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Benefit Street Partners Realty Trust Enters into Dilutive Stock Purchase Agreements

February 20, 2018

Benefit Street Partners Realty Trust Enters into Dilutive Stock Purchase Agreements

February 20, 2018 | James Sprow | Blue Vault

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On February 14, 2018, Benefit Street Partners Realty Trust, Inc. (the “Company”) entered into stock purchase agreements, by and between the Company and certain institutional investors; certain officers of the Company; and certain owners, employees and associates of the Company’s external manager, Benefit Street Partners L.L.C. (the “Advisor”) and its affiliates and together with the institutional investors, pursuant to which the Investors committed to purchase an aggregate amount of up to approximately $97 million of shares of common stock of the Company in one or more closings. The timing of any closing, and the amounts of shares to be sold at each 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 February 14, 2018, commitment date. The potential purchasers of the common stock under these agreements were not identified in the SEC filing.

Each of the purchase agreements provide that the purchase price for the shares shall be equal to 90% of GAAP book value per share of the Common Stock as of December 31, 2017. However, in consideration of their being the first investors to commit to purchase shares in the offering, the Company agreed to sell the shares to investors at 88% of book value. The Company further agreed that if subsequent investors in the offering are permitted to acquire Common Stock for less than 90% of book value, the effective purchase price of the investors will be subject to a downward adjustment. The purchase agreement also provides that the Company will enter into a liquidity event, such as a listing of the Common Stock, within three years of February 14, 2018, subject to certain restrictions.

According to Blue Vault, the September 30, 2017, 10-Q filed by the Company reported total stockholders’ equity of $603,462,000 and the number of common stock shares outstanding at 31,641,275. This indicates a GAAP book value per share as of that date of approximately $19.07. The Company agreed to sell the shares to investors at 88% of book value, indicating an approximate price, based on the Q3 2017 book value, of $16.78 per share. The Company has yet to file its 10-K for 2017, which would update the book value per share to the December 31, 2017, value. The book value per share as of December 31, 2016, was approximately $19.87, indicating a downward trend in 2017, primarily due to distributions declared ($45.8 million) in excess of net income ($19.3 million) for the nine-month period ended September 30, 2017.

The stock purchase agreements appear to be dilutive to existing shareholders, as indicated by the 12% discount from GAAP book value per share. For the nine months ended September 30, 2017, the Company had net cash provided by operating activities of $23.4 million and cash distributions of $31.3 million. Common stock issued pursuant to the DRIP for the period was $16.3 million. The DRIP price per share as of December 30, 2017, was $19.02. It is difficult to reconcile the offer to sell shares to the investors cited above at 88% of book value while those who participate in the DRIP are paying $19.02.

Benefit Street Partners Realty Trust, Inc. was formed in 2012 as ARC Realty Finance Trust, Inc. to acquire, originate and manage a diversified portfolio of real estate debt secured by properties both within and outside the U.S. Its shares were originally offered at $25.00 per share. The Company raised approximately $796.4 million in its offering (including DRIP proceeds), which closed January 27, 2016.

The Company’s board of directors and the Nominating and Corporate Governance Committee of the board each unanimously approved the Company’s entry into the purchase agreements and the terms therein including the offering price. Blue Vault identifies the board members (“*” designates an insider) as reported by the Company:  Richard Byrne,* Elizabeth Tuppeny, Peter J. McDonough, Jamie Handwerker and Buford H. Ortale.

Investors have agreed with the Advisor not to sell or otherwise transfer the shares, without the consent of the Advisor, prior to 180 days after a listing of the Company’s Common Stock on a national securities exchange. In addition, the investors will not be eligible to participate in the Company’s amended and restated share repurchase program for at least three years.

This offering is not registered under the Securities Act and is being made pursuant to the exemption provided by Section 4(a)(2) of the Securities Act and certain rules and regulations promulgated thereunder. The shares may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The Company intends to use the net proceeds from the closings to originate and acquire additional commercial real estate debt investments for the Company and for working capital and other general corporate purposes of the Company. 

Dr. Robert J. Froehlich, an independent director, resigned from the board of directors on May 15, 2016, citing the board’s failure to address his demands regarding the engagement of a particular financial advisor and the temporary removal of the Company’s CFO due to a perceived conflict of interest regarding a possible strategic transaction with another company for which the CFO served in a similar capacity. Froehlich confirmed that his concerns related solely to the possible impact of a potential decision to pursue transaction negotiations with the related party, and not to the qualifications or performance of the CFO or the integrity of the Company’s financial statements.

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