securities) until the aggregate purchase price for all investments acquired reaches $600 million and, separately, reimbursement for insourced acquisition expenses of 0.5%. In September 2017, the Company's aggregate purchase price for all investments acquired reached $600 million, and concurrently terminated the 1.0% acquisition fee payments to the Advisor for all investments subsequent to the limit being reached. The Company continues to reimburse the Advisor for the acquisition expenses pursuant to the Advisory Agreement.
Commercial Mortgage Loans
Held-for-Investment - Commercial mortgage loans that are held for investment purposes and are anticipated to be held until maturity, are carried at cost, net of unamortized acquisition expenses, discounts or premiums. 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.
Held-for-Sale - Commercial mortgage loans that are intended to be sold in the foreseeable future are reported as held-for-sale and are transferred at fair value and recorded at the lower of cost or fair value with changes recorded through the statements of operations. Unamortized loan origination costs for commercial mortgage loans held-for-sale that are carried at the lower of cost or fair value are capitalized as part of the carrying value of the loans and recognized upon the sale of such loans. Amortization of origination costs ceases upon transfer of commercial mortgage loans to held-for-sale. During the quarter ended March 31, 2018, the Company originated a $3.7 million of commercial mortgage loan held-for-sale and sold it during the quarter for net proceeds of approximately $3.7 million.

8

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

Held-for-Sale, Accounted for Under the Fair Value Option - The fair value option provides an option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, and written loan commitments. The Company has elected to measure commercial mortgage loans held-for-sale in the Company's TRS under the fair value option. These commercial mortgage loans are included in the Commercial mortgage loans, held-for-sale, measured at fair value in the consolidated balance sheet. Interest income received on commercial mortgage loans held-for-sale is recorded on the accrual basis of accounting and is included in interest income in the consolidated statements of operations.
As of March 31, 2018 the fair value amount and the contractual principal outstanding of commercial mortgage loans accounted for under the fair value option was $69.5 million and $69.0 million, respectively. As of December 31, 2017, the fair value amount and the contractual principal outstanding of commercial mortgage loans accounted for under the fair value option was $28.5 million. None of the Company's commercial mortgage loans accounted for under the fair value option are in default or are greater than ninety days past due. For the three months ended March 31, 2018 and March 31, 2017, the Company realized gain of $2.3 million and $0.0 million, respectively, relating to the sale of commercial mortgage loans that are accounted for under the fair value option.
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 or decreased through the loan loss provision or recovery on the Company's consolidated statements 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 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 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-

9

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

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.

Income Taxes
The Company has conducted its operations to qualify as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2013. As a REIT, if the Company meets certain organizational and operational requirements and distributes at least 90% of its "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to its stockholders in a taxable year, it will not be subject to U.S. federal income tax on the REIT taxable income that it distributes. The Company did not have any undistributed REIT taxable income for the period ended March 31, 2018 and therefore, has not provided for REIT U.S. federal income tax expense. However, even if the Company qualifies for taxation as a REIT, the Company and its subsidiaries may be subject to a variety of taxes, including payroll taxes and certain state and local income, property, excise and franchise taxes. The Company could also be subject to U.S. federal income tax in certain circumstances.
The Company owns a subsidiary that has elected to be treated as a taxable REIT subsidiary (a "TRS") for U.S. federal, state and local income taxes, where applicable, as a C corporation. TRSs can participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria and are conducted within the parameters of certain limitations established by the Code. For U.S. federal income tax purposes, the Company’s TRS is not consolidated with the Company, but instead taxed as a separate C corporation.
For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in its TRS. The Company's TRS recognized pre-tax income of approximately $1.7 million and U.S. federal, state and local income tax expense of $0.3 million for the three months ended March 31, 2018, which has been included on the accompanying consolidated statements of operations.
The Company’s tax returns are subject to audit by taxing authorities. Generally, as of March 31, 2018, the tax years 2014, 2015, 2016 and 2017 remain open to examination by the major taxing jurisdictions in which the Company is subject to taxes. The Company does not expect tax expense to have an impact on either short or long-term liquidity or capital needs. Under GAAP, a tax benefit related to an income tax position may be recognized when it is more likely than not that the position will be sustained upon examination by the tax authorities based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement.
The Company has assessed its tax positions for all open tax years beginning with its taxable year ended December 31, 2014 and concluded that there were no uncertainties to be recognized. The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as provision for income taxes.
Enacted on December 22, 2017, the recently passed Tax Cuts and Jobs Act ("TCJA") made many significant changes to the U.S. federal income tax laws applicable to businesses and their owners, including REITs and their stockholders, and may lessen the relative competitive advantage of operating as a REIT rather than as a C corporation. Pursuant to this legislation, as of January 1, 2018, the U.S. federal income tax rate applicable to corporations is reduced to 21%, and the corporate alternative minimum tax is repealed.
In addition, through taxable years ending in 2025, the highest marginal income tax rate applicable to individuals, estates and trusts is reduced to 37% and those taxpayers may deduct up to 20% of certain pass-through income, including ordinary REIT dividends that are not "capital gain dividends" or "qualified dividend income," subject to certain limitations. For taxpayers qualifying for the full deduction, the effective maximum tax rate on ordinary REIT dividends would be 29.6% (excluding the 3.8% net investment income tax).
The reduced corporate tax rate applies to the Company's TRS and any other TRS it forms. Changes in tax rates and tax laws are accounted for in the period of enactment. The amounts recorded in the consolidated statement of operations are provisional. Due to the timing of the enacted legislation, as well as the technical corrections, amendments or administrative guidance that could clarify the treatment of certain provisions, the Company will continue to evaluate its conclusions and update its estimates as necessary.
Commencing in taxable years beginning after December 31, 2017, Section 163(j) of the Code, as amended by TCJA, limits the deductibility of net interest expense paid or accrued on debt properly allocable to a trade or business to 30% of “adjusted taxable income,” ("ATI") subject to certain exceptions. The Company does not expect to be subject to this limitation because it does not expect to have interest expense in excess of the sum of its interest income and 30% of its ATI. However, the

10

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

limitation could cause the Company’s TRS or any other TRS it forms to have greater taxable income and thus potentially greater corporate tax liability.
Derivatives and Hedging Activities
In the normal course of business, the Company is exposed to the effect of interest rate changes and may undertake a strategy to limit these risks through the use of derivatives.  The Company uses derivatives primarily to economically hedge against interest rates, CMBS spreads and macro market risk in order to minimize volatility.  The Company may use a variety of derivative instruments that are considered conventional, such as interest rate swaps, Treasury note futures and credit derivatives on various indices including CMBX and CDX.
The Company recognizes all derivatives on the consolidated balance sheets at fair value.  The Company does not designate derivatives as hedges to qualify for hedge accounting for financial reporting purposes and therefore any net payments under, or fluctuations in the fair value of these derivatives have been recognized currently in unrealized gain/(loss) on derivative instruments in the accompanying consolidated statements of operations. The Company records derivative asset and liability positions on a gross basis with any collateral posted with or received from counterparties recorded separately on the Company’s consolidated balance sheets within the Restricted cash line of the consolidated balance sheets. Certain derivatives that the Company has entered into are subject to master netting agreements with its counterparties, allowing for netting of the same transaction, in the same currency, on the same date.
Per Share Data
The 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 outstanding if potential shares of common stock with a dilutive effect have been issued in connection with the restricted stock plan, except when doing so would be anti-dilutive.
Reportable Segments
The Company has determined that it has three reportable segments based on how the chief operating decision maker reviews and manages the business. The three reporting segments are as follows:
The real estate debt business which is focused on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
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.
The real estate conduit operated business through the Company's TRS, which is focused on originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit.
See Note 13 - Segment Reporting for further information regarding the Company's segments.
Recently Adopted Accounting Pronouncements
          
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09. ASU 2014-09 broadly amends the accounting guidance for revenue recognition. ASU 2014-09 is effective for the first interim or annual period beginning after December 15, 2017, and is to be applied retrospectively. The Company adopted this guidance on January 1, 2018 and it did not have a material impact on our consolidated financial statements.

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 Company adopted this guidance on January 1, 2018. The adoption of this guidance did not have a material impact 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. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. The Company

11

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

adopted this guidance on January 1, 2018 and applied the guidance retrospectively to our prior period consolidated statement of cash flows.
Accounting Pronouncements not yet Adopted
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 February 2018, the FASB issued guidance that allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. The amendments become effective for reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
Note 3 - Commercial Mortgage Loans
The following table is a summary of the Company's commercial mortgage loans, held-for-investment, carrying values by class (dollars in thousands):
 
March 31, 2018
 
December 31, 2017
Senior loans
$
1,593,867

 
$
1,368,425

Mezzanine loans
35,532

 
35,087

Subordinated loans

 

Total gross carrying value of loans
1,629,399

 
1,403,512

Less: Allowance for loan losses
1,548

 
1,466

Total commercial mortgage loans, held for investment, net
$
1,627,851

 
$
1,402,046

The following table presents the activity in the Company's allowance for loan losses (dollars in thousands):
 
Three Months Ended March 31, 2018
 
2018
 
2017
Beginning of period
$
1,466

 
$
2,181

Loan loss (recovery)/provision
82

 
612

Charge-offs

 

Recoveries

 

Ending allowance for loan losses
$
1,548

 
$
2,793

As of March 31, 2018 and December 31, 2017, the Company's total commercial mortgage loan portfolio, excluding commercial mortgage loans accounted for under the fair value option, comprised of 82 and 69 loans, respectively.

12

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

The following table represents the composition by loan type of the Company's commercial mortgage loans portfolio, excluding commercial mortgage loans, held-for-sale, measured at fair value (dollars in thousands).
 
March 31, 2018
December 31, 2017
Loan Type
 
Par Value
 
Percentage
 
Par Value
 
Percentage
Multifamily
 
$
645,571

 
39.4
%
 
$
505,189

 
35.9
%
Office
 
441,664

 
27.0
%
 
455,698

 
32.4
%
Retail
 
210,247

 
12.9
%
 
209,598

 
14.9
%
Hospitality
 
284,975

 
17.4
%
 
184,025

 
13.1
%
Industrial
 
53,208

 
3.3
%
 
53,208

 
3.7
%
Mixed Use
 

 
%
 

 
%
Total (1)
 
$
1,635,665

 
100.0
%
 
$
1,407,718

 
100.0
%
________________________
(1) Excludes $69.0 million and $28.5 million in commercial mortgage loans held-for-sale, measured at fair value in the Company's TRS segment as of March 31, 2018 and December 31, 2017, respectively.
As of March 31, 2018 and December 31, 2017, the Company's total commercial mortgage loans, held-for-sale, measured at fair value comprised of 9 and 3 loans, respectively.
The following table represents the composition by loan type of the Company's commercial mortgage loans, held-for-sale, measured at fair value (dollars in thousands).
 
March 31, 2018
December 31, 2017
Loan Type
 
Par Value
 
Percentage
 
Par Value
 
Percentage
Multifamily
 
$
14,395

 
20.9
%
 
$
28,531

 
100.0
%
Industrial
 
9,600

 
13.9
%
 

 
%
Retail
 
33,955

 
49.2
%
 

 
%
Hospitality
 
4,526

 
6.6
%
 

 
%
Office
 
6,500

 
9.4
%
 

 
%
Total
 
$
68,976

 
100.0
%
 
$
28,531

 
100.0
%

Credit Characteristics
As part of the Company's process for monitoring the credit quality of its commercial mortgage loans, excluding those held-for-sale, measured at fair value, it performs a quarterly loan portfolio assessment and assigns risk ratings to each of its loans. The loans are scored on a scale of 1 to 5 as follows:
Investment Rating
 
Summary Description
1
 
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, excluding loans classified as commercial mortgage loans, held-for-sale, measured at fair value within the consolidated balance sheet, are assigned an initial risk rating of 2.0. As of March 31, 2018 and December 31, 2017, the weighted average risk rating of loans was 2.2 and 2.2, respectively. As of March 31, 2018 and December 31, 2017, the Company did not have any loans that were past due on their payments, in non-accrual status or impaired.

13

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

For the three months ended March 31, 2018 and March 31, 2017, the activity in the Company's commercial mortgage loans, held-for-investment portfolio was as follows (dollars in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Balance at Beginning of Year
$
1,402,046

 
$
1,046,556

Acquisitions and originations
377,658

 
93,140

Principal repayments
(149,711
)
 
(86,079
)
Discount accretion and premium amortization
1,006

 
628

Loans transferred to commercial real estate loans, held-for-sale

 
(45,513
)
Net fees capitalized into carrying value of loans
(3,066
)
 
744

Loan loss recovery/(provision)
(82
)
 
(612
)
Balance at End of Period
$
1,627,851

 
$
1,008,864

Note 4 - Real Estate Securities
As of March 31, 2018 and December 31, 2017 the Company held no CMBS positions. For the three months ended March 31, 2017, the Company recognized a loss of less than $0.03 million recorded within the realized (gain) loss on sale of real estate securities line in the consolidated statements of operations.

The following table provides information on the amounts of gains (losses) on the Company's real estate securities, CMBS, available-for-sale (dollars in thousands):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Unrealized gains (losses) available-for-sale securities
 
$

 
$
1,037

Reclassification of net (gains) losses on available-for-sale securities included in net income (loss)
 

 
351

Unrealized gains (losses) available-for-sale securities, net of reclassification adjustment
 
$

 
$
1,388

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"), U.S Bank National Association (the "USB Repo Facility"), and Credit Suisse AG (the "CS Repo Facility" and together with JPM Repo Facility, GS Repo Facility, USB Repo Facility, the "Repo Facilities").
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. Borrowings under the CS Repo Facility accrue interest at per annum rates generally equal to the sum of (i) the applicable LIBOR index rate plus (ii) a margin of 2.50% depending on the attributes of the purchased assets.
The Company entered into a repurchase facility with Barclays Bank PLC (the "Barclays Facility") on September 19, 2017. Borrowings under the Barclays Facility accrue interest, at the Company's option, at per annum rates equal to (i) a spread over the Base Rate of 1.75% or (ii) a spread over the Eurodollar Rate of 2.75%, and provides for quarterly interest-only payments, with all principal and interest outstanding being due on the maturity date.

14

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)


The details of the Company's Repo Facilities and the Barclays Facility at March 31, 2018 and December 31, 2017 are as follows (dollars in thousands):
As of March 31, 2018
 
 
 
 
 
 
 
Ending Weighted Average Interest Rate
 
Term Maturity
Repurchase Facility
 
Committed Financing
 
Amount Outstanding
 
Interest Expense (1)
 
 
JPM Repo Facility (2)
 
$
520,000

 
$
406,996

 
$
3,154

 
4.12
%
 
1/30/2020
GS Repo Facility (3)
 
250,000

 
13,500

 
185

 
4.13
%
 
12/27/2018
USB Repo Facility (4)
 
100,000

 

 
73

 
n/a

 
6/15/2020
CS Repo Facility (5)
 
250,000

 
80,814

 
662

 
4.10
%
 
8/30/2018
Barclays Facility (6)
 
75,000

 

 
138

 
n/a

 
9/19/2019
Total
 
$
1,195,000

 
$
501,310

 
$
4,212

 
 
 
 
__________________________
(1) Includes amortization of deferred financing costs.
(2) On January 30, 2018 the committed financing amount was upsized from $300 million to $520 million and maturity date amended to January 30, 2020. Includes a one-year extension at the Company's option.
(3) Includes a one-year extension at the Company’s option, which may be exercised upon the satisfaction of certain conditions.
(4) Includes two one-year extensions at the option of an indirect wholly-owned subsidiary of the Company, which may be exercised upon the satisfaction of certain conditions.
(5) Prior to the end of each calendar quarter, the Company may request an extension of the termination date for an additional 364 days from the end of such calendar quarter subject to the satisfaction of certain conditions and approvals.
(6) Includes a one-year extension at the Company's option.
As of December 31, 2017
 
 
 
 
 
 
 
Ending Weighted Average Interest Rate (1)
 
Term Maturity
Repurchase Facility
 
Committed Financing
 
Amount Outstanding
 
Interest Expense (1) (2)
 
 
JPM Repo Facility (3)
 
$
300,000

 
$
42,042

 
$
2,547

 
3.29
%
 
6/12/2019
GS Repo Facility (4)
 
250,000

 
13,500

 
277

 
3.38
%
 
12/27/2018
USB Repo Facility (5)
 
100,000

 

 

 
N/A

 
6/15/2020
CS Repo Facility (6)
 
250,000

 
10,148

 

 
N/A

 
8/30/2018
Barclays Facility (7)
 
75,000

 

 

 
N/A

 
9/19/2019
Total
 
$
975,000

 
$
65,690

 
$
2,824

 
 
 
 
_______________________
(1) For the period ended March 31, 2017.
(2) Includes amortization of deferred financing costs.
(3) Includes a one-year extension at the Company's option.
(4) Includes a one-year extension at the Company’s option, which may be exercised upon the satisfaction of certain conditions.
(5) Includes two one-year extensions at the option of an indirect wholly-owned subsidiary of the Company, which may be exercised upon the satisfaction of certain conditions.
(6) Prior to the end of each calendar quarter, the Company may request an extension of the termination date for an additional 364 days from the end of such calendar quarter subject to the satisfaction of certain conditions and approvals.
(7) Includes a one-year extension a tthe Company's option.
We expect to use the advances from the Repo Facilities and the Barclays Facility to finance the acquisition or origination of eligible loans, including first mortgage loans, subordinated mortgage loans, mezzanine loans and participation interests therein.
The Repo Facilities generally provide that in the event of a decrease in the value of 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 March 31, 2018 and December 31, 2017, the Company is in compliance with all debt covenants.

15

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)


Other financing - Commercial Mortgage Loans
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 4.0%. The PWB Financing initially matures on June 9, 2019, with two one-year extension options at the Company’s option. As of March 31, 2018 and December 31, 2017, the Company had $20.9 million and $26.2 million, respectively, of outstanding principal under the PWB Financing. The Company incurred $0.5 million of interest expense on the PWB Financing for the three months ended March 31, 2018, including amortization of deferred financing costs.
Repurchase Agreements - Real Estate Securities
The Company has entered into various Master Repurchase Agreements (the "MRAs") that allow the Company to sell real estate securities while providing a fixed repurchase price for the same real estate securities in the future. The repurchase contracts on each security under an MRA generally mature in 30-90 days and terms are adjusted for current market rates as necessary.
Below is a summary of the Company's MRAs as of March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
 
 
 
 
 
Weighted Average
Counterparty
 
Amount Outstanding
 
Accrued Interest
 
Collateral Pledged (*)
 
Interest Rate
 
Days to Maturity
As of March 31, 2018
 
 
 
 
 
 
 
 
 
 
JP Morgan Securities LLC
 
$

 
$

 
$

 
N/A

 
N/A
Total
 
$

 
$

 
$

 
N/A

 
N/A
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
 
 
 
 
JP Morgan Securities LLC
 
$
39,035

 
$
11

 
$
56,044

 
3.32
%
 
26
Total
 
$
39,035

 
$
11

 
$
56,044

 
3.32
%
 
26
________________________
* Includes $56.0 million Tranche C of RFT 2015-FL1 CLO held by the Company, which eliminates within the Real estate securities, at fair value line of the consolidated balance sheets as of December 31, 2017.
On February 15, 2018, the Company repaid the outstanding amount of $39.0 million.
Collateralized Loan Obligation
On February 15, 2018, the Company called all of the outstanding notes issued by RFT 2015-FL1. The outstanding principal of the notes on the date of the call was $145 million. The Company recognized all the remaining unamortized deferred financing costs of $6.4 million recorded within the Interest expense line of the consolidated statements of operations, which was a non-cash charge.
As of March 31, 2018 and December 31, 2017 the notes issued by BSPRT 2017-FL1 Issuer, a wholly owned indirect subsidiary of the Company, are collateralized by interests in a pool of 25 mortgage assets having a total principal balance of $418.1 million (the “2017-FL1 Mortgage Assets”) originated by a subsidiary of the Company. The sale of the 2017-FL1 Mortgage Assets to BSPRT 2017-FL1 Issuer is governed by a Mortgage Asset Purchase Agreement dated as of June 29, 2017, between the Company and BSPRT 2017-FL1 Issuer.
As of March 31, 2018 and December 31, 2017 the notes issued by BSPRT 2017-FL2 Issuer, a wholly owned indirect subsidiary of the Company, are collateralized by interests in a pool of 20 mortgage assets having a total principal balance of $440.7 million (the “2017-FL2 Mortgage Assets”) originated by a subsidiary of the Company. The sale of the 2017-FL2 Mortgage Assets to BSPRT 2017-FL2 Issuer is governed by a Mortgage Asset Purchase Agreement dated as of November 29, 2017, between the Company and BSPRT 2017-FL2 Issuer.

16

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

The Company, through its wholly-owned subsidiaries, holds the preferred equity tranches of BSPRT 2017-FL1 and BSPRT 2017-FL2 which is valued at approximately $127.0 million. The following table represents the terms of the notes issued by BSPRT 2017-FL1 Issuer and BSPRT 2017-FL2 Issuer, respectively (dollars in thousands):
CLO Facility
 
As of March 31, 2018
 
Par Value Issued
 
Par Value Outstanding (1)
 
Interest Rate
 
Maturity Date
2017-FL1 Issuer
 
Tranche A
 
223,600

 
223,600

 
1M LIBOR + 135
 
7/1/2027
2017-FL1 Issuer
 
Tranche B
 
48,000

 
48,000

 
1M LIBOR + 240
 
7/1/2027
2017-FL1 Issuer
 
Tranche C
 
67,900

 
67,900

 
1M LIBOR + 425
 
7/1/2027
2017-FL2 Issuer
 
Tranche A
 
237,970

 
237,970

 
1M LIBOR + 82
 
10/15/2034
2017-FL2 Issuer
 
Tranche A-S
 
36,357

 
36,357

 
1M LIBOR + 110
 
10/15/2034
2017-FL2 Issuer
 
Tranche B
 
26,441

 
26,441

 
1M LIBOR + 140
 
10/15/2034
2017-FL2 Issuer
 
Tranche C
 
25,339

 
25,339

 
1M LIBOR + 215
 
10/15/2034
2017-FL2 Issuer
 
Tranche D
 
35,255

 
35,255

 
1M LIBOR + 345
 
10/15/2034
 
 
 
 
$
700,862

 
$
700,862

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLO Facility
 
As of December 31, 2017
 
Par Value Issued
 
Par Value Outstanding (1) (2)
 
Interest Rate
 
Maturity Date
2015-FL1 Issuer
 
Tranche A
 
$
231,345

 
$
79,109

 
1M LIBOR + 175
 
8/1/2030
2015-FL1 Issuer
 
Tranche B
 
42,841

 
42,841

 
1M LIBOR + 388
 
8/1/2030
2015-FL1 Issuer
 
Tranche C
 
76,044

 
20,000

 
1M LIBOR + 525
 
8/1/2030
2017-FL1 Issuer
 
Tranche A
 
223,600

 
223,600

 
1M LIBOR + 135
 
7/1/2027
2017-FL1 Issuer
 
Tranche B
 
48,000

 
48,000

 
1M LIBOR + 240
 
7/1/2027
2017-FL1 Issuer
 
Tranche C
 
67,900

 
67,900

 
1M LIBOR + 425
 
7/1/2027
2017-FL2 Issuer
 
Tranche A
 
237,970

 
237,970

 
1M LIBOR + 82
 
10/15/2034
2017-FL2 Issuer
 
Tranche A-S
 
36,357

 
36,357

 
1M LIBOR + 110
 
10/15/2034
2017-FL2 Issuer
 
Tranche B
 
26,441

 
26,441

 
1M LIBOR + 140
 
10/15/2034
2017-FL2 Issuer
 
Tranche C
 
25,339

 
25,339

 
1M LIBOR + 215
 
10/15/2034
2017-FL2 Issuer
 
Tranche D
 
35,255

 
35,255

 
1M LIBOR + 345
 
10/15/2034
 
 
 
 
$
1,051,092

 
$
842,812

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1) Excludes $16.0 million of Tranche E notes and $14.9 million of Tranche F notes issued by BSPRT 2017-FL2 Issuer, held by the Company, which are eliminated within the collateralized loan obligation line of the consolidated balance sheets as of March 31, 2018 and December 31, 2017.
(2) Excludes $56.0 million of Tranche C notes issued by RFT 2015-FL1 Issuer, held by the Company, which eliminates within the collateralized loan obligation line of the consolidated balance sheets as of December 31, 2017.

17

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

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 March 31, 2018 and December 31, 2017 as the Company is the primary beneficiary of the VIE. The Company is the primary beneficiary of the CLOs because (i) the Company has the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIEs or the obligation to absorb losses of the VIEs that could be significant to the VIE.
Assets (dollars in thousands)
 
March 31, 2018
 
December 31, 2017
Cash (1)
 
$
20,332

 
$
49,017

Commercial mortgage loans, held for investment, net of allowance (2)
 
836,106

 
1,033,427

Accrued interest receivable
 
2,518

 
4,212

Total Assets
 
$
858,956

 
$
1,086,656

 
 
 
 
 
Liabilities
 
 
 
 
Notes payable (3)(4)
 
$
721,676

 
$
912,800

Interest payable
 
1,133

 
1,462

Total Liabilities
 
$
722,809

 
$
914,262

________________________
(1) Includes $20.2 million and $48.7 million of cash held by the servicer related to CLO loan payoffs as of March 31, 2018 and December 31, 2017.
(2) The balance is presented net of allowance for loan loss of $0.9 million and $1.3 million as of March 31, 2018 and December 31, 2017, respectively.
(3) Includes $16.0 million of Tranche E notes and $14.9 million of Tranche F notes issued by 2017-FL2 Issuer held by the Company as of March 31, 2018 and December 31, 2017. The notes held by the Company are eliminated within the Collateral loan obligations line of the consolidated balance sheets. Includes $55.8 million of Tranche C of Company issued CLO held by the Company as of December 31, 2017.
(4) The balance is presented net of deferred financing cost and discount of $10.1 million and $16.9 million as of March 31, 2018 and December 31, 2017, 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 months ended March 31, 2018 and 2017 (dollars in thousands, except share amounts):
 
Three Months Ended March 31,
 
2018
 
2017
Net income (in thousands)
$
5,296

 
$
6,049

Basic weighted average shares outstanding
31,670,518

 
31,740,256

Unvested restricted shares
14,314

 
9,789

Diluted weighted average shares outstanding
31,684,832

 
31,750,045

Basic net income per share
$
0.17

 
$
0.19

Diluted net income per share
$
0.17

 
$
0.19

Note 7 - Common Stock
As of March 31, 2018 and December 31, 2017, the Company had 31,600,114 and 31,834,072 shares of common stock outstanding, respectively, including shares issued pursuant to the Dividend Reinvestment Plan ("DRIP") and unvested restricted shares.
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.

18

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

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. In August 2017, the Company’s board of directors authorized and declared a distribution calculated daily at a rate of $0.00394521 per day, which is equivalent to $1.44 per annum, per share of common stock. 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 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 most recent book value per share, computed in accordance with GAAP. The DRIP offer price for January 2018, February 2018, March 2018 and April 2018 was $19.02 per share, which is the Company's estimated per share NAV as of September 30, 2017. Starting in June 2018, the DRIP offer price will be $18.99, which is the GAAP book value as of March 31, 2018.
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 $11.2 million during the three months ended March 31, 2018, comprised of $7.7 million in cash and $3.6 million in shares of common stock issued under the DRIP. The Company distributed $16.0 million during the three months ended March 31, 2017, comprised of $10.4 million in cash and $5.7 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 most recent 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.
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

19

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(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 March 31, 2018:
 
 
Number of Requests
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative as of December 31, 2017
 
2,125

 
1,991,391

 
$
21.36

January 1 - March 31, 2018(1)
 
889

 
421,809

 
18.56

Cumulative as of March 31, 2018
 
3,014

 
2,413,200

 
$
20.88

________________________
(1) Reflects shares repurchased in January 2018 pursuant to repurchase requests submitted for the fiscal semester ended December 31, 2017. As permitted under the SRP, the Board authorized repurchases up to the amount of proceeds reinvested through our DRIP. As a result, redemption requests in the amount of 185,689 shares were not fulfilled.
We currently expect to repurchase shares under the SRP for the fiscal semester ended June 30, 2018 in July 2018. Since the Company’s most recent estimated per-share NAV is $19.02 and the Company’s GAAP book value per share as of March 31, 2018 is $18.99, we expect the SRP repurchase price for the fiscal semester ended June 30, 2018 will be $18.99 and we expect to continue to limit repurchases to the amounts reinvested pursuant to our DRIP plan.
Note 8 - Commitments and Contingencies
Unfunded Commitments for Commercial Mortgage Loans
As of March 31, 2018 and December 31, 2017, the Company had the below unfunded commitments to the Company's borrowers (dollars in thousands):
Funding Expiration
 
March 31, 2018
 
December 31, 2017
2018
 
33,339

 
36,475

2019
 
17,737

 
26,465

2020
 
41,987

 
20,598

2021
 
98,914

 

Total
 
$
191,977

 
$
83,538

Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. The Company has no knowledge of material legal or regulatory proceedings pending or known to be contemplated against the Company at this time.
Note 9 - Related Party Transactions and Arrangements
Advisory Agreement Fees and Reimbursements
Pursuant to the Advisory Agreement, the Company makes or was required to make the following payments and reimbursements to the Advisor:
The Company reimburses the Advisor’s costs of providing services pursuant to the Advisory Agreement, except the salaries and benefits paid by the Advisor to the Company’s executive officers.

20

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

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, our Advisor will be entitled to 15.0% of the excess total return; provided that in no event will the annual subordinated performance fee payable to our Advisor exceed 10.0% of the aggregate total return for such year.
Until September 2017, the Company paid its Advisor an acquisition fee of 1.0% of the principal amount funded by us to originate or acquire commercial mortgage loans and 1.0% of the anticipated net equity funded by the Company to acquire real estate securities.
The Company reimburses the Advisor for insourced expenses incurred by the Advisor on the Company‘s behalf related to selecting, evaluating, originating and acquiring investments in an amount up to 0.5% of the principal amount funded by the Company to originate or acquire commercial mortgage loans and up to 0.5% of the anticipated net equity funded by the Company to acquire real estate securities investments.
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. The types of fees and reimbursements paid to the Former Advisor were similar to those paid to the Advisor prior to September 2017. In addition, prior to January 2016, the Company paid dealer-manager fees and selling commissions to an affiliate ("Former Dealer Manager") of the Former Advisor.
The table below shows the compensation and reimbursement to the Former Advisor, its affiliates, entities under common control with the Former Advisor and the Former Dealer Manager incurred for services relating to the Company's public offering during the three months ended March 31, 2018 and 2017, and the associated payable as of March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Total commissions and fees incurred from the Former Dealer Manager
 
$

 
$

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
 
$

 
$

 
 
Payable as of
 
 
March 31, 2018
 
December 31, 2017
Total commissions and fees incurred from the Former Dealer Manager
 
$

 
$

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

The payables as of March 31, 2018 and December 31, 2017 in the table above are included in Due to affiliates on the Company's consolidated balance sheets.

21

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

The table below shows the costs incurred due to arrangements with our Advisor and its affiliates during the three months ended March 31, 2018 and March 31, 2017, and the associated payable as of March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
Three Months Ended March 31,
 
Payable as of

 
2018
 
2017
 
March 31, 2018
 
December 31, 2017
Acquisition fees and acquisition expenses (1)
 
$
65

 
$
624

 
$

 
$

Administrative services expenses
 
3,196

 
855

 
1,596

 
3,480

Asset management and subordinated performance fee
 
2,241

 
2,312

 
741

 
2,315

Other related party expenses (2)
 
199

 
48

 
153

 
146

Total related party fees and reimbursements
 
$
5,701

 
$
3,839

 
$
2,490

 
$
5,941

________________________
(1) Total acquisition fees and expenses paid during the three months ended March 31, 2018 and March 31, 2017 were $1.9 million and $1.4 million respectively, of which $1.9 million and $0.8 million were capitalized within the commercial mortgage loans, held for investment line of the Company's consolidated balance sheet.
(2) Included in other expenses in the Company's consolidated statement of operations.
The payables as of March 31, 2018 and December 31, 2017 in the table above are included in Due to affiliates on the Company's consolidated balance sheets.
Share Ownership
On February 14, 2018 (the “Commitment Date”) the Company entered into stock purchase agreements (collectively, the “Purchase Agreements”), by and between the Company and certain institutional investors (the “Institutional Investors”), certain officers of the Company, and certain owners, employees and associates of the Advisor and its affiliates (collectively, the “Manager Investors,” and together with the Institutional Investors, the “Investors”), pursuant to which the Investors committed to purchase an aggregate amount of up to approximately $97.0 million of common stock (including Manager Investor commitments of approximately $32.1 million) of the Company in one or more closings. The purchase price will be $16.87 per share. The timing of any closing, and the amount of shares to be sold at such Closing, will be determined by the Company in its sole discretion, subject to certain limitations. As described in the Purchase Agreements, the Company may enter into additional Purchase Agreements with other investors within 12 months of the Commitment Date. As of May 14, 2018 the Company has not sold any shares pursuant to the Purchase Agreements.
Other Transactions
On February 22, 2018, the Company purchased commercial mortgage loans, held-for-sale from an entity that is an affiliate of our Advisor, for an aggregate purchase price of $27.8 million. The purchase of the commercial mortgage loans and the $27.8 million purchase price were approved by the Company’s board of directors.
In December 2017, the Company purchased a commercial mortgage loan from an entity that is an affiliate of our Advisor, for an aggregate purchase price of $17.1 million and is included in Commercial mortgage loans, held-for-investment in the consolidated balance sheet. The purchase of the commercial mortgage loan and the $17.1 million purchase price were approved by the Company’s board of directors and the Nominating and Corporate Governance Committee, which consists solely of independent directors.
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.

22

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

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.
The determination of where an asset or liability falls in the above hierarchy requires significant judgment and factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.
The Company has implemented valuation control processes to validate the fair value of the Company's financial instruments measured at fair value including those derived from pricing models. These control processes are designed to assure that the values used for financial reporting are based on observable inputs wherever possible. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and the assumptions are reasonable.

Financial Instruments Measured at Fair Value on a Recurring Basis
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. As of March 31, 2018 and December 31, 2017 the Company had no CMBS.
Commercial mortgage loans held-for-sale, measured at fair value in the Company's TRS are initially recorded at transaction proceeds, which are considered to be the best initial estimate of fair value. The Company engaged the services of a third party independent valuation firm to determine fair value of investments held by the Company. Fair value is determined using a discounted cash flow model that primarily considers changes in interest rates and credit spreads, weighted average life and current performance of the underlying collateral. The Company classified the commercial mortgage loans held-for-sale, measured at fair value as Level III.
The fair value for Treasury note futures is derived using market prices.  Treasury note futures trade on the Chicago Mercantile Exchange (“CME”). The instruments are a variety of recently issued 10-year U.S. Treasury notes. The future contracts are liquid and are centrally cleared through the CME.  Treasury note futures are generally categorized in Level I of the fair value hierarchy.
The fair value for credit default swap contracts is derived using a pricing model that is widely accepted by marketplace participants.  Credit default swaps are traded in the OTC market. The pricing model takes into account multiple inputs including specific contract terms, interest rate yield curves, interest rates, credit curves, recovery rates, and current credit spreads obtained from swap counterparties and other market participants. Most inputs into the model are not subjective as they are observable in the marketplace or set per the contract. Valuation is primarily determined by the difference between the contract spread and the current market spread. The contract spread (or rate) is generally fixed and the market spread is determined by the credit risk of the underlying debt or reference entity. If the underlying indices are liquid and the OTC market for the current spread is active, credit default swaps and interest rate swaps are categorized in Level II of the fair value hierarchy. If the underlying indices are illiquid and the OTC market for the current spread is not active, credit default swaps are categorized in Level III of the fair value hierarchy. The credit default swaps and interest rate swaps are generally categorized in Level II of the fair value hierarchy.
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 quarter ended March 31, 2018 and December 31, 2017.

23

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)



The following table presents information about 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 March 31, 2018 and December 31, 2017 (dollars in thousands):
:
 
Total
 
Level I
 
Level II
 
Level III
March 31, 2018
 
 
 
 
 
 
 
Assets, at fair value
 
 
 
 
 
 
 
Commercial mortgage loans, held-for-sale (1)
$
69,465

 
$

 
$

 
$
69,465

Credit default swaps
520

 

 
520

 

Interest rate swaps
301

 

 
301

 

Total assets, at fair value
$
70,286

 
$

 
$
821


$
69,465

 
 
 
 
 
 
 
 
Liabilities, at fair value
 
 
 
 
 
 
 
Credit default swaps
$
42

 
$

 
$
42

 
$

Interest rate swaps
287

 

 
287

 

Treasury note futures
186

 
186

 

 

Total liabilities, at fair value
$
515

 
$
186

 
$
329

 
$

 
 
 
 
 
 
 
 
December 31, 2017

 
 
 
 
 
 
   Assets, at fair value
 
 
 
 
 
 
 
Real estate securities
$

 
$

 
$

 
$

Commercial mortgage loans, held-for-sale (1)
28,531

 

 

 
28,531

Treasury note futures
132

 
132

 

 

Total assets, at fair value
$
28,663

 
$
132

 
$

 
$
28,531

 
 
 
 
 
 
 
 
Liabilities, at fair value
 
 
 
 
 
 
 
Credit default swaps
$
357

 
$

 
$
357

 
$

Total liabilities, at fair value
$
357

 
$

 
$
357

 
$

________________________
(1) Loans held in the Company's TRS, reported within Commercial mortgage loans, held-for-sale, measured at fair value on the consolidated balance sheets.
Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level III category. As a result, the unrealized gains and losses for assets and liabilities within the Level III category may include changes in fair value that were attributable to both observable and unobservable inputs. The following table summarizes the valuation method and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level III of the fair value hierarchy as of March 31, 2018 and December 31, 2017 (dollars in thousands).
 
Asset Category
Fair Value
Valuation Methodologies
Unobservable Inputs (1)
Weighted Average (2)
Range
March 31, 2018
Commercial mortgage loans, held-for-sale, measured at fair value
$69,465
Discounted Cash Flow
Yield
5.15%
4.8% - 6.2%
 
 
 
 
 
 
 
December 31, 2017
Commercial mortgage loans, held-for-sale, measured at fair value
$28,531
Discounted Cash Flow
Yield
4.93%
4.8% - 5.3%
(1) In determining certain of these inputs, the Company evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments including exit strategies and realization opportunities. The Company has determined that market participants would take these inputs into account when valuing the investments.
(2) Inputs were weighted based on the fair value of the investments included in the range.

24

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

The following table presents additional information about the Company’s financial instruments which are measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 for which the Company has used Level III inputs to determine fair value (dollars in thousands):
 
 
March 31, 2018
 
 
Commercial Mortgage Loans, held-for-sale, measured at fair value
 
Real Estate Securities
Beginning balance, January 1, 2018
 
$
28,531

 
$

Transfers into Level III
 

 

Realized gain on sale of commercial mortgage loan held-for-sale
 
2,304

 

Unrealized gains (losses)
 
635

 
 
Purchases
 
119,695

 

Sales / paydowns
 
(81,700
)
 

Transfers out of Level III
 

 

Ending balance, March 31, 2018
 
$
69,465

 
$

 
 
 
 
 
 
 
December 31, 2017
 
 
Commercial Mortgage Loans, held-for-sale, measured at fair value
 
Real Estate Securities
Beginning balance, January 1, 2017
 
$

 
$
49,049

Transfers into Level III
 

 

Realized gain on sale of real estate securities
 

 
172

Realized gain on sale of commercial mortgage loan held-for-sale
 
4,523

 

Impairment losses on real estate securities
 

 

Net accretion
 

 
167

Unrealized gains (losses) included in OCI (1)
 

 
500

Purchases
 
156,101

 

Sales
 
(132,093
)
 
(34,888
)
Cash repayments/receipts
 

 
(15,000
)
Transfers out of Level III
 

 

Ending balance, December 31, 2017
 
$
28,531

 
$

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







25

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

Financial Instruments Not Measured at Fair Value
The fair values of the Company's commercial mortgage loans, held-for-investment and collateralized loan obligations, which are not reported at fair value on the consolidated balance sheets are reported below as of March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
Level
 
Carrying Amount
 
Fair Value
March 31, 2018
 
 
 
 
 
 
 
Commercial mortgage loans, held-for-investment (1)
Asset
 
III
 
$
1,629,399

 
$
1,621,843

Collateralized loan obligation
Liability
 
II
 
690,765

 
702,674

December 31, 2017
 
 
 
 
 
 
 
Commercial mortgage loans, held-for-investment (1)
Asset
 
III
 
1,403,512

 
1,396,406

Collateralized loan obligation
Liability
 
II
 
826,150

 
842,812

________________________
1 The carrying value is gross of $1.5 million and $1.5 million of allowance for loan losses as of March 31, 2018 and December 31, 2017, respectively.
The fair value of the commercial mortgage loans, held-for-investment is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of investments. The Company estimates the fair value of the collateralized loan obligations using external broker quotes.

26

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

Note 11 - Derivative Instruments
The Company uses derivative instruments primarily to economically manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk.

As of March 31, 2018, the net premiums paid on derivative instrument assets were $0.5 million.

The following derivative instruments were outstanding as of March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value
 
 
Contract type
 
Notional
 
Assets (1)
Liabilities (1)
 
Net
 
 
 
 
 
 
 
 
As of March 31, 2018
 
 
 
 
 
 
 
   Credit default swaps
 
$
40,000

 
$
520

$
42

 
$
478

   Interest rate swaps
 
22,000

 
301

287

 
$
14

   Treasury note futures
 
30,099

 

186

 
$
(186
)
Total
 
$
92,099

 
$
821

$
515

 
$
306

 
 
 
 
 
 
 
 
As of December 31, 2017
 
 
 
 
 
 
 
   Credit default swaps
 
$
30,000

 
$
32

$
357

 
$
(325
)
   Treasury note futures
 
43,906

 
100


 
$
100

Total
 
$
73,906

 
$
132

$
357

 
$
(225
)
_______________________
(1) Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.

The following table indicates the net realized and unrealized losses on derivatives, by primary underlying risk exposure, as included in loss on derivative instruments in the consolidated statements of operations for the three months ended March 31, 2018. The Company did not have any net realized and unrealized gain or loss on derivatives during the three months ended March 31, 2017 (dollars in thousands).
 
 
Three Months Ended March 31, 2018
 
 
Unrealized
Gain/(Loss)
 
Realized
Gain/(Loss)
 
Total
Contract type
 
 
 
 
 
 
   Credit default swaps
 
$
376

 
$
(11
)
 
$
365

   Interest rate swaps
 
(287
)
 
244

 
$
(43
)
   Treasury note futures
 
(286
)
 
1,013

 
727

Total
 
$
(197
)
 
$
1,246

 
$
1,049




27

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

Note 12 - 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 March 31, 2018 and December 31, 2017 (dollars in thousands):
 
 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
 
Assets
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset on the Balance Sheet
 
Net Amount of Assets Presented on the Balance Sheet
 
Financial Instruments
 
Cash Collateral Pledged
 
Net Amount
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
 
$
821

 
$

 
$
821

 
$

 
$

 
$

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
 
$
132

 
$

 
$
132

 
$

 
$

 
$


 
 
 
 
 
 
 
 
Gross Amounts Not Offset on the Balance Sheet
 
 
Liabilities
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset on the Balance Sheet
 
Net Amount of Liabilities Presented on the Balance Sheet
 
Financial Instruments
 
Cash Collateral Pledged (2)
 
Net Amount
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements, commercial mortgage loans
 
$
501,310

 
$

 
$
501,310

 
$
777,354

 
$
5,567

 
$

Derivative instruments, at fair value
 
515

 

 
515

 

 
4,584

 

December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements, commercial mortgage loans
 
$
65,690

 
$

 
$
65,690

 
$
163,235

 
$
5,005

 
$

Repurchase agreements, real estate securities (1)
 
39,035

 

 
39,035

 
56,044

 

 

Derivative instruments, at fair value
 
357

 

 
357

 

 
2,961

 

________________________
(1) Includes $56.0 million of 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 December 31, 2017.
(2) These cash collateral amounts are recorded within the Restricted cash balance on the consolidated balance sheets.
Note 13 - Segment Reporting
We conduct our business through the following reporting segments:
The real estate debt business focuses on originating, acquiring and asset managing commercial real estate debt investments, including first mortgage loans, subordinate mortgages, mezzanine loans and participations in such loans.
The 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.

28

BENEFIT STREET PARTNERS REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)

The real estate conduit business operated through the Company's TRS, which is focused on generating risk-adjusted returns by originating and subsequently selling fixed-rate commercial real estate loans into the CMBS securitization market at a profit.
The following table represents the Company's operations by segment for the three months ended March 31, 2018 and 2017 (dollars in thousands):
Three Months Ended March 31, 2018
 
Total
 
Real Estate Debt
 
Real Estate Securities
 
TRS
Interest income
 
$
29,408

 
$
28,515

 
$

 
$
893

Interest expense
 
18,674

 
17,761

 
161

 
752

Net income (loss)
 
5,296

 
3,981

 
(161
)
 
1,476

Total assets
 
1,827,715

 
1,719,757

 

 
107,958

Three Months Ended March 31, 2017