v3.26.1
Business Combinations
 3 Months Ended
Mar. 31, 2026
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract]  
Business Combinations
Note 3 - Business Combinations
Acquisition of NewPoint
On July 1, 2025 (the “Acquisition Date”), the Company completed the acquisition ("the Transaction") of NewPoint, a commercial real estate finance company offering lending solutions nationwide to investors in multifamily, affordable housing, seniors housing, healthcare, and manufactured housing properties.
The Transaction has expanded the Company's presence in the multifamily lending sector, with the opportunity to enhance its diversified mortgage finance platform and capitalize on agency capabilities.
The Company purchased 100% of the outstanding equity interests of NewPoint for an aggregate purchase price of $427.8 million, comprised of $336.9 million in cash and $90.9 million of equity, in the form of 8,385,951 Class A units of the OP ("OP Units") issued as consideration. The OP Units were valued based on the closing market price of the Company's common shares on the acquisition date. The Company operates the acquired business through a taxable REIT subsidiary.
The Company accounted for the Transaction as a business combination under the acquisition method of accounting, which requires allocation of the total consideration transferred to the assets acquired and liabilities assumed based on their fair values as of the Acquisition Date, with the excess of the consideration transferred over those fair values recorded as goodwill. Determining the fair value of the assets acquired requires significant judgments, assumptions, and estimates about future events, which the Company believes are reasonable. Use of different estimates and judgments could produce materially different results. The Company may refine such estimates and adjust the assets acquired and liabilities assumed over the measurement period, which will not exceed one year from the Acquisition Date. The following is a preliminary purchase price allocation, which is subject to change as the Company finalizes its analysis over certain items such as intangible assets, MSRs, and other items.
The allocation of the purchase consideration, subject to future measurement period adjustments, is as follows (dollars in thousands):
Amount
Total Purchase Price$427,774 
ASSETS
Cash and cash equivalents25,357 
Restricted cash14,205 
Investment securities, held to maturity17,843 
Commercial mortgage loans, held for sale, measured at fair value422,011 
Mortgage servicing rights, net211,545 
Derivative assets4,268 
Accrued Interest Receivable4,475 
Prepaid expenses and other assets23,434 
Equity method investments47,614 
Loan repurchase option asset13,197 
Intangible assets - agency licenses72,500 
Intangible assets - other9,500 
Goodwill92,048 
Total assets acquired$957,997 
Repurchase agreements - commercial mortgage loans413,797 
Allowance for loss sharing23,586 
Accrued compensation34,650 
Interest Payable1,154 
Accounts payable and accrued expenses15,929 
Loan repurchase option liability13,197 
Other liabilities27,910 
Total liabilities assumed$530,223 
Total purchase consideration$427,774 
During the three months ended March, 31, 2026, the Company did not make any measurement period adjustments.
The purchase price exceeded the estimated fair value of the assets acquired and liabilities assumed and, as a result of the purchase allocation, the Company recorded goodwill of $92.0 million, which has been allocated to the Agency Business segment. The goodwill recognized is attributable primarily to anticipated growth opportunities and synergies resulting from the Transaction, which provides the Company with an expanded presence in the multifamily sector and the ability to originate and service agency mortgage loans. The amount of goodwill expected to be deductible for tax purposes is approximately $61.7 million.
The fair value of the identifiable tangible assets and liabilities acquired in the Transaction approximated their carrying values at the Acquisition Date. The Company used independent third-party valuation specialists to assist in determining the fair value of certain intangible assets acquired and liabilities assumed, which are classified as Level III. Provisional estimates of fair value are established at the time of the acquisition. There are significant estimates used in determining the fair values of certain intangible assets acquired, which consist of mortgage servicing rights, licenses, developed technology, and non-compete agreements.
Mortgage servicing rights: When a mortgage loan is sold, the Company retains the right to service the loan and recognizes the MSR at fair value. The initial fair value represents expected net cash flows from servicing, borrower prepayment penalties, interest earnings on escrows, interim cash balances, delinquency rates, late charges and ancillary fees that are discounted at a rate that reflects the credit and liquidity risk of the MSR over the estimated life of the underlying loan. After initial recognition, the MSRs will be amortized using the amortization method.
Licenses: The fair value of the licenses were estimated using a discounted cash flow method, which involves projecting revenue and servicing fees associated with the license, while accounting for related expenses. The significant unobservable input used to discount the future cash flows to present value is the discount rate of 11.5%. These licenses are considered to have
indefinite useful lives, reflecting their continuous economic value. Key assumptions are drawn from management’s projections and legal guidance.
Developed technology: The fair value was estimated based on a replacement cost method of the cost approach, which estimates the cost the Company would incur in rebuilding the technology. Under this method, fair value is equal to the replacement cost of the technology plus developer’s profit and entrepreneurial incentive, which are the key assumptions embedded into the valuation. The technology is amortized over five years based upon the estimated economic benefits received.
Non-compete agreements: The fair value of the non-compete agreements were estimated using a discounted cash flow method, which calculates the present value of projected revenue differences attributable to the agreement, adjusted for operating expenses. The significant unobservable input used to discount the future cash flows to present value is the discount rate of 11.5%. Key assumptions are based on management input and the terms of the non-compete agreement. The agreements are amortized over a period of nine to 12 months.
The estimates above directly impact the amount of identified intangible assets recognized and the related amortization expenses in future periods. Intangible assets acquired had a weighted average useful economic life of 2.7 years. As of March 31, 2026, aggregate intangible assets relating to the Transaction of $76.3 million were recorded in Intangible assets, net on the consolidated balance sheets. The Company may record certain measurement period adjustments, which will be made in the period in which the amounts are determined. The current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the Acquisition Date.
The Company recognized acquisition-related expenses of $0.1 million and $2.9 million in Other Expenses and Professional Fees, respectively, on the consolidated statement of operations for the three months ended March 31, 2025.
The Company's consolidated financial statements for the three months ended March 31, 2026 include the operations of NewPoint from the Acquisition Date. The following table presents NewPoint's revenue and earnings as reported in the Company's consolidated statement of operations (dollars in thousands):
Three months ended March 31, 2026
Revenue$33,300 
Net income (loss) attributable to Franklin BSP Realty Trust, Inc.3,237 
Supplemental Pro Forma Combined Information (unaudited)
The following unaudited pro forma combined financial information presents the combined results of operations of the Company, as if the Transaction occurred on January 1, 2024. The unaudited proforma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the Transaction had taken place on the date indicated or of results that may occur in the future (dollars in thousands):
Three months ended March 31,
2025
Revenue$74,985 
Net income (loss) attributable to Franklin BSP Realty Trust, Inc.29,420 
The unaudited pro forma financial information is based on historical information of the Company and NewPoint, along with certain material, non-recurring pro forma adjustments. The material, non-recurring pro forma adjustments primarily consist of (i) incremental amortization expense based on the preliminary fair values of the intangible assets acquired; (ii) recognition of non-controlling interest to reflect the reclassification of the OP units; (iii) a change in the valuation methodology of mortgaging servicing rights from fair value to the amortization method; (iv) a change in provision for credit loss expense due to revised loss estimation methodology, (v) non-recurring transaction costs; and (vi) income tax impact of the aforementioned pro forma adjustments.