BRSP - Earnings call 4 2023 | BrightSpire Capital, Inc.

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David Palamé

Good morning, and welcome to Bipar Capital's Fourth Quarter and Full Year 2023 Earnings Conference Call.

We will refer to Brightspire Capital as Bright CRSP or the company throughout this call.

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

Before I hand it over, please note on the certain in forward-looking statements. These which are management's current expectations are subject to risks, uncertainties and assumptions. could materially. company's uncertainties results and and differ to risks cause business the financial Potential

In discussion events financial risks and undertakes on most X, no today to a or in the discussed risk other For circumstances. let's on does future of factors XXXX, [ [ the factor see Fed results, risk Gap] Now financial is ran section not and intend ] [Audio the company's please is back this [ company of information forward-looking call February our and the pedal recent has current policy close markets. in come that the update and that this ] duty XX-K discuss statements it for briefly clear could ] to now affect of as while

Michael Mazzei

commercial basis XX also investor CRE In which XXXX AAA debt very points for ], and estate CLX the the CMBS strong structure, saw more. first actively [ managed a of demand markets, roughly real print an we was

of the organic portfolio. increasing expect We

rate in lower estate issues, pricing commercial credit solve it beginnings signals on long us of of across help a expect half way are meaningful market year, way. these reducing rates stress And a alone reduction For will that asset the of interest the while clear of this owners, caps. all real And we the classes. not will go all

approximately last these navigate has of months. to lowest liquidity we Maintaining million our challenging, and was continue us Turning balance the X but BrightSpire. XXXX XX of helped the size average the loan with in coupled peer leverage higher the back liquidity of smaller sheet, to protect $XX now levels have ratios group. maintain levels

on past, own reduce multiples shareholder update As stated large concentrations. will X concentrations ultimate in will resolutions On loan liquidity the further largest our constitute which of when provide The equity. that an of Andy our loans. it is note, we for problematic have

Looking of the decrease are in the rate to has our on ahead, half And forward and to to bias funds sector with basis positive the positive will trend Alternatively, second increases XXX we have year, portion of. coming with entire hikes. looking now return rate earnings quality. experienced this this rates from rate, the this expected points all credit

will for as addition, most later coverages as over not in In assets. capital. Further, as earnings. XX the be in sector loan inefficiencies factors the line has we due earnings lower used a an write-downs progresses. coverage both from year Therefore, headwinds future this this warehouse the to balances, experienced dividend capital last of combination with increase for along payoffs months, a These higher narrow should and as well These should recognized unencumbered year. cash XXXX leverage paydowns guide maintaining sector's be levels BrightSpire for

X Now balance looking we offset base the to over these existing past factors. trends the forward, reverse sheet XXXX, will it be in need capital to about will years. your Accordingly, optimizing

As X.Xx stands $XXX cash unrestricted approximately at I our previously is leverage million. stated, and overall

nonearning or other some REO capital low have in also We and assets.

this monetize During we capital and will work redeploy to effectively. XXXX, more

and Importantly, help resolution also between close should the and watch loan our providing market book our the more certainty list on of price gap value. assets book

opportunities. As be mortgages of system. banks most rates, begin The easing the also stabilize opportunities objective. second regional along we the open will seeking up banks half in reduce CRE should further Fed assess with XX% the the hold the year likely regional deployment their be to we that bank further XXXX, exposures. Keep to in will execute our in will capital commercial plan Lending sheet, balance a of the to of actual lending new mind about

incentivized to loans less especially construction mature, on loans balance sheets. their as So refinance these be these far loans, will banks

more to nonbank almost III I Basel we will set. we the tailwinds In rules. addition, factors In President, X offense These are banks closing, be first will will for with In become opportunity the new about the will to lenders. time the the under becoming included regional more that, Andy in And play look years. now over for call Witt. not-too-distant future, our turn positive

Andrew Witt

quarter, Good the like focus asset portfolio all was Throughout thank on our Mike. you you, joining. Thank and of management. much XXXX, morning, for rest the and fourth

from of X proceeds $XXX result which million a million sales $XX a received included South paid of the repayment the space. The The infrastructure, loan conference hotel by $XXX fourth During been has hotel, is in for San sale room XXX Tower. loan for across down the million. including to of as marketed borrower. partial being amenities investments quarter, the currently and consists The hotel original we repayments back-of-house remaining Jose collateral the all

quarter, received an the we to multifamily loan repayments. million during repayments phones end, received quarter we addition, $XX additional In office loan. Subsequent and on in X a

a we ahead, and the be an The repayment received $XX a additional million. $XX office funding loan of from loan our of to balance and of March. obligation million Looking in current has future borrower largest expect off paid notification a

We class. this also further in or more anticipate segment several our of our asset months, in paydowns to reducing portfolio loan the office the payoffs coming exposure

existing South completed on surrounding is This the building. the collateral. on and value far our upzoning residential occupied sponsor living office substantially Pasadena, recently expectations, office California entitlements the exceeded loan it of and increasing on fully for land the Additionally, senior

of creation the the we maintain year-end, and this quarter segment asset of in transformation at we While the portfolio collateral. recharacterize our underlying intend given to still next the office value loan

office backdrop. to of which remained for information relates of marketed currently more exposure the property, portfolio portfolio, difficult took face should office ownership call. The We during next being of has to D.C. conference within multifamily resilient have quarter in fourth by a the is Washington, portion the we our sale. share largely it as the definitive Lastly, macro

line years growth after top of in outsized increases. slowdown rate a seeing are rental We

relatively top detrimental supply flat sector. ] expect to new to XX We in the XX next Tove as the sector during adopted policies absorbed. months to Certain line over growth is have remain this [ been

those making as down, plans. progress wind are policies their value-add operators business on However,

We have with and working loan cap extensions been on closely borrowers requirements. very rate

continue Looking ahead, bodes for absorbed, under construction remain is little for strong. the once currently believe well behind the product is to in And there fundamentals which very housing the we pipeline it, sector. the

list to Turning The update. watch our list last quarter. with relatively remains consistent

X loans removed X the First list. off, were -- risk ranked from

the of As underlying we loan. ownership office the mentioned, previously took D.C. Washington, property

Arizona took a previously the loans. underlying [ Phoenix franked Additionally, of we also X ownership ], multifamily property risk

funds business plan. borrower to remainder the the needed discussed last we unable was of execute quarter, As the to the secure incremental

was property market. We the value-enhancing expect plan, were implement, a after to in executing retain we of on loan from property this the loan, taking ranking We which quarter. currently to The to several are financing Colorado marketing We borrower sale. which to quarters and had during process anticipate time downgraded we business X Denver, only list on a for risk will the the is downgrade a our able multifamily Phoenix take placed nonaccrual multifamily watch which of property. X X.

of portfolio of $XXX investments net cash with XXXX, balance an carrying $X.X a total XX, XX% of value assets investment billion the million value sheet, excluding the December carrying comprised XX and net is or on the and of of aggregate As portfolio.

and which future quarter-over-quarter is commitments. $XX at flat risk X.X. Our X% or loan weighted of loan outstanding $XXX obligations, The funding the size at average million, has average remained portfolio minimal million stand ranking

our of mixed-use XX of portion First remainder. portfolio, Frank? hospitality caps. of of value mortgage collateral turn XX% I that, $XX have the our across portfolio which Officer, loan carrying XX% elaborate average The consisting or fourth largest loans aggregate The call with $XXX Chief of Saracino, million. to aggregate results. and rate an of multifamily industrial comprises balance value. constitute floating comprised the making loan loans loan our the of up rate XXX% are the XX% of with $X.X segment XX the portfolio of carrying to over Frank representing interest will X% Financial the which billion portfolio quarter of on with of With the loans, of Office portfolio million remainder all remains is loan and

Frank Saracino

morning, Andy, and you, Thank good everyone.

our want Investor that section supplemental year available the Relations Before I is and XXXX on discussing financial mention results, website. report our full our fourth of quarter quarter fourth to

mentioned, flat to $XX during Mike quarter. share, $X.XX we quarter, per third the fourth we the share. the specific where multifamily ownership million, of for adjusted of As the generated Fourth property approximately DE per loan million or DE was a also DE quarter reserve $XX.X or quarter. of $X.XX underlying on X took includes million $XX.X

REO asset. CECL Additionally, $X.XX on sequential per company GAAP a increase small or X taken of loss $XX.X we reported which the reflects share, impairment our net reserves and total in million

per For XXXX, return generated $XXX.X or the million share full a of year DE equity on shareholders' of average undepreciated adjusted representing approximately we of X.X%. $X.XX

excess of was per CECL share. The per by is declared. dividends Undepreciated in the $X.XX well in from for Quarter-over-quarter, from driven decreased of $XX.XX at change book by adjusted Our an decreased $XX.XX $XX.XX dividend covered book total net $X.XX offset value company reserves increase GAAP DE share. also to to value year X.XXx. mainly and our partially

reserves. Looking at

multifamily was reserve the multifamily CECL specific loan that was loan taking the Phoenix, the X. our by Arizona downgraded from Washington, a to of underlying Denver, driven office decreased related decrease on the D.C. required was No specific Colorado charge-offs million properties Our $XX to reserve The ownership to and X. loan.

general Our commitments, economic well from properties. in by general quarter. inputs the of or provision CECL and on basis certain was The as $XX total as points specific stands an loan multifamily the prior million increase $XX on primarily hotel XXX million increase conditions driven at CECL

at Looking loans. watch list

to ranked total X risk carrying XX% value the loan risk ranked for. of represents X loans equating total portfolio are carrying X Our the value. portfolio of X% loan loan

and current best see risk resting sponsors on increased with loans, for to the are monitoring ensure all investments potential working While accordingly, and loans outcomes. performing for we these

Moving sheet. balance our to

at quarter. stood Our XXXX, total $X.X a assets December last undepreciated the in at XX, decrease as billion approximately slight share of

debt-to-assets slight and is X.Xx, ratio is quarter-over-quarter. our debt-to-equity Our XX% decrease a ratio

the of maturities quarter or We have due no debt second XXXX. final corporate facility until

million let's Operator? up In stands remarks. This at of as liquidity concludes $XXX million. as our facility. that, million of credit that prepared $XXX questions. our cash approximately This current for today our under with $XXX referenced of it as open addition, And Mike well earlier comprises

Operator

comes be session. [Operator question will conducting Instructions] First with We a BTIG. Sarah Barcomb now from question-and-answer

Sarah Barcomb

dig that properties your the sponsors low here. related new most buy that interest part. wanted unable exposure those overall to provide additional commentary I caps any the for or rate not on these bought to interest you just willing during multifamily period? sponsors have portfolio might downgrades syndicated to can rate to into And

Michael Mazzei

that. I'll with start off

color add Andy some can as I there think well.

portfolios. There -- on Yes, were issues I downgrades the that So with exists syndicators many execution are some that. properties. in there across specific think syndicator those are

as the there Some stated said them policies his from owners are assets. of Andy that out related, moving in inhibited remarks, of were tenants COVID-related

value-add terms And issues of were in executing on so terms value of plans business in add. the they

So REO. we to those regard the had of -- issues. with property that went some

quarters take several As of quarters, a Andy to of said, could move out us it couple that.

with we had yes, So issues the syndicator. some

had We handful monitoring that. are our a We've of -- been limited. closely we've assets is It's that exposure had.

watch the on is One have watch the the preferred but on to list the it supported list well. of as asset, by behind equity we the continue being assets

programs. getting the interest the and They caps. terms getting bridge seeing In ultimately on of said, with multifamily across portfolio, buying as are across caps are Andy in terms the their of visibility rate supply through borrowers

So borrowers that? caps. to generally the add multifamily Andy, sticking to buying assets have you'd and anything like been with and

Andrew Witt

asset and on Mike, rank X that's in the currently a over that REO asset think, to next X couple process X to we going and went which process risk renovations market a lease-up, time basis. take expect expect a that stabilized to it. of through quarters, is more after The you I we transpire the covered that from to

Sarah Barcomb

here portfolio, the shifting that's Okay. these pretty stage, of these listed. my we've but seems watch some this future at given credit office. it where is was but the Great. is be point? space do for repays in days wasn't quarter, just X downgrade, expecting here. some office to like over is, there's this at you Yes, There telegraphs noise seen question the the positive -- SFR ring-fenced across well It some that to feel Basically, multifamily this office and expected, just

Michael Mazzei

home as issues go Honestly, I given out be that. far there. office to those is out from the can, wouldn't say going getting anybody think are to I taken with issue assets work don't with as that refinancing. of The

reflected in very been be right you're seeing that proven loans to of the And so have back. I on some think that that difficult, has now, being and taken severities

is in we Washington, as Andy process So said, asset. generally, selling are -- D.C. say, the of the on I'd office,

on and now, some that that. Generally, have have reviewing we more and those stable. office think the I on for materially. We working encouragement bids say got anything was bids we Sara through number we're it there to portfolio in slipping we'll the was of something and didn't see QX,

We have some successes. had

tenant spec very occupied to occupied. And that think L.A. pay mentioned single that about paying be asset the are there The upsizing asset in to both a what in in San was As assets are Andy also and a on leased are which as they're X asset is debt In high that XX% asset, Pasadena off Francisco, have we Andy yield. now The said, fully deal with occupancy We zoning recharacterize South now we new in the is have largest quarters, smaller, is leases. with off a Florida. asset actually are may we previous alone. office talked did we've the will horizon that loan. when that in substantial tenant so indicated for going notably we the the going Baltimore with most be takes that assets fully

will we've that good unlike visibility it's for portfolio, where and seen these about perform. say housing know But movement for over we see shortage, the they the positive And borrowers assets are -- rest ultimately So borrowers. about what the horizon, said there. just the I multifamily, of some

multifamily sale sticking And they're I asset marketing he's that generally, a interest of the not lot There's of are for watching and The they're lot -- confidence The in more office say, asset. of that interest them we're lot side. much capital. of a there's seeing market. -- we'll think we with the liquidity can lot REO and on be with liquidity those I are more a So of asset deploying in around seeing working a closely the that that. the in assets borrower, assets but on terms the asset

going of a the we've we'll refinancing. while quarter terms absolutely quarter But this still quarter improvement that what the for in had otherwise, will because So the closely some think the forward, portfolio, watching in I was those be of reduction the terms yes. the stable, of the was market least that's borrowers be have more in area liquidity balance portfolio,

Operator

Stephen Laws from Raymond with comes question next Our James.

Stephen Laws

on to kind kind to you roll months of something the X this go visibility, on what I tone, finish of why to that over positive you back get see the X the repays better see need improving it else want Do you given it and like start Mike, kind the another guess to seems maybe get to position. to prevents you start, leverage and incrementally what macro do kind very want rates from you're of across year. as wait offense? into the seems given sooner on -- feel going look like expected Is office out low of you to line? offense liquidity later

Michael Mazzei

all, missing of first anything in next think don't the I months. we're Well,

levels I still been borrowers cannot proceeds slower get out think have and for the rates. low of transactions assets the transaction because their a are existing lot because

to banks mortgage banks, constituent make at more about the have and the so. our just confidence the REITs, first around be have see in we do the that to terms we direct to We the waiting, We as is are want us remarks. that. look let's In no of I said first No banks. portfolio, and more cash because of protected, sure stability get all, stabilization we of want to we're there. why the prepared

banks priority our number So are one.

about terms investments, terms don't don't our to price. lot much said shrink at see there's when really the In want We've of of small, don't new needle. They're stock do as the been base. we capital -- talk buybacks We they a look it, a repeatedly moving that of in lot we of moving buybacks.

about then new some getting watch it's some And think look on And the the something investments can confidence And sheet maybe half of of half we And so our spending I we'll a year, half, some we second really cash, of list, looking would really, year in spend visibility the movement in the could million the for to first about the investments, accomplished talked the deploying the second to things in more of if really the $XX really we're like have confidence cash do start at the the to we half, we half good thing. when get and the the we new first on cash. improving in million second that's can of we buybacks. balance over get if year. how the $XX of

We on lot interest As that City that Paragon million under the asset. $XXX -- get have we we do a have and Blanchard mentioned, and have X asset, the Hopefully, on all Long may we'll have in that -- interest asset user tailwind some totally into the not overflow REO. the some we do levered. of coming or you of specific REO particularly is into mentioned

the So of in confidence way, And we and the get half right get portfolio if to the the the now, can second I looking -- stabilize further year. think, really by if we're around uncertainty. of where certainty embedded more asset prices, all performance, about is deliver value we're talking thing book think largest trading I can in XX% and stock the we the

find are of bigger book. impact terms But there And there, is we over portfolio watch and certainly back. said weren't exposure normally every coupled would firms. as going that up they due, originating City as seeing so on And XX% as have into then that it to going financing those have would construction come permanent to that and of New mean, be think we're on add, participating executing come we're also opportunities, see would are bank from looking loans comes terms living getting of loans commercial at in as estate said off on loans have the York balance we going not do with don't And price REO maybe the they're real lending. even I I I'll refi that to we're the those banks banks originate regional the of many estate real to think earnings -- stock opportunity the later. some their funds thousands the of call, exposure call our I loans x. banks with call, III, utilize will the evolution done. really pull those off when of Basel and to sheet, smaller they We virtually out removing lead that nonbanks we debt on and the list and an to that And only would the much has on the what to some banks and have the in So is construction many be that out going and been

their are we a no even didn't that many think loans we banks hear weren't there of, to they're will them so to going shrinking we And portfolios. have looking even that has and the diminished that from bias greatly at all there of the out of. towards So originate

is that us be of XXXX. in coming to going all think I at

the opportunity to be have banks ample for product. there'll So I think

Stephen Laws

little of of -- have touch more and stuck the the there that -- heard some bit it color to mention those level and provides tenants that multifamily how nonperforming and been get these process due easier that watch out the to at you kind assets multifamily? or of property is couple of some policies. -- with about opportunities talk others in what When of to certainly return assets? a would Appreciate a banks I've change? some did interesting be can start retenanting now new underperforming some the to replaced you're tenants, you that tenants can seeing those COVID kind And and

Michael Mazzei

lead to want Andy, you on?

Andrew Witt

Mike. you, Thank Sure.

the the COVID nature, regional been they've and in So policies. time. access rolled I business Those the easing different to generally, an off inability oftentimes process we have of was occurred think periods execute start and have value-add some what the business plan, seen plan. units on renovation of over the of so But

and borrowers And stabilized. able is get so assets we're take to and the get it to flows forth. so them And seeing through them now what affected borrowers' are the renovation cash

wasn't So business able expense it was their a plan, to great it to and period where oftentimes, them. the just execute at was borrower

on those and opportunity execute go plan. and Now to we're that the impediments less seeing of ahead

Operator

Urner question Next from Jones Trading. with ] comes [ Matthew

Unknown Analyst

that and start So prior portfolio guys or maximum the kind deploy of new of sold, you before I is gets loans? following cash and amount a there REO want kind loans up some you off offense some the pay of as on turning additional one, minimum defend guess, the cash into

Michael Mazzei

think we revolver, Well, the had we've I to and maintain don't past, a had have tapped in look the really that. that I we we've a policy cash. doing the policy know We we revolver never we past. really in have minimum and want a that to

I think million $XXX probably in it in terms something So like cash, would market. circa minimum this be of

previously, million. I more hikes, at Fed's were we like the think $XX looking before

warehouse we tap little right asset more I said, into. is think bit largest I have lines a probably least on there's our REO, asset now. that our Certainly, I So want outlined uncertainties cash levered a And also the outlined the because lot we to as I earlier. can the

is asset can there that should at X.Xx expect the itself, then delever. in capital the group. free and lowest if So And our we among we overall, which up resolves we peer that leverage

around folks mid-Xs. Some are hovering

in we're X.X. Some folks are hovering at Xs, the

to the a out lever portfolio. figure way So we have to up

will that XX% putting be those. by XX%, doing loans against leverage new just of and Some

parts largest some that, and this of cash the at we'll hopefully, of $XXX XXXX. XX on able -- is very next under-levered. is several through I REO something about about right the So least And of quarters redeploy to now, over cash, sheet $XXX harvest the early on million rid resolution minimum our maintaining be get which think probably million balance of loan,

Unknown Analyst

And that's are that helpful you And half? scouting geographic region new out so, guys to looking of take if want though the there. some them of when the in might terms or kind and second kind deals you at on loans, target you asset Yes, what's of marketplace, not go in even do until offense? then type you guys back

Michael Mazzei

I stayed the Yes, market is conferences, and absolutely. attending involved all all today. in getting say have We've with their our color that up, we're contact originators would in the periscope the looking, been constituents and are actively on

like be And think great I we've through of have asset. some opportunity not seen lenders us multifamily are opportunity other unique would we group would have CLO such be that. to stated, on all on financing a doing market, peer It to that's guys date, would for we as very, to for office the it would agree our putting well. lenders, office. come The want be our to and bank and involved they'd finance very that hotel much an need to multifamily that to a focused an with more have vehicle guide the have us bank multifamily, to in us really and will and

be many as I did that normally opportunity to I The firms. the construction. going think the is said, banks,

are banks that. be going the I think running away from to

say still residents are and to In states chase doing best of that out can the of possibly about region, to continue. they that oversupply in would talks that and certain the think I there but the actually the we going that's terms Southwest are -- state. everyone Southeast --

that while budget think of the horizon, out taxes really is we potentially dissipate. as XX that we're Southeast states, his And is quality some and Andy the in continues, so about, months prepared the pipelines of as as remarks, issues long said everyone and over think soaring supply is seeing get up these you going and talking that in life there we in

be that we that U.S. regions macro you'll to to better is So north than in the will from other a Not side there best But lend the pockets say those side. perspective, do think still areas. in. of south regions the the is

Operator

call comments. I would for the Mazzei to Mike turn like closing to over

Michael Mazzei

forward Thank Well, thank again hope that will we and you some look items you outlined. make the all we for speaking to to all progress today, on us for in joining. we joining May,

Operator

teleconference. concludes today's This

for You your you at this time, lines may your participation. disconnect and thank

BrightSpire Capital (BRSP) 21 Feb 242023 Q4 Earnings call transcript