FS Credit Real Estate Income Trust Letter to Stockholders Concerning COVID-19 and CRE Market
April 17, 2020
The following letter was sent to stockholders on April 16, 2020:
Fellow Stockholder:
During this unprecedented public health crisis, we hope that you and your families are staying safe and healthy. Just as we all have had to adjust our daily lives and routines, the financial markets are adjusting to the reality of higher bouts of volatility and increased uncertainty. While it is too early to fully understand the impact of the COVID-19 pandemic, we remain in constant dialogue with our borrowers and financing partners and have positioned our portfolio to preserve stockholder capital.
First, FSCREIT’s portfolio is well-diversified across property types, which is a key advantage during periods of uncertainty. The top property type, office, makes up just 25% of the portfolio, followed by multifamily and industrial at 20% each. FSCREIT has limited exposure in each of the hospitality and retail sectors, which have been most heavily impacted by the COVID-19 crisis.
Second, in terms of income, all of FSCREIT’s senior secured, floating rate loans have LIBOR floors, which have protected our ability to generate income as interest rates have fallen.
Finally, FSCREIT continues to use leverage prudently to enhance returns. Recently, some highly levered funds investing in commercial real estate debt and securities have come under pressure. These funds generally have high levels of exposure to liquid securities held on a levered basis with short term financing. FSCREIT has very limited exposure to liquid, mark-to-market securities (less than 3% of total assets), all of which are investment grade and held on a direct, unlevered basis. In addition, the majority of FSCREIT’s directly-originated loans are held in a structured financing vehicle that is match term and not subject to “mark-to-market” limitations. As a result, FSCREIT’s capital structure has remained stable in this environment – we have experienced no margin calls from our lenders.
These collective efforts have led to relatively stable returns for our stockholders, with a modest decline in NAV from February to March (approximately -0.80% across all share classes) while the S&P 500 declined more than 12%. Year-to-date through March 31, we have generated a positive stockholder return of 1.56% on our Class I shares.
As fellow stockholders, we believe it is important to remain defensively positioned in the near-term while also staying flexible should the environment present attractive opportunities. Significant uncertainty persists around the duration and scale of the impact of the pandemic on the U.S. economy and on the commercial real estate market. Because of our focus on maximizing liquidity, our senior loans secured by commercial real estate, and our long-term capital structure, we believe we are well positioned to navigate this disruption. Additionally, we believe there will be attractive opportunities for well capitalized lenders like FSCREIT as markets begin to stabilize.
Thank you for your investment with us. We appreciate your continued support and hope you stay safe and healthy.
Sincerely,
The FS CREIT Team
Source: SEC
