BrightSpire Capital, Inc.

Welcome to Colony Credit Real Estate Incorporated's second quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I'll now turn the conference over to your host, David Palman, General Counsel. Thank you. You may begin.

Good afternoon. and welcome to Colony Credit Real Estate Inc. second quarter 2020 earnings conference call. We will refer to Colony Credit Real Estate Inc. as CLNC, Colony Credit Real Estate, Colony Credit, or the company throughout this call. Speaking on the call today are the company's president and chief executive officer, Mike Mazze, chief operating officer, Andy Witt, and chief financial officer, Neil Reddington. Chief accounting officer, Frank Saraceno, is also on the line to answer questions. Before I hand the call over, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties, and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially, including the potential adverse effect of the current pandemic of the novel coronavirus or COVID-19. For a discussion of risks that could affect results, Please see the risk factors section of our most recent 10K and first quarter 2020 10Q and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time, cautioning that an interpretation of many of the risks should be heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. All information discussed on this call is as of today, August 6, 2020. and the company does not intend and undertakes no duty to update for future events or circumstances. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental presentation, which was released this afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measures and an explanation of why the company believes such non-GAAP financial measures are useful to investors. And now, I'd like to turn the call over to Mike Mazze, President and Chief Executive Officer of Colony Credit Real Estate. Mike?

Thank you, David. Welcome to our second quarter earnings call. This is also my second call since joining the company on April 1st. On behalf of the CLNC team, I would like to start by wishing everyone well in these uncertain times. The best possible outcomes will be achieved through hard work, focus and cooperation. Our CLNC employees are doing this every day. We continue to work safely from remote locations. Our operational systems, financial controls, technology and communication continue to work seamlessly. We are confident that we can continue to work productively until we can safely return to the workplace. During our second quarter, And through today, we have been extremely active. On the first quarter earnings call, we highlighted our key areas of focus, including asset and liability management, with an emphasis on increased borrower and tenant interaction. We also maintained frequent communication with our banking counterparties. In addition, I stated that maintaining and enhancing liquidity will remain the top priority. Given the substantial unknown and persistence of COVID-19, we felt the need to act decisively by setting in motion multiple initiatives, which included the sales and financing of certain core assets. We put multiple irons in the fire because of the uncertainty in timing, sequencing, and probability of success with any of these initiatives. We carefully weighed the value of obtaining certain assets long-term versus the benefits and costs associated with generating incremental liquidity to support the CLNC balance sheet during COVID-19. To this end, we have completed a number of initiatives, the results of which have doubled all liquidity, which currently stands at $525 million. We have also reduced total borrowings since March 31st by over $600 million from $3.2 billion to $2.6 billion. These core asset sales included CMVS securities, hotel and preferred equity loans, as well as owned real estate. This involved the sale of three core portfolio assets during the second quarter ended June 30th and subsequent to quarter end. In addition, we entered an agreement to sell an equity investment on an industrial portfolio and have separately agreed to sales terms on another equity investment. Both of these transactions are expected to close in the coming months. Also included in this liquidity initiative was the closing of a non-request asset-level financing with Goldman Sachs. Andy will discuss this transaction in more detail. While there has been a reduction in book value and earnings associated with these transactions, we are confident that we are taking the necessary steps to further protect the balance sheet given the persistence of COVID-19. Effort put forth by the CLNC team in the execution of these initiatives have provided meaningful results. In addition to generating substantial liquidity, we have also reduced our repo financing and other debt exposures. Since March 31st, we have reduced our CMBS securities repo from $197 million to $38 million. We have substantially eliminated concerns over CMBS margin calls. Additionally, we have reduced our loan warehouse lines, and we have also paid down our bank revolver in full. As I discussed on the last earnings call, we have been working very closely with our bank counterparties. Our decisive actions to monetize assets, increase liquidity, and reduce debt have been well received by our lenders. Maintaining credibility with our bank counterparties is critical. We look forward to their continued support as we seek to do new business and rebuild earnings. Now, I would like to turn to an overview of our portfolio. As I have said, we are working very closely with our borrowers and tenants. Every asset and sponsor situation is unique. There is no playbook for pandemic-related solutions. However, The key is to maintain frequent communication. Allow me to provide some details on interest collections for our loan portfolio. On a total company basis, 99% of cash interest payments expected in July have been paid. Of this, there were some loans which required some form of partial modification of their existing loan reserves, as well as some loans where borrowers have come out of pocket to support their equity. This is a cash collection figure and excludes PIT loans. Turning now to our own real estate assets, inclusive of legacy non-strategic, we have experienced rent collections of 94% throughout the second quarter and July. We are pleased to note that since our last reporting, several of our tenants that were previously unable to pay rent have since come current. The LNC also remains current on all investment-level borrowings on our owned real estate. Separately, I would like to highlight a loan that was placed on non-accrual and has also incurred a write-down during this quarter. This is a mezzanine and preferred equity construction loan for a Los Angeles mixed-use development. The LNC's share of the combined unpaid principal balance totals $190 million. The write-down on the loan this quarter was $89 million. The development project has experienced overruns due to both construction costs and time delays. We have been working closely with the senior lender and the borrower to arrange outside capital in an effort to fund anticipated budget shortfalls. The situation remains very fluid. Therefore, our write-down considers various outcome scenarios, including a successful third-party capital raise as well as the possibility the senior lender could ultimately foreclose in the event outside capital is not sourced. For additional information, please refer to the details provided on this loan in both our first quarter and second quarter Form 10-Q. In closing, CLNC has made significant progress during the second quarter in fortifying its balance sheet. As previously stated, the commitment to generate liquidity was weighed against reductions in shareholder equity and near-term earnings. These initiatives, along with our dividend suspension in April, were necessary steps to protect the balance sheet and maintain flexibility. Once uncertainties associated with COVID-19 are behind us, We look forward to redeploying this capital to rebuild earnings. To this end, we have been engaged with the markets to stay apprised of new loan activities. At this time, transactions in both asset sales and lending continue to remain low and highly selective. Going forward, as we redeploy capital, our focus will be on senior mortgages. With that, I would like to turn the call over to our Chief Operating Officer, Andy Ware. Andy?

Thank you, Mike, and good afternoon, everyone. As previously highlighted, the focus of this past quarter and subsequently has been asset and liability management and continuing to build liquidity to address pressures related to COVID-19 and the eventual shift toward future opportunities. Highlights of these activities since last reporting are as follows. PLNC's liquidity position, including cash on hand, and availability under the corporate revolving line of credit has increased from $255 million to $525 million as of today. Outstanding borrowings on our whole loan warehouse lines have been reduced from $723 million to $610 million. In addition, CMBS repo lines have been reduced from $197 million to $38 million. We accepted up to $229 million of non-recourse preferred financing on a portfolio of five CL&C investment interests from investment vehicles managed by Goldman Sachs. And subsequent to quarter end, we fully repaid our corporate revolving line of credit. During the second quarter, core portfolio asset sales included the sale of a preferred equity loan on an industrial portfolio for $98 million of proceeds, which included a $10 million realized loss. Subsequent to quarter end, we sold one hotel loan for $105 million of gross proceeds and $48 million of net proceeds. The asset was impaired by $38 million and sold at $630 book value. Also, subsequent to quarter end, we executed a discounted payoff on a preferred equity position collateralized by a portfolio of office assets generating net proceeds of $77 million, in line with 630 book value net of the existing CECL Reserve. Additionally, we entered an agreement to sell an equity investment in an industrial portfolio and have separately agreed to terms on another industrial portfolio, both of which we expect to sell between now and year-end. Within the core portfolio, CLMC has taken measured steps to reduce its exposure to CRE CMBS securities through the sale of 27 select investment and non-investment grade bonds. As Mike previously stated, we have meaningfully reduced the company's remaining CMBS exposure through these sales, which resulted in a loss of approximately $57 million, noting $36 million of this was already recorded in Q1 as an unrealized loss. The CMBS sales generated net proceeds of approximately $24 million. At present, the company's CMBS portfolio consists of 24 CMBS positions and a carrying value of $142 million. The underlying CMBS repo indebtedness has been rolled out to a December 2020 maturity date and has been meaningfully reduced throughout the course of 2020 from $197 million to $38 million. The advance rate on the collateral as of today is 49%. and our financial terms maintained buffers before any margin calls would apply. Our plan is to continue managing the remaining portfolio and opportunistically sell securities. On the liability side of the core portfolio, we continue to work collaboratively with our warehouse lenders to further reduce margin risk. In the second quarter, under two master repurchase facilities, the company voluntarily reduced advances by $37 million, or approximately 10% of total financings under such facilities. As a result, the company and lender counterparties agreed to temporary modifications providing for six-month holidays or buffers before further margin calls are possible, as well as providing additional protections before certain repurchase obligations may be triggered. These six-month holiday periods cover $277 million, or 45% of the outstanding $610 million of senior loan master repurchase facility indebtedness as of today. In addition, the company has broader discretion to negotiate with its borrowers to implement certain modifications to the underlying laws during the covered period. Lastly, as it relates to the core portfolio, the managed CLO continues to perform and is currently benefiting from LIBOR floors at the underlying loan level. We continue to monitor and manage the performance of the trust for COVID-19 related developments, as well as ordinary course loan payoffs within the underlying portfolio of 22 senior loans. The managed aspect of the CLO provides for flexibility to introduce replacement collateral to address ordinary course payoffs and other collateral events. Now, turning to the L&S portfolio. Resolving the remainder is the focus of the company. To date, we have monetized $208 million or 50% of the L&S portfolio. At present, the L&S portfolio accounts for only 5% of total gap net book value or 9% of undepreciated value. During Q2 2020 and through today, the company sold or resolved six LNS assets for a $10 million premium above carrying value for total gross sales price of $51 million and net sales price of $34 million after transaction costs and debt repayment. CLNC continues to pursue and execute sales in the LNS portfolio. As a result of portfolio deterioration, primarily due to COVID-19, we recorded an impairment on held for sale operating real estate of 17 million. The revised valuations were the result of bids received and other third-party data points. To generate additional liquidity during the quarter, we accepted up to 229 million of non-recourse preferred financing on a portfolio of five investment interests. The financial included 200 million of proceeds at closing, which represented a 52.5% advance rate against the first quarter 2020 carrying value. The unsecured financing provides our lender a 10% preferred return and a minority interest in future cash flows following a minimum return on the preferred financing. The transaction resulted in company net liquidity of approximately $170 million, net of approximately $30 million in paydowns, under the company's corporate credit facility. The financing includes the ability to draw down up to $29 million of additional commitments from Goldman Sachs for future funding, if any, at the same advance rate. The financing structure also resulted in a $70 million reduction in stockholders' equity. Neil will provide additional details on the accounting for this financing in his remarks. The portfolio financing is limited to the company's interest in four low-leverage co-investments alongside investment funds managed by affiliates of the company's manager, each of which are financings on development projects as well as PLNC's triple net industrial distribution investment leased to a national grocery chain. The company and its affiliates retain the discretion with respect to continuing investment and portfolio management of such investments. With that, I will now turn the call over to our Chief Financial Officer, Neil Reddington, to elaborate on the second quarter results.

Thank you, Andy, and good afternoon, everyone. Before discussing our second quarter results, I'd like to underscore a few items that will be included in our Form 10Q filing tomorrow. Similar to last quarter, we will provide an update about where COVID-19 has most impacted our balance sheet and liquidity, and we will provide tables identifying our hotel property loans, as well as mezzanine loans and preferred equity. There's also further information about July interest and rent receipts. Furthermore, I would like to draw your attention to our supplemental financial report, which is available on our website. It includes additional information on each of our business segments, in addition to a description of how we define core earnings. And finally, we continue to provide asset-by-asset details for our core portfolio in our supplemental financial report, as well as all holdings in our Form 10-Q. With that, let's turn to our second quarter results. CLNC reported total company gap net loss of $227.1 million. or $1.77 per share, and core earnings loss of $230.5 million, or $1.75 per share. Excluding provisions for loan losses and fair value adjustments and realized losses, second quarter core earnings were $35 million, or $0.26 per share. The company reported a GAAP book value of $1.7 billion, or $13.06 per share, and an undepreciated book value of $1.9 billion, or $14.43 per share. As previously disclosed, due to the volatility and unprecedented market conditions arising from the pandemic, we concluded that it is prudent and in the best interest of the company to conserve available liquidity. And on April 17th, we suspended the company's monthly cash dividend beginning with a monthly period ending April 30th, 2020. The board will evaluate dividends in future periods based on customary considerations. That being said, the company continues to monitor its taxable income or ensure that the company meets the minimum distribution requirements to maintain its status as a REIT for year end 2020. In terms of deployments, the company has not completed any new investments so far in 2020, with one exception, where the company provided a $19 million senior mortgage to support the acquisition by a new buyer of our non-performing hotel asset in Minnesota. As Mike and Andy have already described, the detrimental impact of COVID-19 on certain assets resulted in incremental impairments, and asset sale losses are $185 million, or $1.41 per share, most substantially from the LA mixed-use development. Core portfolio and depreciated book value now stands at approximately $1.7 billion, or $13.13 per share. Our loan book continues to be the largest segment with a carrying value of approximately $2.5 billion a quarter end. The blended unlevered yield on our loan book is approximately 6.3%. with an average loan size of $49 million. Furthermore, the loan portfolio remains well diversified in terms of size, collateral type, and geography. Moving to our balance sheet, our total at-share assets stood at approximately $4.7 billion as of June 30th, 2020. Our debt-to-assets ratio was 60% at the end of the quarter, and our current liquidity stands at approximately $525 million, between cash on hand and availability under our revolving credit facility. The use of our revolving credit facility will continue to be a source of liquidity for the foreseeable future. During the second quarter, we renegotiated the terms of the revolver with our bank syndicate, and these terms included a reduction in the facility size to $450 million and $560 million, a reduction in tangible net worth requirements and certain restrictions on dividends, stock repurchases, and the type of new investments we can make. We believe that this new arrangement will allow us the liquidity and flexibility we need to manage our business in the near term. As Andy mentioned, during the quarter, we completed a non-recourse financing arrangement with a non-controlling interest and a portfolio of five underlying company investment interests. This transaction generated $170 million of net proceeds out of approximately $30 million in paydowns under the company's corporate credit facility, and resulted in a reallocation from shareholder equity to non-controlling interest of $70 million. Turning to risk ratings, we increased our risk ratings in Q1 for a number of assets because of COVID-19 concerns, and we are maintaining the same approach in Q2 given the current environment. As such, our overall risk rating at the end of the second quarter was at 3.9 compared to 3.1 at the end of 2019, still reflecting the increased risk resulting from continuing uncertainty related to COVID-19. That concludes our prepared remarks. And with that, let's open up the call for questions. Operator?

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star two. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Steven Laws with Raymond James.

Hi, good afternoon. You know, Mike, you guys accomplished a lot in three months. So I know it's a difficult time and I think four months on the job. So accomplished a lot. Congratulations on that. Can you give me some color additionally on the legacy non-strategic asset portfolio? Looks like from the last two supplements, about 120 million decline in Q2 with 569, 570 left. How do we think about that? Is it from a timing? Is 100 million-ish a quarter a good run rate? Is it going to be lumpier than that? I know you've identified some things in Q3. Are there going to be some assets that may stick around on the L&S side for a while?

Stephen, thank you for joining the call and the question. Yes, we've been very active over these past three months with five or six, seven initiatives going on. With regard to L&S, That continues to remain a focus. It's getting smaller. We've made some headway resolving some assets this quarter. And we'll continue to do that. That's a focus of ours. It's not going to subside. We shifted a lot of focus to the overall portfolio for liquidity purposes, but we have not taken our focus on L&S. And we'd like to reduce that L&S where one day we could just, if we have a tail left on it, We'll just consolidate it back into the rest because from a reporting standpoint, you know, it may become a nuisance at some point. But we are very focused on continuing to do that as the market permits. And if valuations change and we see the ability to sell an L&S asset in the context of the market, it makes sense. We're not looking to hold and nurture that portfolio. We're looking to execute on it at reasonable prices. So we'll continue to do that.

Great. And then switching to the core portfolio, you know, I think there were some asset sales there. Is that likely to continue? And then on the core side, you know, I know Neil mentioned some things around the holiday, but also it has some limitations with regards to dividends and new investments and other things. You know, what metrics should we be watching? as far as getting the balance sheet on the core side position the way you'd like it? Is it liquidity? Is it reducing certain concentrations? Is it a leverage metric? What do you think are the best metrics to watch as far as tracking the positioning of the core portfolio?

Very good question. It is somewhat dynamic. So let me just hit the asset sales first on the core side. We have nothing else that's active other than the two equity investments that are under contract for agreements for sale that we said would come in the coming months. We'll continue to work on the LNS, and we will continue to whittle down the CMBS transactions or the CMBS securities going forward on a selective basis. The motivations have been different for each one. For the CMBS, The motivation wasn't really liquidity. It was really reducing exposure to CMBS repo, which we took down from 197 on March 31 to 38 million, and we extended that repo out. And the goal there, and we also removed the hedge, and the losses there are somewhat of a realization of a big chunk of them, a realization of unrealized losses that we had, and we've marked the rest of the portfolio accordingly, and we removed the hedges. So that was less about liquidity, more about just reducing the CMBS exposure. And CMBS securities aren't really something that we'll be looking at as a product line for investments going forward. The rest of the assets that we sold and targeted were a combination of assets that were rated RISC-V rating. We had a hotel loan, and we had two preferred equity loans that closed one during the quarter, two subsequent to the quarter. And one of the preferred equities really was a reversal of the CECL. We basically transacted at where it was marked for CECL. With regard to the hotel, quite frankly, we had three large hotel loans in California. We wanted to reduce our exposure there, and we looked at the one that performed weakest pre-COVID. and a number of things that also weighed in on it as to why we transacted there. So, there were a combination of things. In some areas, we saw that, you know, with regard to some of the equity, there's lower internal leverage against that, albeit as external leverage, but lower internal leverage. So, we were able to get more bang for the buck, if you will, in terms of raising liquidity. So, those were the things. The priority was to raise liquidity and stabilize the balance sheet. So earnings, there's a cost, and the cost associated with that, and this is where it gets a little bit dynamic, and you can go through the supplement and figure out which assets moved and how much the MBS has come down. But yeah, the cost was, there was some book value cost, and there was some earnings cost. And so we look to rebuild earnings, and so the reason why it's dynamic, and I'm being long-winded here, but so you'll be able to see the earnings will come down in the next quarter as these assets come off, and then the two equity sales in the maybe third and fourth quarter, but also we're sitting on a large amount of liquidity. And then the question is, when do we start redeploying that liquidity? And so you might start seeing us doing that later in the year as we get more visibility. And so then you'd have to put some form of rate of return on that liquidity that we have, which is circa half a billion dollars And we'll know more about that as we progress through the third quarter to see how much of that liquidity, if any, we need to use to defend the balance sheet.

Great. You predicted my next question as well, so I appreciate the color on the timing about potentially shifting the new investments and thoughts around that. Last question, really more, I guess, big picture, but I'd love for you to tie it down to your portfolio and the CL&C exposure. You know, the office market, big discussion, you know, is central business district, vertical office, going under significant pressure? Are we going to, you know, go the other way and see the need for more square foot per employee? You know, can you talk about your thoughts on the office market from a macro level and then from the CL&C portfolio? You know, what is the exposure? Is it primarily central business district? Is it more kind of satellite-type offices or less desk that might even be more attractive post-COVID? Can you give us – your thoughts around that, please.

Okay, so let me first give you the CLMC answer. We do not come to work thinking about big MSA, CBD issues. COVID knows no boundaries, and so we come to work thinking about our hotel assets and thinking about every asset at the asset level, but certainly hotel exposure is one that we're watching. very carefully, hence why we sold one of our hotel loans rated risk rating five. You see us moving our risk ratings on our loans, and we think that this is reasonable and realistic because of an overriding effect of COVID-19 on underlying asset business plans, albeit whether they're transitional assets or hotels where there was no transition or refurbishment or repositioning of the asset, but the REVPAR is at an all-time low. So it's affected our risk rankings and our thinking around that, and we're looking at every asset regardless of where it sits. We don't really have any CBD, MSA-type exposure that comes to mind. In New York City, we have some self-storage in multiple sites in the boroughs, and we moved the risk rating on that loan a little bit higher because while the NOI was up, It was a little bit behind budget. But quite frankly, an asset like that, given the trends, you may see a turnaround there where we have a lot of increase in NOI because there is a trend of people leaving the city when their leases are up on their resi apartments. They may not renew. They may move home, in some cases with family, outside, and you may see some increased use of self-storage. So we also have some suburban office exposure outside, of New York City and Connecticut. You know, while there's inquiry going on, nothing active yet, but that could benefit. So, you know, no real exposure that we're thinking of generally. I do acknowledge the trend of folks that are leaving larger cities seeking, you know, as the expression in New York was bridge and tunnel, you know, and people are saying that that's fine. We want to be a bridge and tunnel organization. We want to get out of the city. And that's a trend we're seeing. And we saw the governor of New York make a plea yesterday for residents to come back. So we acknowledge that that trend overriding is there. But then we would also say, you know, outside of the city, anywhere where there's student housing, for instance, in any state, what's going on at that college campus? So we think that at the end of the day, what we need is we need, we certainly need a vaccine program. for obvious reasons to protect us. But we need a reopening plan. And I think a reopening plan, no matter where the jurisdiction is going to help, and that's the thing we're focused on most. What are the governments going to do around regional and state and city reopenings?

Yeah, well, great. I appreciate those comments, and certainly looks like you guys are taking action to get the portfolio to the other side of this. So I look forward to continued updates. Thanks, Mike.

Thank you for joining us. Our next question is from Randy Binner with eRiley.

Hey, good evening. So I guess I'll start with CMBS. So the The repo financing against it is down to 38 million. I'm sorry, there's a lot of detail in the call, but if I missed it, I apologize. Did you just say what the actual, you know, overall exposure for TRIP being below CMBS is down to? It was at 270 million at 1Q20. What is that number now from an exposure perspective?

I don't know. Neil, do you have that number? We'll get that for you. You know, we'd be – I'll give you the market value number. The goal there was we took it down by 27 line items to about 24, so it would become much more manageable for us. So it was a substantial reduction in that regard. We did three larger trades toward the end of May and the beginning of June when we saw CMBS pricing was improving. We also removed The hedges on the duration hedges on the CMBS, because quite frankly, they really weren't correlated anymore. All the CMBS were trading on a dollar price basis. And albeit while CMBS has improved in pricing, certainly at the higher AAA level, down the stack, the mezzanine BBB area has improved, but we're still trading on a almost on an appointment basis, based on the underlying loan delinquencies and things like that. So we've gotten the position down to a much more manageable size, and we certainly, by taking that repo down from 197 to 38, we were basically trying to take off the table any discussions or concerns about CMBS margin calls going forward.

Okay, so then, Randy, just to describe some of the details for you, the principal values for the face on the CMBS is about $285 million, and we're carrying that at about half of that $0.50 on the dollar. So our carrying value is $142 gross, and as Mike mentioned, we've got the repo dead against it, so our net carrying value is $103.

Okay, so it's 103 net carrying value, and that was equivalent to the 270 in the first quarter. We can take that offline. But I think I'm just interested in quantifying the kind of notes.

Yeah, and I think what we need to help you with, Randy, is that we have unrealized loss that was converted to realized loss, and so we can go through that with you in more detail.

Okay. Great. And then kind of similar question for the just on the senior loan. So just on repo, your overall repo is down from 3.2 to 2.6 billion. I think that's what you said.

Our overall debt was reduced from 3.2 down to 2.6, 600 million. And I think about 100 of that, 110 of that was on the loan. Repo, I think about 160 of that was CMBS, and the balance of that was the pay down on the line, the revolver.

340, yes.

Okay, so the repo against loans, is that the 110 number?

I think it's 110, yeah, 112 to be exact.

Okay. Got it. And then on the – I guess I'm going to – Got it. And then on the, yeah, clearly you're making a lot of progress in cleaning up the balance sheet, but I guess on the risk rankings, you know, just kind of looking at the SUP and listening to your comments, is the score lower or higher in the risk rankings? I haven't been able to put all these numbers in a spreadsheet yet, but Is your kind of average or median score higher now than it was the first quarter?

It's modestly higher by a tenth, I think. You know, I just commented that generally we moved from something that was in the lower three overall to the higher threes. And that is largely just, you know, the backdrop of that is largely COVID-19. COVID-related. And, you know, you look at hotel assets and you say there are extremely low occupancies everywhere and, you know, and we're just trying to act reasonably and what we thought was accurate there in terms of a reflection of what we think the overall impact on COVID will be and certainly the persistence. Now, when will we change that? You know, we want to see most of all for everyone's welfare, a vaccine and more therapeutics. That's an obvious. But also, we want to see more economic reopening and plans around how to effectuate that while those other things are in process. I think that plan around more economic reopening will have the biggest impact on asset performance.

Okay. So, yeah, that's a shifting – sorry, go ahead, Neal.

Sorry, Randy. I mean, just to expand on Mike's point. So it's 3.1 as of the end of 2019. We then moved it to 3.8 as of 3.31, and it's 3.9. As Mike mentioned, it just ratcheted up a little bit. I will point out to you that three of those loans that were risk-ranked 5 were resolved subsequent to quarter 5. end, substantive to Q2. So that'll be bumping down just because those are going away. And then as Mike has mentioned, to the extent that there are other improvements, that'll come along as well. But just even pro forma for the deals that we've done in the last few weeks, that'll be coming down.

Great. And then I said one more. Just on the 525 liquidity Can we just break that out maybe into a couple buckets? One, how much is from the revolver? Two, how much, if I understood it correct, came from the preferred financing, the five properties? And then if there's another main bucket, just to kind of understand where that liquidity lies.

Randy, I'm not sure I can answer it that way, but just specifically the revolver is close to $200 million of that, and then the remainder is cash on hand. But if you're asking about all the other ins and outs, I'm not sure that would be terribly helpful to say one over the other because we had preferred financing, we had sales, We then had pay downs on the boring base on the revolver. So there's a lot of different moving parts as you might imagine. So I think it's better just more to focus on the components that are remaining.

But 325 cash on hand at the end of the quarter. That's right. Okay, I'll leave it there. Thank you.

Ladies and gentlemen, We have reached the end of the question and answer session and are out of time for today's call. I now turn the call back to Mike Bazzi for closing remarks.

Thank you very much. Thank you for your support and for joining us on today's call. We look forward to updating you on our third quarter results in early November. Thank you and stay safe.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.