BRMK - Earnings call transcript Q3 2020 | Broadmark Realty Capital Inc

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Operator

Greetings and welcome to the Broadmark Realty Capital's Third Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host [Indiscernible].

You may begin.

Unidentified Company Representative

Good afternoon. us conference Broadmark call. joining quarter Capital's for earnings XXXX you today Realty for third Thank

additional results, In questions to this Investors today's filed with call, afternoon, statements. to Section may we on addition the at remarks have contain the press on our management's supplemental forward-looking www.broadmark.com. in prepared is your available which release website distributed detail the our On package answers and

results uncertainties address differ matters subject that differ to that discussed anticipated. may A from to and those today. could actual statements those Forward-looking cause factors to cause materially are of from risks results number actual

statements Forward-looking in date light made. publicly future And us on to at them and assumptions this obligation or events. any management time of undertakes they beliefs are no only expectations, to the as are and update of as of available based well information information speak new current as

factors the information Report that other in the SEC included may the Company's Company's XX-K filings. results XX, is the affect for XXXX ended the Company's and Additional December about year operations Annual Form on and

the our During directly measures filings. this discuss certain to about these GAAP non-GAAP comparable will earnings the in Management up afternoon's non-GAAP call release financial open call, and are some and Broadmark's reconciliations Schneider. measures. This will after Chief David contained we is More Chief by will financial make measures Executive hosted your financial we information most and prepared conference to Officer, Officer, Jeff questions. Financial Pyatt; which, call comments, SEC

call Jeff. the to turn I'll over Now

Jeffrey Pyatt

call discussing third and remained and hope loan and that begin I'll financial quarter third many your healthy. Thank detail leading real our and commercial We This provide performance, on no all debt call. to to families to I'll investors. afternoon, CMBS Then you, and Steve, our and lenders, welcome insight portfolio turn the performance our earnings and of quarter results some differentiate additional safe on to you estate our or balance over sheet. Broadmark's have XXXX by the David attributes other provide industry

We will questions. then for your up call open the

quarter, drive to well depicted growth with as to We're make originated our Atlantic our They presentation. compared of it we of the business These regions. and bringing pandemic. lend to prior fundamentals, shares pace into will due Pacific for and is exceptional opportunities COVID-XX This retained how Mountain great the elaborate cash loans, continued new I accelerated market originations, the other originations Columbia. take pleased of quarter. only lending our forced our for million. the very the not regions. Southeast is over us with also believe plus highly this the gaining today, that Northwest to which demographic We For these $XXX throughout competitors states back. pace of normal a on Unlike demographic into reflects of smaller million construction remain We when construction are States we markets example to to future. us strong the the advantage housing the District states historical Mid the Broadmark's leveraged are $XXX position. get our balance level back a in third more X the portfolio West third sheet residential of these even which for favorable which demand trends currently in We A believe winning Slide new new percentage at more allowing lenders, originations pandemic. We liquidity activity COVID trends to line COVID-XX to return regions were months strong in year-to-date the XX of position up will cadence quickly in shortly, relatively of we of pull early slowed, throughout selected but market have and on strong earnings through a

We Mid lenders over regions expect we coming to offering growth as ourselves done we be years have the and our reliable markets the of to in Atlantic just demonstrate in the Southeast unparalleled see certainty and West. strong speed as in execution

we our able our improve to our larger market portfolio, to continue also help share. As which fund grow are and expand and both we diversify margins to projects,

years residential is with we and on excellent This project As a a loan new an We Broadmark's project borrower capacity. financial business in loan is over our growing this able that in example, win without customer to sacrificing unit credit multi-family won experience reputation, XX XX-month pricing a loan this historical in underwrote were Even recently better a the news on and XXX to structure. our due Nashville. of construction. and scale we

cash can key and a The longer under flows This there As projects those means lending rents. is from where term fund future high for long-term model demand construction not are is our lenders, the is providers the we But our differentiator business and loans. that of loans in attractive capital development. financing opportunities investors. nature markets construction identify that we to providing we on providing of and dependent CMBS financing short-term immediate between are term

of the constant market. exacerbated is stable way their types, housing And not any demand. supply shown our The cycles; relatively can the has shortage in pandemic the demographics, without has X need reliant to and attractive on economic the we our high in residential have ways, pivot less those are strength provide in to projects As capital presentation other Compared for we certain active to to homebuilding in growth almost all from If tends remain to on the property markets, other COVID diminished in due construction through is lending many that, delays. long Slide cash regions construction efforts other that can or confident the being markets we projects. complete over the the become finished underlying time, flows cities one as long-term. builders over

we many mortgage commercial For that portfolio this rate generate consistent is peers. focus our better our and to lending suited of believe returns attractive and reason, than

between lenders relates differentiator commercial projects Another we the to Broadmark's key types of and real fund. other estate

little have is malls, declined rise a high property to We that near-term office and of other exposure or have result long-term pandemic's the in residential types value buildings, urban projected effects.

loans, portfolio small XX% mostly multi-family Our single-family is and residential comprising development.

reflects of comprised portfolio of which is fund hotel We retail, another finished portfolio not properties, of office, the have the or classified the small our for to later and diversified whether as of pool commercial XX% residential construction development, and again, gives horizontal our than loans primarily of option XX% also us on Less lot. a properties. for loans,

which While we commercial of our also X% category we vertical to has two declining expect opportunistic decline. land helped characteristics. further category our over loans, investment time, our these have we've been unique into with de-risk construction, portfolio. remaining us which of over land The also transformed consists been a has for peers, because time, to we many to this have Compared

is which to than First, provides to for most full fees. internally alignment commercial publicly we managed, lenders, stark are rather focus contrast us and value are of the creation, which management maximizing in management interest shareholders, on advised. This generating traded expertly between allowing

strong as industry not financing. recent as reliability most throughout maintaining leverage leaving market has operate We've reliable in to us continued commitments to a many Second, balance our distress, dependent their grow credit is without In a our without stands highly reputation back, an has the share We to pull have that market borrowers so. period our as do believe by to effectively demonstrate competitors are had grow. to market this of competitors strategically allowed our of And been sheet our lender forced leveraged. result, its cycles. operated we to where a of have critical a approach that

we our the our and year. Officer. company, new as Legal approach strengthened of have our As help life, changes management adding public address and organization past as the the Nevin Chief the team is made on our by a David and enhancements To Boparai company reflect anniversary over CFO Schneider to challenges opportunities we we've one-year I public

Daniel Credit Koa, Board reminder respectively. we with experience Chief company are broad Linda of all a promoted XX% since success we've losses, market by past have XX-year we supported team And the two a also proven and Hirsch, less the public, loan been Officer We positions over Operating Furthermore, and Chief over years. and capabilities COVID, as to tremendous by veterans brings contributed the same apply weekly that estate In company check-ins, ways, hands, public which and to standards the on important our and Directors team continue events. physical expertise underwriting virtual we strategic who history. Broadmark's over many has efforts. minimized X% culture real calls, by the to irreplaceable able changed, rigorous distance guidance our through in however of Officer regular that imposed of little despite culture feel grown to maintaining video X.X% We've our enhance to that XX going our been our has than

everyone's For we annual we summer a year, to person, barbecue decided had have hold instance, in over delivered this vendors party since couldn't zoom. home we our virtual barbecue to and company

inception. responsibility corporate since had maintain commitment our same we the we've that Lastly, to

look ahead celebration. in to holiday we elaborate an As year-end, the of lieu

our practices, and look staff, with initiatives homeless from while planning a And team provide governance responsibility to of is continue make local forward This our to shelters, governance are our part we culture. a we social We need, people. aligned with the initiatives reminder, express meals support. a Do of which or to central as charity a purchases each also providing the our the to our disclosures? We for social restaurants on our enhance in for further these to seems names management environmental, ESG Broadmark's helping way to uniquely at employees’ fitting in to the investors. regard as like providing retain restaurants contribution that a is regard as updates those company restaurants

I'll are more As turn who now significant retains will company. in over management results financial the ownership our David it to internally we detail. review managed, in

David Schneider

good and afternoon, Jeff, Thanks, everyone.

detailed on presentation. our Slide of XX are results operating earnings Our

of income volumes, For approximately our quarter third quarter and Page Interest Adjusting income per share. total and costs on common the million. which reported basis, diluted non-recurring diluted the $XX.X was income they on are a value per share On earnings originated net impact this for the other regard third third million. $X.XX third to loans common are a or for loans the fee share. million. was With the of in million X with total $X.X $XXX XX GAAP income in non-cash of million quarter we of of and presented quarter, earnings our of per net revenue presentation, reflects of $XX.X million core items, XXXX, $XX.X the a $XX $X.XX origination

pandemic COVID-XX from the in Jeff mentioned, is of historical when originations quarter the slowed quarterly line second rate to reflects we this regained during measures. our and momentum As lockdown with prior height the the

outsized where business. of But XX% third the for seasonality quarter-to-quarter, see would the residential construction origination originations of our of that closings quarter feel about we development, growth on volumes of may reiterate opportunities loan We the pipeline us. still opportunities. vary Importantly, great in based of were we and timing from currently front

will earnings Additionally, the time, full of in quarter origination accounting loan. over be realized our as the life as reminder, originations of recognized over benefit requires that fees be the a any treatment given

on as XXXX. had worked and we've of September to current our sheet, positions pipeline, detailed earnings turning million well which facility XX Now, and our presentation, the normalization borrow sized Slide intend we of We balance Also, of we liquidity through $XXX.X put encouraged the XX, in recent as believe exceeds activity in manage working as as as cash have place by debt a no we've cash. seen months. near-future million to in we modestly in communicated, to credit efficiently more previously $XXX the capital are we our

we as is dividends. flow believe and grow our a tool us and help appropriate ultimately this a change to While approach, our cash historical our is portfolio from it

our become structure. shelf-eligible In provide X, December strengthen to opportunities addition, capital on incremental we which will

an defaults. I'll on Next, provide update

defaults certain Since of our worked existing of Historically, halts. loss. defaults or and default then, entered status at the cheered with into majority implemented foreclosure, no as and principal majority vast we've outset the our to construction the we've temporary states resolve March pandemic, reminder, a in April, diligently contractual these of without interest the defaults. As

in we loans of loans September $XXX.X in and had as Excluding million contractual outstanding. XX representing five XX, default, principal balance forbearance

share The that per our in earnings on default represent a X% losses have of loans estimate and common Since reserved are a We default a focused approach approximately March three less at portfolio. these defaults ended respectively. we status defaults. third months the potential subset on months contractual current XX, in remaining than losses, differentiated the on default evaluated status, loans contraction and September limited contractual from and XX six We to XXXX, and and drag contractual compared estimated default XX, of of has diluted XXXX, as to our our resolving loan million workouts. XX contractual we resulted for resolved million September During new to estimated X XX, X% only $X.X have loans loan turned those interest and and defaults for of to are and not contractual on new $X.XX during total recognizing XX, and the ended of result placed for quarter. loan $X.X at been and and loans one June decreased Every our been loans. income non-accrual losses June defaults three remain committed status

minimal, cases upon quarters. and Importantly, expect collect majority income we exit the upcoming in to expect of losses interest in the if often outstanding any

a REIT Finally, offering XX quarter who loans vehicle. capital REIT private We our XX, fund in another loans while us in expanding XXXX. the are as potential of gives private which a unique our to view private to third investment for September investors total of source prefer those as of million participated $XX.X universe of participation a

in opportunities resolution available in sufficient the Those REIT. for employ maximum that with quarter, ensure goal shelf-eligibility growth XXXX, we our on the capital default. private as significant that shareholders. in of and accretive focused loans follows, to through principles maximize our currently to As fourth of on us achieve deployment and credit operating power are the earnings facility manner deployment capital will and identify principles new is earnings deployed allow we of place. contractual Two, continued existing a of to we believe incredibly look upcoming Four, one, the are Three, capital growth. and are for set in a growth

Now the I'd to closing a back comments. call like few turn Jeff, to for

Jeffrey Pyatt

to Thanks, winning of David. more up To quarter, pace are a origination resuming business ramp pleased began we and recap, our market third the share. in normal

COVID-XX last liquidity to business several so over the our the the while not yet is lenders added ability that weather months, many pandemic gives distress us model. confidence encountered, Although other our avoiding in

lending the ever residential as space, no appears demand shortage of opportunities see mortgage record as shortage persistent loans we in ahead, Looking our well a as housing as by for low as bolstered construction strong rates.

housing to pleased of as are as delivering process in remarks. prepared the our meeting reputation lender grow We This be our demand for shareholder a we needed completes in much the value choice.

open the now line Operator? will questions. We for up

Operator

answer with we and from have Riley. [Operator comes question Randy will Instructions] first session. our Ladies question. question proceed with Please and gentlemen, now your B. Binner Our

Randy Binner

Happy evening. Hi, my first good be to you, Broadmark call. joining

Jeffrey Pyatt

Hi, good evening.

Randy Binner

that you to wanted in $X.XX Hi, in comments. drag prepared the I just kind of called the on dig out

and I and the interest was short you non-accrual versus status income said think our loans where, but result reported was models. that think of that I was

just through of levers might that timing recovery of kind think can when will more trying the back guess revenues? interest get pull a what there on sorted to the get run Income I would out I to, guess you what to And be. on be So rate of normal kind

David Schneider

residential we more Approximately to to time the interest able a But hate to are remind takes generally construction I'll time defaults nearly the which can like of -- all based. resolution, amount more that's approach a take it. $X.XX near-term. to XX% Sure. outstanding. for avoid or on going visible thanks And the of generally different And good And defaults, Broadmark take kind it's having complete. drag collection resolve. to historically the by foreclosure. in any us interest view and saying to are full outstanding start either that everybody, has certain would I of lead collect little to avoiding with is, a question. losses if complete drag loans be defaulted We allowed Yes, And on a full XX% of the or

who cases people been have it going always there's paying default the or But certain bit I construction is the halt in we're a month by get them last And, think delayed weren't talked unique. states to certain it's of individual when months. work. that in know couple But of not most three I loan these it progress of In going a was a delay. XXX% either we've bit something's much the was So, one how delayed. resolved. into of clear to each had cases, attention Most could was uncertainty cause quarters, of certain got a always

the was is what think we less defaults to. news XQ good had in we than hoped I saw cleared

still that that so saw could fix we will up. all resolve, interest for did drag most we upcoming So and the QX, collected XXXX. them see. we to principal got hopefully, we QX out and the in probably that's we accrued that We we outstanding of to in continue that pick interest in think income. But all we the trend quarter, really prior on close QX of outstanding income amount And hadn't that the think more then sizable

So I the priority defaults I a we gone. But made think quarter, of a in going lot be top it one it's popular to for not QX, are continues think be all to us. progress the

then result of to we're XXXX. start also is, March, seeing enter saw clean status it the QX trend where not say And default a pandemic. and seeing going clearly direct right, defaults, we'll the XX in probably QX, we in we saw they’ll new that news good in hopefully a we're it's than in up think I fresh QX. for then I And

then saw X, X May, quarter. saw the in new in third April we construction where and also in default some had we We

trending we direction. So think the we're in right

In executed collecting loans, of, we're forbearance and been makes reserved we've we now actively it And and are executed of sense. what income generally events, on for deployed, rents, that already terms type where are have completed we've properties agreements where generating. those those

we recognizing loan a good when So, cash that to Not feel not? in through a take a and feel we know going but on QX, ultimately, work a XXXX, smaller chunk those to going going And we to much feel we're on way Do be years like always, portfolio. we'll default absolutely be then it collecting our resolved? each those good basis. very exactly we But when about is it's is there's QX. delay,

Randy Binner

All right, the that's but said were fourth originations script accelerating, also in in quarter. third helpful. in you And then the I think quarter, and that whatever

So you that meaning, you're how I on can more or you if pricing get wondering I not? right, the lot just seeing opportunity, those come are competitive origination a other if is and seeing and if heard of still characterize in lenders

David Schneider

going enough at a looking that pipeline, on means us pipeline? we ROI, touch million full the the seeing our it good greater. it's return effort that's to chance don't pipeline little any pipeline. for bigger that's typical one continue we same bit. potential do, the deals feel we No, to the investment good right, borrowers much in like we the we're of and the of loans we're level we jump we're loan. But deck have But a always space when of Nashville and the of he is it's set that at level from let term that, for Do I'll that our longer we get the look in size especially about $XXX of good Jeff our about has the we on I'll executing in comments. that but to we're that and than interest residential Sure. be the as same Jeff hit talked in going our winning if hit of comment typical that, in

those looking always at deals. we're There's of So competition. types

quarters, on are mentioned our prior that we think, of competitors in we some the I sidelines. saw

executing compete we that back, don't still Some pricing we're type pricing, same on we historically and of that structure of same have them but the have. certainly pricing structure type getting come on of and

Randy Binner

then for higher the up a understanding queue. more one me, just little and that of out the But just down. in Well, items it I been, G&A, than guess was quarter. on and it's model we But that jump had this I'll line

necessarily the anything see quarter there fourth quarter unusual in is beyond? quarter we So, this that and may not

David Schneider

really, right as other of G&A public of lot mean, you, a I certainly and compliance. hiring first-year because SOX, because compliance public come Yes. a tell to a a being a spec a company, to company hard do incurring, of company there's managers whether the that's with to publicly Sure. your people we're public SEC as with that it's in expenses compliance We faced up rate terms first-year I'll lot very run ensuring IPO. that's also whether have as filings target of immediately challenges just

and Jeff has headcount we've So job mentioned, grown done a our great by XX%.

legal So to strategic we've further aid of we not are hires, third-party bring overtime, consulting and internalize. accounting made compliance in they're as down only become going going lot costs, a growth, that to also but

of So, we've to generally new implementation, consulting related the in some third going related around it's in G&A fees, accounting to implemented. be the fees stocks some quarter, systems to of legal terms fees specifically

as public first-time that things are expenses. So we're to these company view going commonly

in have in. third-party quarter-over-quarter these as compensation benefits has expenses G&A and I little think, our type fluctuated bit a come of

first-year we is a around if closer of lack the think future comprehensive as the expenses million say, rate, probably lot expenses. $X.X smoothness MD&A comes this, earnings, quarter-over-quarter and G&A, expected because benefits well in million more our been bumpiness nature for that within think, I had earnings think I company adjust again, cash of some some probably its of we've to to measure do G&A a come our with in quarter of non-GAAP number which quarter a $X.X consistently as and run quarters. company the in in expenses, cash of of our which I a mandate when million I in expenses. up these I we release, down for there's and $X.X for $X would just public But the reasonable to in XX-Q million around

to continue we'll in I we doing our the I benefit So further quarter we'll we to that headcount, QX. We'll I XXXX, strategic to see think think start transitioned new hiring. some But the to see internalized And think, every by noise have really and G&A full see we in our continued come opposed when down. third-party. as to fully responsibility employees some

Randy Binner

a great. right, All Thanks lot.

David Schneider

Okay.

Operator

you. Thank

Stephen Our Please next question from with with proceed Raymond Laws James. comes your question.

Stephen Laws

what in first you the Hi, thanks. And forward? idea Good quarter? about of level afternoon. doubled the to looks it $X this Follow-up comp of on like give increase Can quarter an expense $X half moving after non-cash million right caused what to Randy's some from is question about kind the cash year. million of a comp, the of it non-cash running going a

David Schneider

QX Yes, little amortization. so grants catch was a in bit I up with there some a think on of some RSU grants, RSU noise new

a start running of to November. to run think that's that we fully million, amortization closer is believe, two, employees down, rate a what I in blend it's RSU will probably have were $X probably granted really we executive, to officers of and come the saw as of employees at. the I And savings vested the what QX, in is random

just and we'll of have new come will this off. then year. officers And executives, some the of the including officers we've that So some hired that

rate, some in somewhere higher expense, catch million for run RSU so. a than than bit little on QX, normalized you'll a see QX, $X what saw or was a to see the of so higher it's up to a start probably so you'll probably QX it's in think coming you in closer I just So

Stephen Laws

top positive benefit back still from firming non-accruals, sequentially then income, see got a interest Randy's think And the got on to new first come some pressure up, income are on to but accrual. or to going we great. maybe there's from the originations still circle from non- you interest XQ positive we've Okay, do question to line, that's the

quarter. the late started in third it So

David Schneider

ordinary change I earlier, a one really month say, the month some October, no, defaults the something good in one less does I some of would happen, Yes, resolved could the if think also expect but have the we important happen default the resolved thing this, we're that's nothing But November. mean, direction. It in you is, I than Stephen, in fully And push out right cases. that's some one happens, defaults in uncertainty could there's But expect new chunk part we're trending feel later we and expected. see we not come somewhere in. around, hardest to that a hopefully often to point, that always of and seeing

$X.XX, as for driven throughout which the nothing clean and estimate So income, interest part. to as in so new interest at sort expect was long or feel changes business purely of about consensus default, increase construction actually income up the by chunk came market, fully of most the we no there's we a the QX, good where we

able seen back a be think, directly quarter, defaults to that pickup income. we'll I impacted we've as feel Each the up resolved we pick get beginning. So to we'll interest

in a this be QX a resolved through won't and get pop, out we'll out it all get we'll again, But month. chunk this XXXX. they then be in So won't

Stephen Laws

switching $XX.X and million has think but to listed, private X-K the August of gears $XX.X the I Q Great back million. AUM REIT, was end at and the

decline private or September the those not comparable REIT So you today, numbers? during in

David Schneider

are comparable. not Those

the three was ended XX for months I XXX. think

the total productive then, closer as think I September thus And XX. of far. little we've in million AUM QX been very $XX to is

believe three is like and for pick is the you I I ended. the raised see closer like higher. traction now. about million some that in up March to is will since brings number And in months feel to-date going So to we We’ve QX $XX million. But $XX even that number think yes, total that number, even

Stephen Laws

then Okay, you raised $XX is right? million so September, roughly that

David Schneider

exact Yes the I $XX is but September, third $XX quarter. be the for we could number. number, XX the the about million, had overstating

Stephen Laws

believe appreciate, looking year in the it now to CECL, periods. you're CECL do the you'll See, you’ve else to hit Great, full the to I Q correction that was in mentioned, have want for numbers, adopt QX, and helpful. going I XXXX that's on? at comparable what adopt

or adopt read can both color additional XXXX? to though us correctly you'll -- you for adoption timing? is Going any a for give QX year for full corrected And as it that CECL on and

David Schneider

That is correct.

the and started even assets. our had UGC growth, we due emerging we growth to an other year size So trading volume and as company, status

we're that in We full the are of adopting UGC status as year-end, year. for so losing December it

the of fixed the fully loans, will our financial preliminary expected and we of they're our And I material. be have models. results given implementing rate. this of news nature confident impacts good that think very is we're statements We're the given any that process in we short-term from already

think on based of on thing the been uniqueness rate nature. it the is as on we fixed the I portfolio the we've return implemented focused our

just key company, solution we're current for causing and We're reserves. to expecting and implement feel we good for auditable level CECL And our significant of the almost there. takeaways is maintaining. So We not we’re something compliant that trying not to impact a the about that. that really any are

Stephen Laws

it. my for taking questions. I Thanks appreciate Great.

David Schneider

Thank you.

Operator

management to closing you. at back are Thank floor the turn remarks. time. like for questions any further this no There I'd over to

Jeffrey Pyatt

got holidays, talk you. how your Enjoy stay all David soon. you if questions you all all safe, for to nice know us thanks you stay today. us. you your today. I'm and support. the your listening to that Thank And healthy. Thanks, need meet we'll answer Randy. Thank It's Stephen, for find for And all support. everyone. to sorry

Operator

and web concludes conference. gentlemen, this Ladies today's

And your you at participation. your this time. Thank for have lines a disconnect now day. great may You

Broadmark Realty Capital (BRMK) 9 Nov 202020 Q3 Earnings call transcript