10-K: FS Credit REIT Navigates Market Shifts, Reports Mixed 2025 Results

FS Credit Real Estate Income Trust, Inc. reports a decrease in net income for 2025 amidst market volatility, while maintaining a diversified loan portfolio and active capital management.

Summary

• Net income attributable to FS Credit Real Estate Income Trust, Inc. decreased to $169,894,000 in 2025 from $174,999,000 in 2024.
• Net interest income declined to $255,530,000 in 2025 from $308,805,000 in 2024, primarily due to lower average index rates and a lower average loan balance.
• Total other expenses increased to $144,607,000 in 2025 from $135,855,000 in 2024, driven by higher real estate operating expenses and depreciation/amortization from foreclosed properties.
• The expected credit loss (CECL) reserve decreased by $13,157,000 in 2025, compared to an increase of $20,517,000 in 2024, mainly due to macroeconomic assumptions.
• The loan receivable portfolio had a principal balance of $7,845,350,000 across 140 loans as of December 31, 2025, with unfunded commitments of $332,562,000.
• Multifamily properties constitute the largest segment of the loan portfolio at 54% of net book value, followed by Hospitality (13%) and Office (10%).
• Geographically, the South accounts for 46% of the loan portfolio, with the Northeast at 23% and West at 18%.
• The company acquired four multifamily properties through foreclosure in 2025, located in New Rochelle, NY ($105,955,000), Decatur, GA ($51,800,000), Doraville, GA ($42,680,000), and Philadelphia, PA ($19,088,000).
• Cash flows from operating activities decreased by $46,088,000 in 2025 compared to 2024, while cash flows from financing activities increased by $513,233,000.
• Total distributions paid or payable in cash were $109,284,000 in 2025, with an additional $107,208,000 reinvested in shares.
• The debt-to-equity ratio increased to 2.3x in 2025 from 2.1x in 2024, and the leverage-to-net assets ratio increased to 2.1x from 2.0x.
• The company completed the issuance of a new collateralized loan obligation (FL-11 Issuer) on February 10, 2026.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a moderately negative filing. While the company is actively managing its portfolio and successfully raising capital, the decline in net income and net interest income, coupled with rising operating expenses, indicates operational headwinds. The macroeconomic environment, particularly in the office sector, presents ongoing challenges.

Positives

• The expected credit loss (CECL) reserve decreased by $13,157,000 in 2025, indicating an improved outlook on potential loan losses.
• The company successfully funded $2,400,194,000 in new loans and additional fundings under existing loans in 2025, demonstrating continued investment activity.
• All share repurchase requests received in March 2025 and the first quarter of 2025 were satisfied, with the board of directors authorizing repurchases in excess of monthly and quarterly limits.
• The company maintains a diversified loan portfolio across property types and geographic regions, aiming to mitigate cyclical market risks.
• The company's inception-to-date cash flows from operating activities have funded 100% of its distributions as of December 31, 2025.
• The company was in compliance with all covenants required by its financing arrangements as of December 31, 2025 and 2024.

Negatives

• Net income attributable to FS Credit Real Estate Income Trust, Inc. decreased from $174,999,000 in 2024 to $169,894,000 in 2025.
• Net interest income decreased by $53,275,000 in 2025 compared to 2024, primarily due to lower average index rates and a lower average loan balance.
• Total other expenses increased by $8,752,000 in 2025, mainly due to higher real estate operating expenses and depreciation/amortization from foreclosed properties.
• Cash flows from operating activities decreased by $46,088,000 in 2025 compared to 2024.
• The weighted-average cash coupon decreased to +3.31% in 2025 from +3.50% in 2024, and the weighted-average all-in yield decreased to +3.41% from +3.68%.
• Valuation uncertainty persists, particularly in the office sector, where older, less amenitized assets continue to face structural challenges.
• A $1.7 trillion maturity wall over the next two years presents refinancing risk, especially for borrowers with loans previously extended or modified.
• Tight cap rate spreads leave little room for pricing error, and any macroeconomic deterioration could pressure valuations and borrower performance.

Risks

• Stockholders will not have the opportunity to evaluate future investments before they are made, making investments more speculative.
• There is no public trading market for shares, limiting liquidity to company repurchases, which may be at less than the purchase price.
• The company's share repurchase plan is limited by caps (2% of aggregate NAV monthly, 5% quarterly) and may be modified or suspended, potentially limiting a stockholder's ability to liquidate their investment.
• The purchase and repurchase price for shares is based on prior month's NAV, which is inherently subjective and may not reflect actual liquidation prices.
• The company cannot guarantee continued distributions, and may fund them from sources other than cash flow from operations (e.g., offering proceeds, borrowings, asset sales), which could reduce funds available for investment and decrease NAV.
• Dependence on key personnel of the adviser and sub-adviser, who also have competing demands on their time, could negatively impact operations.
• Failure to implement effective information and cybersecurity policies could disrupt business, cause financial loss, regulatory actions, or reputational harm.
• Limited rights for stockholders to recover claims against independent directors under Maryland law.
• Uncertainty with the global and U.S. economy, including inflation, interest rate decisions, and geopolitical issues, could adversely affect business and financial condition.
• Changes to U.S. federal initiatives, tariff, and import/export regulations could negatively impact business.
• Risks associated with climate change (transition and physical risks) may adversely affect business and financial results and damage reputation.
• Risks associated with artificial intelligence and machine learning technology, including potential disruption, increased competition, and heightened cyber threats.
• Ownership limits (9.8% of stock value or shares) to maintain REIT status may discourage takeovers that could offer a premium price.
• The board of directors can change investment and operational policies without stockholder consent, potentially leading to riskier or more highly leveraged investments.
• Stockholder interest will be diluted if additional shares are issued without preemptive rights.
• Compliance with SEC's Regulation Best Interest may negatively impact capital raising.
• Failure to qualify as a REIT would subject the company to U.S. federal income tax, reducing cash available for distributions.
• Certain financing activities (e.g., taxable mortgage pools) may subject the company to U.S. federal income tax and have negative tax consequences for stockholders.
• Complying with REIT requirements may force the company to liquidate or restructure otherwise attractive investments or forego advantageous hedging strategies.
• Distributions or gain on sale may be treated as unrelated business taxable income (UBTI) for U.S. tax-exempt investors in certain circumstances.
• Failure to make required distributions would subject the company to tax, reducing cash available for stockholders.
• Restrictions on the deduction of interest expense could prevent satisfying REIT distribution requirements.
• The company may be required to report taxable income for certain investments in excess of economic income, leading to cash flow shortages for distributions.
• Ownership of and relationship with any Taxable REIT Subsidiaries (TRSs) are subject to limitations, and non-compliance could jeopardize REIT qualification or result in excise tax.
• Characterization of repurchase agreements as sales for tax purposes rather than secured lending could adversely affect REIT qualification.
• Failure of a mezzanine loan to qualify as a real estate asset could adversely affect REIT qualification.
• Investments in certain financial assets may not qualify as real estate assets or generate qualifying income for REIT tests, limiting investment ability.
• Investments in 'to be announced' (TBA) securities could be limited by REIT qualification requirements.
• Investments in construction loans may require estimates about fair value of land improvements that could be challenged by the IRS.
• Tax consequences to modifications of borrowings, hedging transactions, and other contracts to replace LIBOR references.
• Foreclosures may impact REIT qualification and minimize tax liabilities.
• If company assets are deemed 'plan assets' under ERISA, it could lead to rescission of transactions, tax/fiduciary liability, and ERISA/Code violations.

Future Outlook

The company expects to adjust its investment strategy as market conditions evolve to capitalize on opportunities. It believes there are significant opportunities among its target assets that currently present attractive risk-return profiles. The company intends to continue its public offering and private offering of Class I shares, and utilize prudent levels of leverage. It aims to increase the use of matched-term, non-market-to-market financing structures. The company's board of directors will continue to review the leverage ratio quarterly. The company also anticipates that additional new regulations in areas like risk management, leverage, and disclosure will be adopted, and existing ones may change, though the exact nature and impact are not yet forecastable.

Management Comments

• Our investment strategy is to originate, acquire and manage a portfolio of senior loans secured by commercial real estate primarily in the United States.
• We believe that the active and ongoing participation by Future Standard and its affiliates in the credit markets, and the depth of experience and disciplined investment approach of FS Real Estate Advisor’s management team, allows FS Real Estate Advisor to successfully execute our investment strategy.
• We believe there are significant opportunities among our target assets that currently present attractive risk-return profiles. However, to capitalize on the investment opportunities that may be present at various other points of an economic cycle, we may expand or change our investment strategy and target assets.
• We believe that the diversification of the portfolio of assets that we acquire, our ability to aggressively manage our target assets and the flexibility of our strategy positions us to generate attractive long-term returns for our stockholders in a variety of market conditions.
• Our ability to execute our investment strategy is enhanced through our access to our sponsor’s and our adviser’s direct origination capabilities, as opposed to a strategy that relies solely on buying assets in the open market from third-party originators.
• CRE market sentiment improved in Q4 2025, supported by 175 basis points (bps) of Fed rate cuts since September 2024 and a rebound in transaction activity. Property values have largely stabilized, and limited new construction has helped restore supply-demand balance across most sectors.
• However, valuation uncertainty persists, particularly in the office sector, where older, less amenitized assets continue to face structural challenges. A $1.7 trillion maturity wall over the next two years also presents refinancing risk, especially for borrowers with loans previously extended or modified.
• In this environment, senior CRE debt remains attractive for its income potential and downside protection, but the outlook is not without risk. Tight cap rate spreads leave little room for pricing error, and any macroeconomic deterioration could pressure valuations and borrower performance.
• As the market transitions into a new cycle, disciplined underwriting and selectivity will be critical to navigating both the opportunities and risks ahead.

Industry Context

StockSavvy.ai notes that the commercial real estate (CRE) market experienced improved sentiment in Q4 2025, largely due to significant Fed rate cuts (175 bps since September 2024) and a resurgence in transaction activity. Property values have stabilized, and new construction limitations are helping to balance supply and demand in most sectors. However, the office sector continues to face structural challenges and valuation uncertainty. The industry also faces a substantial 'maturity wall' of $1.7 trillion in debt over the next two years, posing refinancing risks. Despite these challenges, senior CRE debt remains attractive for its income potential and downside protection, though disciplined underwriting is crucial given tight cap rate spreads and potential macroeconomic pressures. The company's strategy of focusing on senior floating-rate mortgage loans and leveraging its adviser's direct origination capabilities aligns with a cautious yet opportunistic approach in a transitioning market.

Comparison to Industry Standards

• The company's weighted-average cash coupon of +3.31% and all-in yield of +3.41% as of December 31, 2025, reflect the current interest rate environment, which saw the one-month SOFR rate at 3.69%. This is lower than the 2024 rates (+3.50% cash coupon, +3.68% all-in yield, 4.50% SOFR), indicating a general trend of declining benchmark rates.
• The increase in the debt-to-equity ratio to 2.3x and leverage-to-net assets ratio to 2.1x in 2025 suggests a higher reliance on debt financing compared to 2024 (2.1x and 2.0x, respectively). This leverage is within the company's charter limit of 300% of total net assets (approximately 75% of aggregate cost of investments), but higher than some more conservatively leveraged REITs.
• The company's focus on senior floating-rate mortgage loans is a common strategy among commercial real estate debt REITs, particularly in volatile interest rate environments, as it offers some protection against rising rates, though the recent decline in SOFR has impacted yields.
• The significant portion of the portfolio in multifamily (54%) is consistent with broader industry trends favoring residential income-producing properties, which have generally shown more resilience than other sectors like office space.

Corporate Governance

Legal Proceedings

• The company is not currently subject to any material legal proceedings, nor is any material legal proceeding threatened against it.
• From time to time, the company may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of its rights under contracts with portfolio companies.

Related Party Transactions

• FS Real Estate Advisor (adviser) and Rialto Capital Management, LLC (sub-adviser) are affiliates of the company's sponsor, Future Standard.
• FS Real Estate Advisor is entitled to an annual base management fee of 1.25% of NAV for Class T, S, D, M, and I shares, and a performance fee of 10.0% of Core Earnings above a 1.625% quarterly hurdle rate.
• The base management fee and performance fee can be paid in cash, Class I shares, or performance-contingent Class I share awards (Class I PCRs).
• FS Real Estate Advisor is entitled to an administrative services fee of 1.0% of the company's NAV per annum, payable quarterly in Class I Restricted Stock Units (RSUs).
• Origination or other fees of up to 1.0% of the loan amount for certain debt or equity financing may be retained by Rialto or FS Real Estate Advisor, paid directly by a borrower or seller.
• In 2025, $21,883,000 in origination and other fees were paid directly to FS Real Estate Advisor or Rialto.
• In 2025, $8,750,000 in capital markets fees were paid to affiliates of the company.
• Rialto receives a valuation services fee of $1 for each valuation of an individual investment, unless valued by an independent firm.
• Future Standard funded $29,961,000 in offering costs from inception to December 31, 2025, of which $26,948,000 has been reimbursed to FS Real Estate Advisor.
• As of December 31, 2025, $3,013,000 of offering expenses remained subject to reimbursement to FS Real Estate Advisor and Rialto.
• FS Investment Solutions, an affiliate of FS Real Estate Advisor, is the dealer manager for the public offering, receiving upfront selling commissions (up to 3.0% for Class T, 3.5% for Class S) and dealer manager fees (0.5% for Class T), which are largely reallowed to participating broker-dealers.
• FS Investment Solutions also receives stockholder servicing fees (0.85% per annum for Class T and S, 0.3% for Class D and M shares), which are reallowed to broker-dealers.
• The company has an Expense Limitation Agreement with FS Real Estate Advisor and Rialto, limiting ordinary operating expenses to 1.5% per annum of average net assets, with potential recoupment of waived/paid expenses within three years.
• In December 2016, Michael C. Forman and David J. Adelman, principals of Future Standard, contributed $200,000 to purchase 8,000 Class F shares.
• In 2023 and 2022, the company purchased $15,000,000 and $36,000,000, respectively, of mortgage-backed securities from an affiliate of Rialto, which were fully paid down by December 31, 2025.

Stakeholder Impact

• **Shareholders:** Experience a decrease in net income and NAV per share across all classes in 2025. Distributions are maintained, but the ability to fund them from sources other than cash flow from operations could reduce future funds for investment. Liquidity remains limited due to the absence of a public trading market and caps on share repurchases. Dilution is a risk from future share issuances.
• **Adviser (FS Real Estate Advisor) & Sub-Adviser (Rialto):** Continue to receive substantial management, performance, administrative services, origination, and valuation fees, which are tied to NAV and Core Earnings. The payment of fees in Class I shares or PCRs could impact their long-term equity stake and liquidity.
• **Borrowers:** Face refinancing risk due to a significant 'maturity wall' in the commercial real estate market, especially for loans previously extended or modified. The company's focus on disciplined underwriting and selectivity may impact the availability and terms of new loans.
• **Employees (of Adviser/Sub-Adviser):** Their time and resources are subject to competing demands from other investment programs, which could affect the focus on the company's business.
• **Broker-Dealers:** Continue to receive selling commissions, dealer manager fees, and stockholder servicing fees from the public offering, though compliance with Regulation Best Interest may impact recommendations to retail customers.

Next Steps

• Continue to sell shares in the third public offering.
• Proceed with the fourth public offering of up to $2.5 billion in shares of common stock.
• Adjust investment strategy as market conditions evolve to capitalize on opportunities.
• Increase the use of matched-term, non-market-to-market financing structures.
• Board of directors to review the ratio of leverage to total net assets on a quarterly basis.
• Monitor and adapt to new and changing government regulations in financial services.
• Monitor and adapt to risks associated with artificial intelligence and machine learning technology.
• The advisory agreement is subject to annual renewal by the board of directors, with the current term expiring December 1, 2026.
• The company's subsidiary completed the issuance of a collateralized loan obligation (FL-11 Issuer) on February 10, 2026.

Key Dates

Recommendation

The filing presents a mixed financial picture for FS Credit Real Estate Income Trust, Inc. While the company demonstrates resilience in its ability to raise capital and manage its loan portfolio, the decline in net income and net interest income for 2025, coupled with increased operating expenses, signals operational headwinds. The macroeconomic environment, particularly the persistent valuation uncertainty in the office sector and the looming 'maturity wall' for commercial real estate debt, introduces significant risks. The decrease in CECL reserves is a positive, but the overall financial performance metrics are trending negatively. Given the limited liquidity of the shares, the reliance on subjective NAV valuations, and the potential for further market volatility, a 'hold' recommendation is appropriate. Investors should monitor the company's ability to improve net interest income, control expenses, and navigate the challenging commercial real estate market, especially regarding refinancing risks and office sector performance, before considering further investment.

Keywords

Real Estate Investment Trust, REIT, Commercial Real Estate Debt, Senior Loans, Mortgage Loans, SEC Filing, 10-K, Financial Performance, Net Asset Value, NAV, Distributions, Credit Loss Reserve, CECL, Collateralized Loan Obligations, CLO, Repurchase Agreements, Real Estate Acquisitions, Foreclosure, Floating-Rate Loans, Investment Strategy, Risk Management, Corporate Governance, Financial Reporting, FS Credit Real Estate Income Trust