Franklin BSP Realty Trust (FBRT) risk factors, FY2024 10-K

Risk Related to Our Financing Strategy

1. 01We have a significant amount of indebtedness and may need to incur more in the future
2. 02We may not be able to earn returns on loans we make in excess of the interest we pay on our borrowings
3. 03We rely on the availability of collateralized debt and loan obligation securitization markets to provide long-term financing for our loans and investments
4. 04Lenders often require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions
5. 05During periods of rising interest rates, our interest expense increases may outpace any increases in interest we earn on our assets, and the value of our assets may decrease
6. 06We may not be able to access financing sources on attractive terms, if at all, which could adversely affect our ability to fund and grow our business, or result in dilution to our existing stockholders
7. 07Our short-term borrowings often require us to provide additional collateral when the fair market value of our collateral decreases, and these calls for collateral could significantly impact our liquidity position

Risks Related to Our Investments

1. 08Our commercial real estate debt investments are subject to the risks typically associated with ownership of commercial real estate
2. 09Our success depends on the availability of attractive investment opportunities
3. 10Delays in liquidating defaulted commercial real estate debt investments could reduce our investment returns
4. 11Operating and disposing of properties acquired through foreclosure subject us to additional risks that could harm our results of operations
5. 12Subordinate commercial real estate debt that we originate or acquire could expose us to greater losses
6. 13We may be subject to risks associated with construction lending, such as declining real estate values, cost overruns and delays in completion
7. 14Jurisdictions with one action or security first rules or anti-deficiency legislation may limit the ability to foreclose on a property or to realize the obligation secured by the property by obtaining a deficiency judgment
8. 15Insurance may not cover all potential losses on the properties underlying our investments, which may harm the value of our assets
9. 16We invest in CMBS and CMBS bonds, which may include subordinate securities, which entails certain risks
10. 17We may not control the special servicing of the mortgage loans underlying the CMBS and CMBS bonds in which we invest and, in such cases, the special servicer may take actions that could adversely affect our interests
11. 18We invest in CDOs and such investments involve significant risks
12. 19Most of our investments are illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions, which may result in losses to us
13. 20Some of our investments will be carried at estimated fair value as determined by us and, as a result, there may be uncertainty as to the value of these investments
14. 21Competition with third parties for originating and acquiring investments may reduce our profitability
15. 22Our due diligence may not reveal all material issues relating to our origination or acquisition of a particular investment
16. 23We may be unable to restructure loans in a manner that we believe maximizes value, particularly if we are one of multiple creditors in large capital structures
17. 24We may be subject to risks associated with future advance obligations, such as declining real estate values and operating performance
18. 25We may not be successful in our attempts to align the maturities of our liabilities with the maturities on our assets, which could harm our operating results and financial condition
19. 26Provision for credit losses is difficult to estimate
20. 27Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded
21. 28When we acquire companies, we face risks related to integrating the acquired company in a manner that allows us to achieve the synergies and other benefits of the acquisition or do so within the anticipated time frame

Risks Related to the Conduit Segment of the Business

1. 29We use warehouse facilities that may limit our ability to acquire assets, and we may incur losses if the collateral is liquidated
2. 30We directly and indirectly utilize non‑recourse securitizations, and such structures expose us to risks that could result in losses to us
3. 31The securitization market is subject to a regulatory environment that may affect certain aspects of these activities
4. 32We enter into hedging transactions that could expose us to contingent liabilities in the future
5. 33Hedging against interest rate exposure may adversely affect our income, limit our gains or result in losses, which could adversely affect cash available for distribution to our stockholders

Risks Related to Conflicts of Interest

1. 34The Advisor faces conflicts of interest relating to purchasing commercial real estate-related investments, and such conflicts may not be resolved in our favor, which could adversely affect our investment opportunities
2. 35The Advisor and its employees face competing demands relating to their time, and this may cause our operating results to suffer
3. 36The fee structure set forth in the Advisory Agreement may not create proper incentives for the Advisor
4. 37Our Advisor maintains a contractual as opposed to a fiduciary relationship with us. Our Advisor’s liability is limited under our Advisory Agreement, and we have agreed to indemnify our Advisor against certain liabilities
5. 38Termination of our Advisory Agreement would be difficult and costly

Risks Related to Our Corporate Structure

1. 39The limit on the number of shares a person may own may discourage a takeover that could otherwise result in a premium price to our stockholders
2. 40Certain provisions of Maryland law could inhibit a change in control of our Company
3. 41In addition, the Company's bylaws contain a provision exempting from the control share provisions any and all acquisitions of our stock by any person. There can be no assurance that this provision will not be amended or eliminated at any time in the future

Risks Related to Taxation

1. 42Our failure to qualify as a REIT could have significant adverse consequences to us and the value of our common stock
2. 43The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT
3. 44Even if we qualify as a REIT, we may be subject to tax liabilities that reduce our cash flow for distribution to our stockholders
4. 45The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT
5. 46The “taxable mortgage pool” rules may increase the taxes that we or our stockholders incur, and may limit the manner in which we effect future securitizations
6. 47The prohibited transactions tax may limit our ability to engage in transactions, including certain methods of securitizing mortgage loans that would be treated as sales for U.S. federal income tax purposes
7. 48Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities
8. 49Liquidation of assets may jeopardize our REIT qualification
9. 50Modification of the terms of our debt investments and mortgage loans underlying our CMBS in conjunction with reductions in the value of the real property securing such loans could cause us to fail to qualify as a REIT
10. 51Changes to the U.S. federal income tax laws, including the enactment of certain tax reform measures, could have a material and adverse effect on us

Risks Related to an Investment in Franklin BSP Realty Trust, Inc

1. 52Public health crises have adversely impacted, and may in the future adversely impact, our business and the business of many of our borrowers
2. 53We may be unable to maintain or increase cash distributions over time, or may decide to reduce the amount of distributions for business reasons
3. 54Our business could suffer in the event our Advisor or any other party that provides us with services essential to our operations experiences system failures or cyber-incidents or a deficiency in cybersecurity
4. 55We are subject to risks from natural disasters such as earthquakes and severe weather, including as the result of global climate changes, which may result in damage to the properties securing our loans