BrightSpire Capital (BRSP) 3 Aug 222022 Q2 Earnings call transcript

Greetings, ladies and gentlemen and welcome to the BrightSpire Capital's Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a remainder, this conference is being recorded. I'd now like to turn the call over to your host Mr. Counsel. General Palame, David

welcome Capital's and earnings quarter conference call. to morning, second BrightSpire XXXX Good

to as BrightSpire the refer will We Capital this company BrightSpire, call. throughout or BRSP,

Mike the Speaking Witt; Andy Financial Chief today the Saracino. Chief and are Frank on Executive Operating call and Officer, Mazzei; Officer, Officer, President Chief company's

assumptions. current please risks, hand forward-looking are statements statements. over, on risks expectations are call, to note Potential management's subject and I and could results Before company's call certain uncertainties this uncertainties, These and based that business the to cause information contains and on presented materially. differ the financial

August in For Risk company's reports periodic SEC that this Factors information risks XX-Q update current could from of the undertakes no our All filed is of please duty statements most recent as or see factors not a and the discussion for section X, events risk time-to-time. and and the and intend discussed affect XXXX, to call of circumstances. other results, forward-looking with on future the and does company today,

With net over of per of $XX.XX million, and income over of I'd Mike, undepreciated company measures on Mike. website, GAAP on useful call The $X.XX certain XXXX net and to I attributable value I'll call the to appropriate common which call that, book value morning information recap adjusted XXXX. is $XX.XX are this was now presented of or as the the such supplemental The this release second provide to share brief addition, per In also or of and June to per measures. released $XX.X like represents an the $XX.XX XX, GAAP why to turn financial non-GAAP quarter reported before presentation, share. believes per the share turn $X.XX The results. on measures available and explanation presents book of million company's company share, earnings reported distributable earnings a reconciliations non-GAAP financial our company company's to stockholders And investors. financial GAAP and

Welcome earnings call joining second David. and us you, thank for today. to Thank you quarter our

Given exceptional comments focus comments I portfolio capital conditions activity. deployment as my into market on past this segue will in quarter, a market on the volatility Andy's and

in fully Finally, our quarter We lending our was performance. dividend headline. challenging the of since first QX, the had per share. in earnings emerging to Frank undertaken $X.XX than The CFO growth. from has strategy another that covering share Saracino quarter will the increased earnings second BrightSpire more market discuss quarterly financial share Distributable $X.XX $X.XX with pandemic per QX conditions. from a of for designed Starting

than before today. to in Our Multifamily that period, with million portfolio financing. have our XX% $XX XX% our acquisition is same ever more $XX loan an loan of from from XXXX million portfolio new originations down loan been has segment of all grown size diversified to average and Over XX%

interest by the quarter, than economy. was population market advertised outperform work value capital brought off reserves simply I reaction levels assets well market designed inflation focus asset On rehashing these our that the referenced events to federal with mode The have This permeate markets rate dynamics will into a abundantly clear NOI to the of state that increase regions increases. Rather add rate plans two been it strategies. to to middle these to shift targets these has it begun last risk and of interest strategy increases. previous earnings and sharp large, should markets program projections is concentrations, on macro level record rates. higher calls, portfolio underwritten lending Our growth risk reduce loan growth whose drive on specifically

treasury curve validated to market yield bearish. credit sentiment seems contraction, and rallying strong think treasury remains treasury credit this indicating rates a between in there a downturn the we become markets. has on right. spreads was news, widen. a although to and report, widest extremely have spreads Just widen. have Overall and bond technically can GDP uncertain. And GDP have years, and with the credit in shallow. equity lower are employment its recession will on spread have If week's it entered recently have moved XX With history, continued the during more the declined XX-year while disconnect hold Equities last length we current while recession, Based again two up, Separately, it's the markets ultimate second into depth public of bond inverted it numbers row make quarter. markets any be also to quarters

Turning at being meaningfully Accordingly real along second contract spreads and origination the indices lenders volume This credit estate in during cautious. to lending now just has volatility lower. market real The of quarter. to higher investment BrightSpire, estate costs been not commercial more and sales trending lending. benchmark both activity with capital our commercial is cause

further Therefore, the earnings from shrink to bankers sales mortgage to reverse and As worked back on the to mentioned borrowers transaction call last sellers substantially asset lenders I loop and refinancing July, information has feedback pipelines. loan suit real have credit while mortgage demand and and commercial and spreads the the declined CMBS contracted. in volume June for CLO securitization during widen CLO quarter. followed estate has has

on slowdown execute along market in X% new their to the our who maintaining their our term, plans. in Given selling in while and CLOs in existing that We market makes properties also in in have tightening have issuance payoffs, we of in Borrowers would to should dearth in asset concur conditions, in coming the process with dynamics with these suspended be market third It next result the lead few over a spread that the financing, AAA these the engaged sense yielding seeing are delaying the near months. others months. will favor own portfolio. CLO reassess of we'll marketing loan business issuance already level which existing fact, continuing of we the

with meeting criteria. and continue costs, to In continue will should extension home certain the All from We construction occupancy of and and single-family sales development subject higher, have options, therefore our meantime, both interest both slow. benefit to loans multi-family demand. expect rates of built rates to replacement that in sides supply

As of off these focus toward market its maintaining risk an a cash higher BrightSpire result of eye has shifted conditions, levels with liquidity.

liquidity loans, require have inflationary the more will stability. valuations of case along downward we with see actionable would rate trends of monitor and our borrowers of and owners selectively continue quote Witt. over market to I the banking will is maintaining This the and to increases. meaningful lenders that, time President, visibility to levels closely turn and indications of prudent. higher occurs, as This the increasingly to balance With new Fed's signs cash be opportunities is close continue our Andy? property counterparties. visibility sheet become While and scarce. now lending a to a extent This Until Andy length call stay will until to that our especially like to

deployment in Mike previous averaging everyone. quarters, good of the of has a you, themes capital nearly slowed originations highlighted. the new Thank million and of of five as result each $XXX After the morning, pace Mike

$XXX originated During nine loan on an aggregate funding loans, quarter, of company the initial million. closed the $XXX in with million loan second newly commitments across

of on flowing investments floating first All cash mortgages rate assets. these are

month not loans. the During we June, of did any close

subsequent closed for of total amount million. loans we a quarter end, However, to have commitment three $XX

billion. of $X.X During $X.X and stands loan currently portfolio quarter, at the second total billion our grew assets and slightly

quarter, highlighted As loans has last the quoted declined. number of

As are committing a loans. result, we to fewer

originations opportunities has new new loan actionable most originations, associated terms repayments. to anticipate decline as our as the are As interest been has declined a in on participants in slow We QX a adjust in the we of of expected, notably new the Counterbalancing higher slowdown pipeline selective a normal, basis. in highly quoting loans market rates implications. new

the During partial repayments received million in and paydown. we eight quarter, across one second loans $XXX

relatively focus loan prudent shift $XXX to feel per year. anticipated rising quarter. point, million to of composition The start portfolio with earnings company $XXX Being $XXX environment, in of this continue deploying best prepayments ahead was opportunities. remainder than a temporarily the stands year capital the plan be waitings benefit this million with are future of levels on in of maintaining the segment our we less the the increasing the to the into interest significantly favor the In the constant at at $XXX of repayments which of Given now macroeconomic anticipate stated cash to deploying correlated We terms meantime, positively million approximately for business million tailwinds with currently quarter, more SOFR, At as of sheet. we net the higher going take company advantage of basis of positions the liquidity, associated it from to believe rates. our and on XXXX. previous remains balance the earnings we

second number remaining exposure foreign balance substantial related of of the sold beginning the loan reduced equity we risk land our kicker of In also were in investment assets to will increase The on loan exposure an quarter, previously million on the on Frank rated $XX in elaborate a in the events of of equity During within the with XXXX, second company generating gain our CECL there disposition the this for land a also on an million loan predevelopment industrial a reserve. notable paydown loans. $XX including the paydown million. of to million reserve. predevelopment $XX partial received of and a our The CECL an portfolio, of executed net sale $XX a sale. a the kicker, quarter, increase the portfolio is that

portfolio cash XX% rating gross XXX sheet, $XXX of average million the of is book was and The value million. risk an $XX June aggregate X.X, loan XXth, of value size book $X.X XXXX, from the loan As of And or on the assets billion, net balance comprised is and last the quarter. unchanged our investments with portfolio. net of excluding

constitute which loan XX% and at the loan located growth national combined now above percent XX% that mortgage portfolio the in floating rate. and a loans are of hundred the rate. of comprised collateral average of are markets First our or Multifamily portfolio. XX% loans represent growing is office industrial of XX%

relationships, of five $X.XX manage side through liability balance banking which totaling to facilities billion. financing warehouse sources, include across primary combination our continue sheet of the We a

two quarter, the total. of million warehouse in by facilities its upsize the company $XXX During

approximately represents a today, rate. warehouse line of which our availability million, utilization aggregate stands As under at XX% $XXX

totaling our $X.X have CLOs warehouse we been XX% our on has contributed unencumbered. lines CLOs. present, is outstanding is XX% of and Additionally, X% billion. two At collateral to loan

anticipate reinvestment each loan such $XXX as result We expired some velocity point in timing CLO a and months. window XXXX a and for funds. the of the of an total payoff balance The increase the loan payoff has dictated cost and Our in will reduction of million. collateral collapsing advance next CLO CLO market XX the rate which will has The in conditions. over be the at by

As increasing our portfolio for reinvestment. manage had we in the we modestly a CLO quarter, productive growing earnings. XXXX, continue summary, second company the to issued actively In and recurring

Our near-term now higher of focus deployment backdrop. macroeconomic levels the maintaining to net from has given pivoted liquidity,

will call Now, elaborate our second to Saracino, turn over results. the on Frank I quarter to Chief the Officer, Financial

and you, Thank details supplement draw shareholder does I is the to as website. by supplemental asset our to attention morning, our our would Andy which Form to The your everyone. section XX-Q. asset available financial of provide continues good in report, like

$XX.X adjusted and million second the earnings For distributable distributable or each $X.XX earnings per our were share. quarter,

there office value second distributable total income annual translation of in quarter referenced related and prior million $X.XX $XX.XX book company to $XX.X gain employee and by Additionally, to to gain. Andy earnings, our income increase asset earlier, million ordinary our rates. quarter, share. purchases recorded The $X.XX stockholders Company increase reported $XX.XX $XX.XX driven the is the than quarter, per attributable adjusted originated The of XQ of and earnings per excludes this the first is our increased CECL highlighted, previously share unchanged adjusted lease Norway reserves, course from for the increase the share undepreciated increase per common grant. second primarily bridge during distributable distributable and or book while net quickly asset benchmark net for net quarter of quarter. I includes is to the by share. in loans FX which value impact the from in $X.XX $XX quarter offset GAAP partially GAAP remained primarily higher earnings share second and GAAP $X.XX sale would versus driven like by the an by we full net the the

Additionally, during into QX, we rate run $X.XX our related this and quarterly fee heading distributable closer adjusted is to a to XQ, one-time Adjusting non-recurring prepayment received earnings a item share. repayment. loan per for

produce rates. and distributable second our from XX remainder the or is also year, share expected cash this approximately in has of annual in increase while the $XX.X to of supplemental noting about than quarter rates level of months, per ROE financial $X.XX XX us We basis of over per As quarterly repayments increase translates continuing support maintain would data rapid loan the adjusted with an combined to point pace well-positioned interest illustrative deployment one the $X.XX rates dividend. the million by basis slower increased June earnings our in the into higher rates XXX last XXth to earnings now report, earnings book the directly the add that rising are else points. [indiscernible] XXX more share. but from correlated base It spot equal, being provide to roughly of Furthermore, already our in benchmark points. month worth that approximately to All levels basis our

dividend. our to Turning

a distributable earnings performance a versus XX%. quarter, implies share second a we declared year-to-date approximately Given our first quarter. in $X.XX the per $X.XX of the payout adjusted in This

our to Moving sheet. balance

of assets billion share June total undepreciated as at XXXX. stood $X.X approximately at Our XXth,

the was Our driven was quarter, ratio of and times ratio as debt the second This new and was by repurchase. to the debt first increase assets from the of to end X.X originations senior quarter. equity times loan primarily at at up X.X XX% share our end

share. repurchases, approximately weighted we of X.X announced, our a date, $XX a OP book stock OP shares per formation. BRSP authorized stock. This data as resulted price shares, the common owned million common of share Board million million have average stock XX.X million for quarter in per the As XX.X undepreciated include during program. and repurchase previously back at the of Directors value totaling $X.XX $XXX To going repurchased and The The $X.XX of to were accretion. by third-party, a shares units of million units repurchase

and bank for we between liquidity at $XXX with under liquidity flexibility our as approximately and our we our stands today of financing our revolving and on arrangements to availability present, foresee grow facility. addition, the hand future. cash In provided believe credit business the million At manage need

let's with for higher the remarks. current million, any level. newly changed with is $XX.X questions. we three open as neither, is The That quarter our as risk Looking X.X. at of had well finally, risk the $XX.X XQ And rankings prepared all and at This new quarter. during concludes two prior to an unchanged that, loans risk Operator? provision three of average second CECL loan increase the reserves, originated outlook our a begin was ranking the from initially end as loan was ranking quarter. or due million any from from ranking. Altogether, One CECL the impairments the non-accrual a And by our loans. refinancing CECL approximately portfolio a driven reserve to loans macroeconomic a call

we Thank this gentlemen, [Operator question-and-answer you Instructions] very from session. The Eric much, and at first Hagen will question of conducting be sir. BTIG. comes Ladies time, a

that a advantage all what feature think in expect to you be especially about well. liquidity minimum the here. the Or light thanks. is to, Good Hope comments? you remarks? loan? repurchases make in the a talk stock How a that? the of couple investors or is of and expectation size at able that made that based on we level Does drawn of about coming you loan sponsor speak should why financing you when Is you those with opening there to And the this achieve that Hey, guys. when me comments maybe in Is for dividend of should it the there for down, think do morning, you environment? your it Thanks. second, the quality to you're -- the operate

are It's How Eric. you? Hey, Good Mike. morning.

morning. Good

your question. for Thanks

be So, market, is, our into to $XXX the loan size let middle that It's size, from kind loan is of first. diversification sub million XXs felt be more range. that management to risk equity experience amount, me company's and handle the focus our range we based here. in critical and And and the and shareholder reason been always based the was at for on feature that on that a

some And you know, so, very some bringing taken company that and down average on loans. historically loan as write-downs large it very has very barbelled was big and size the

So, diversification of company. we're material prefer us diversify that loan the trying quite tenants. big the we so a occupancy drive not no a we're that with case, portfolio, to have really the frankly, also when markets for balance, this some effect big, larger can in you're the of helps securitizations loan to our do higher one really office and It in But realize where of MSAs. we loan we seeing rates on

occupancy there in XX%, in occupancy low like Francisco, areas very rates. San seeing rates tenants are you're of City, rates, places seeing Dallas, where York XX% office You're are but New

we're concerned And risky, you're you credit. do especially those be so, loans. -- cash, to we the for also all just the right perpetually the all you're you to because can't now we And office bigger that going in mortgage more regard as With MSAs, assets. long a think MSAs are bigger in, REIT, time

them, Fed, brethren the ready So, giving as the After it there and market. remarks, on opportunities. cash of now to market. putting powder. advantage us years prepare few a very said a take quite But is lot Fed right now, in express we to monitoring put they We're of the back XX-plus to sitting are, opportunities. actionable move, And of the Eric, are frankly, of our we're lot a dry as

brokers pipelines actionable far and more basically now, between. few and evaporated right at So, opportunities the have are

cash. whether his prepayments, said So, cash to prepared not, in sit on you as remarks, on designing or sitting yourself Andy were slowing. been you're The have

advantage kind what to that's around our -- we So trying looking happen, amount. We we're we're to corner see for don't the and things have of we're to prepare them. and trying targeted a and can

that is before. has seen I this a think market nobody

a Fed's trillion years had rally. is We're one balance We No inflation environment. that. on the one before. interest sitting No $X an talking of We've seen market has in have sheet. rate environment and treasury about XX

an think targeted. assets I we We it's of operate I in around. that just with move the We million sheet balance So, don't to have always cash. now, XXX think said Right something $XXX the it's amount on amount prudent sitting the were range. to a of cash net on going

got in seen deploying earning And many at the incredibly of could number gotten We've $XXX we we've million. So, X% potentially CLO some cheap. It's cash. for look have that that that a time. first years. loans AAA

they're remarks, said X% I they X% my yielding prepared in And As yielding second by third the quarter. the X.X% quarter. last thought in would quarter. I yielding be they're

that to can you leverage, we're amount apply way if like a deploy And to XX%, there watching. of So get maybe there's on that. cash that's and modest a X% something yield a

We to spreads there the looking issuance growth is that cause going we're to come So, market. the in. think at do CLO of

on, over cash, opportunities. of the predetermined manage that visibility of now, see $XXX right money. there's actionable don't So, sitting and have quarters lending excess about next we'll until we million couple we're continue XXX, to amount just there's a is The of and we

that. I could helpful sneak in more one appreciate I very If here. color. That's

based there for delever about opening to? kind Thanks. On leverage what as on the is composition you CLO, talked there? manage any to of in should to you change XXXX a that that we anticipate there room expect Like again, you the remarks, supposedly the is reinvestment

is. not change I looking our leverage did your what did the should no Frank -- talk There's about you there going did thinking No. at. that be not to address I'm around let we and question what the about in buyback We buyback.

Yeah.

our be right is, there's Eric, of we'll the in the the said, clarity look stock, as now. So far opportunistic kind as as back moment buying have bias at quarters, cash beyond And I look, but nothing buyback, just where to we around think are. the just planned to we coming we a

had And that. we holder one units And a an took price. to of we opportunity at from advantage buy back

we So, move market. didn't to have the

crazy levels off that were in things but in felt started to happening where would've that, little more, would've the able widening should in done to in So, market things other risk buying we seeing pause we market, good spread and stepped in you were market for something June, May. like get to thought we enormous and minute. the a we the But get a at as we a bit

we buybacks So, had stock a share we can get we little We can we to the revisit and more visibility. deploying when great Eric, buyback cash. window bit lower the revisit And where a we'll price the in stock thought going we're market we'd risk rather loans. the we out If improves on, to much market and money could. see improves, put goes. than

That's guys. color. appreciate helpful I you

you. comes of Chris from Securities. Thank JMP next Muller question The

how Hey, Can the talk six loans have are loans new over changed getting the guys. spreads about on loans for to on Thanks you wider that And you months? are loans paying I'm last for compared guys taking new off? spreads Steve on questions. today.

spreads Yeah. widened. The have

spreads. getting wider much You're

multifamily industrial. point, looking the becoming moved We Depending banks, the terms more in handle little office are, also all You're our spreads They wider the moved basis probably out hundred well. banks in solid out. and and four bit of out banks. leverage CLO a to on probably and at counterparties with have cautious of for for a are cost are market. as The they've points the funds bank

XX the rate And at after with like execute the banks syndicating and returns, are are required when out had get borrowers index of warehouse doesn't actually our X%. at look CLOs purchasing there quoting between well really work world a spread the But spreads we've lines. monetary ROE where and borrowers garish policy. effectively cap, you X% years where very we at their based banks we're today, on and Some can

all in new his we're said take for where figure that and the prepared is. remarks, to Andy hold as normal think, out that waiting I So,

-- XXX being lending, something may his so, and is And at lending maybe far you we XX% funds do XX%. that market that where I between XX%, of doing Harris quite call few former as mortgage think And your colleagues, There's room there's one over that no you're gone cost XXX cost doing of Where of for for get room more The at can Brian frankly, XX%. than for up this spread no mentioned room Chris, the caps there's and of In has to significantly this, over, mezz. room mezz additional is no could funds. amount mezz. to into opposed index spread be on actionable add at my there and between. stretch so

maybe pipelines brokers, for refinancing, the have room stretch whether earlier, the there's to pipelines at But sales or really mortgages. So I as it's dwindled. those do said transaction

you're will now, up I perhaps right very those of very and come think it's after So, between think and the But transactions periscopes Day, to now and put Labor going for next slow going I their little September, quarter. be some to market. to see

the then, from just what Thank Got lending they of guys your slowing are widening comments you. That's helpful. about it. in reacting spreads versus you how are on terms overall And seeing? banks,

gee, be us to of spreads can we XXX basically that their those not stuff more spread they're spreads, widening defensive at right? They're get widening want to throttle is really be quoting engine, And more on by Well, saying, cautious. expressing oh, selective. they're they more and kind jumping spreads. to and up the down So,

a positions not CLOs. to have execute banks lot facilities have along, they unwound And to they're lot that that we're You that they're who be warehouse a able they've of of in on. got sassy expecting

are saying there's REIT it by and looking borrowers, expressing spread. some widening like, So, the themselves the to estate real their they're banks and mortgage commercial positions probably there indigestion at their

cost to fun banks it's So, It's more be themselves expressing like that of it they'd down. way to of thing. and slow cautious the they'd like a just not

questions. Thanks Got it. the taking Helpful. for

and the XXX AAA when CLOs cost based By XXX they're the XX% advancing of the over somewhere at probably of last the the look CLO range they in cost pricing funds, in on execution. funds at is way,

a banks level, stack the that's see XXX for entire that level. So, XXX BBB minus, the to down

So, be XXX. loan, to should the be XX% low the sense it in on that bank a makes whole

comments. it. guys. Got Appreciate the Thanks

Instructions] apologies. [Operator reached Ladies the Thank you. Thank you. end session. of -- question-and-answer gentlemen, and have we And

Hagen have follow-up We question from a Eric BTIG. of

I'd in of extend one need sneak there's goes the any I they to that or thanks. any more. that, they them for change talk a sponsor loan? loan, extend from explore that about When their an to to whether you can doing standpoint operational thought meet terms may thresholds Hey, when their

Andy Yeah. like that We could answer that. you Witt, would to address please?

Sure.

cover. So, typically of loan in to then, we there they an back cap. a that And for covenants is what extension, as when borrower rate have happens comes are certain the part extension, the a get

loan the the time those by plan levels determined are based on underlying loan at those underwriting. And process. are of basis the really that's on a -- So business

for me helpful. Gotcha. That's Thanks sneaking in.

over will gentlemen, turn Thank question-and-answer reached session. to Mazzei have for you. back the remarks. Ladies we the now now the end I closing and of Mike Mr. call

realize were the appreciate same time. other at there Well, attending We today. thank calls earnings competing you you. And we

your on So, again our look attendance. quarter you third And in for speaking to we thank you to November. earnings forward Thank call you.

Thank Thank may now and and that you. conference. Ladies gentlemen, participation your you for your lines. today's disconnect concludes you