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?