Broadmark Realty Capital Inc.

Greetings and welcome to the Broadmark Realty Capital's fourth quarter and full year 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nevin Bhoparai, Chief Legal Officer of Broadmark Realty Capital. Please go ahead, sir.

Good afternoon. Thank you for joining us today for Broadmark Realty Capital's fourth quarter and full year 2021 earnings conference call. In addition to the press release issued this afternoon, we have filed a supplemental package with additional details on our results, which is available in the investor section on our website at www.broadmark.com. As a reminder, Remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, we will also be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings. This afternoon's conference call is hosted by Broadmark's Chief Executive Officer, Jeff Pyatt, and Chief Financial Officer, David Schneider. Management will make some prepared comments, after which we will open up the call to answer your question. Now, I'll turn the call over to Jeff.

Thank you, Nevin, and welcome to our fourth quarter and full year 2021 earnings call. This afternoon, I'll begin with some remarks about our announced management transition. I'll then briefly discuss our 2021 performance and market overview and And we'll then turn the call over to David to provide additional detail on our financial results, investment activity, and portfolio. We will then open up the call for your questions. As we announced earlier this month, effective March 1st of this year, we will have completed our leadership transformation with the hiring of Brian Ward as our new Chief Executive Officer. Brian is an accomplished real estate veteran and has deep leadership experience. including most recently as CEO of Trimont Real Estate Advisors, a global commercial real estate asset management firm with aggregate invested capital under management of $168 billion. When we began the search last year for a president, we envisioned a succession plan that would take place over time. However, in finding an industry veteran and experienced leader in Brian, we were able to accelerate this transition. I welcome Brian and I look forward to his vision for our continued growth and the vibrancy I know he will bring to Broadmark. I will continue to serve as chairman of our board of directors and I'm excited to help Brian lead our company in the future. Moving on to our business performance, in the fourth quarter we generated $249 million of new originations and amendments. We accomplished this volume on the heels of a record third quarter in the face of increasing competition. Historically, the fourth quarter has been a seasonally slower quarter for originations. This year's fourth quarter activity represented an increase of more than 27% from the fourth quarter last year. For the full year 2021, we executed $947 million in new originations and amendments, representing a 51.2% increase over the prior year. This level of activity demonstrates the depth of our platform and team, our ability to reach a growing number of high-quality borrowers, and the strength of the commercial and residential real estate markets as the economy continues to grow in the wake of the pandemic. I would be remiss in not discussing the competition in short-term construction lending has continued to build. Specifically, in the single and multifamily residential sectors, we are seeing our competitors underwrite loans at price levels and transaction structures that we view as not commensurate with the level of risk for those projects. At Broadmark, we continue to remain disciplined and thoughtful in our origination approach to ensure we maintain a high-quality loan book, which we believe can withstand ever-changing economic and market conditions. we are unwilling to deviate from our proven underwriting guidelines simply to grow our loan portfolio. In the short term, this discipline may reduce the percentage of our pipeline on which we execute, but compared to our competitors, we believe that we stand to benefit in the long run and will be better prepared to face economic headwinds. Importantly, we delivered on one of our initiatives to prudently expand our geographic footprint. Specifically, in 2021, we originated loans in seven new states, and we are now active in 19 states plus the District of Columbia, a 58% year-over-year increase. This expansion is providing access to more loan opportunities and will result in a more diversified portfolio. As of December 31st, our portfolio consisted of $1.5 billion of loans secured by high-quality real estate with a weighted average loan to value at origination of 59%. We are well diversified across property types, with residential representing 59% of our portfolio. We favor the residential sector because of the power demand drivers resulting from population growth in our target markets, as well as a pervasive shortage of housing, which we believe will continue to drive new construction well into the future. We also retain the flexibility to pivot to the high-quality loans that are executable within our underwriting and pricing guidelines, regardless of collateral type, as seen in Q4, where 56% of our new originations were collateralized by commercial properties. Approximately 30% of our portfolio at the end of the fourth quarter consisted of commercial projects, including storage, hotels, retail, and office. The remainder of the portfolio is secured by land for development. We are also diversified by geography, with 27% of our loan portfolio in the western U.S., 61% in the central region, and 12% in the east. Over the past two years, we have methodically grown our portfolio in the central and eastern regions, primarily in Colorado, Texas, and the southeast. Our southeast region has grown by four-fold during that time, while maintaining a 0% default rate, which is a testament to both our underwriting and ability to differentiate ourselves in local markets over time. As a reminder, while expansion has been and remains a strategic focus for Broadmark, we are not looking to be active everywhere. We are targeting markets with strong demographics, active real estate markets, and where housing and finance laws are more favorable for lenders. The market fundamentals remain highly supportive of our lending activities. The economy continues to expand and household balance sheets are very strong. Furthermore, there remains an acute shortage of housing in many markets and demand continues to grow as a new generation of buyers enters the housing market and remote working dynamics allow Americans to relocate to the high growth and lower cost states in which we currently lend. In the non-residential sector, after two consecutive years of depressed construction spending related to the pandemic, December 2021 data showed notable increases in storage, lodging, retail, and office construction. This change aligns with industry expectations of an increase in commercial construction spending in 2022. The expected growth in construction should lead to additional opportunities for Broadmark as we move ahead. the competitive landscape notwithstanding. We continue to monitor inflation, supply chain disruptions, and labor shortages, which could potentially impact the cost and timeline of our projects. Fortunately, the short duration of our loans allows us to respond quickly to changing conditions. Inflation has forced the Federal Reserve to become more hawkish, and expectations have shifted to future rate hikes. However, overall mortgage rates remain low relative to historic levels, so we believe the housing market should remain robust, even if rates rise modestly. I'd like to take this opportunity to discuss our commitment to ESG, which are foundational principles for Broadmark. We are committed to making a positive difference in our community and the broader world. and we incorporate responsibility into our organizational structure and business decision making. We constantly strive to improve on our ESG performance, and I'm proud of our record on all fronts. Importantly, the board, senior leadership, and our entire team are committed to continuing to improve in 2022 and beyond. Finally, I ask that you indulge me for a few minutes since this is my last call as CEO. I must begin by thanking our shareholders, many of whom were investors in our private funds and continue with us today. Whether you became a shareholder recently or have been around since our inception in 2010, thank you. I also owe a debt of gratitude to all of my coworkers at Broadmark. Many of you have heard me quip that it's easy to loan money, it's much harder to get paid back. From underwriting and origination, through construction draws, and finishing with repayment, everyone involved with the lending process at Broadmark is hyper-focused on preservation of capital. Add to this our accounting, finance, and compliance teams, and you have a crew of which I am proud to be part. Finally, I must give one last big thank you to my co-founder, Joe Schocken, without whom Broadmark wouldn't have gotten to where it is. As I hand the reins of leadership to Brian, I couldn't be more excited about the future of Broadmark. I look forward to serving as chairman of the board and supporting Brian and his team in any way I can. And with that, I'll turn it over to David to review the financials.