BrightSpire Capital, Inc.

Greetings and welcome to the Colony Credit Real Estate Incorporated first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, David Palame, General Counsel. Thank you, David. You may begin.

Good afternoon, and welcome to Colony Credit Real Estate Inc's first quarter and full year 2021 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 Mazzei, Chief Operating Officer, Andy Witt, and Chief Financial Officer, Frank Cerasino. 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 and heightened risks associated with COVID-19. For discussion of risks that could affect results, Please see the risk factors section of our most recent 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. All information discussed on this call is as of today, May 5th, 2021, unless otherwise indicated, 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 Mazzei, President and Chief Executive Officer of Colony Credit Real Estate. Mike.

Thank you, David. Welcome to our first quarter earnings call. On behalf of the CLNC team, I would like to start by wishing everyone well, and I thank you for joining us today. We are off to a very productive start in 2021, and we are incredibly excited about embarking on a new chapter for Colony Credit Real Estate. On April 5th, we announced that CLNC had entered into an agreement with our external manager, Colony Capital, to terminate the management agreement and internalize the company's management and operating functions. This transaction was successfully completed on April 30th. The CLNC team is appreciative of the support and recognition it has received from Colony Capital, who continues as our largest shareholder. In taking this step, Colony Capital has unlocked value for CLC shareholders by allowing this management team to chart its own course in this next stage. We also thank our CLC board members who have invested tremendous time and focus as we worked through this process. Additionally, we are also very proud to announce today, independent director Katie Rice has assumed the position as the chairperson of our board of directors. We look forward to Ms. Rice's continued guidance and leadership. The internalization provides CLNC shareholders tremendous value enhancement. The self-managed structure will considerably reduce CLNC's expenses and be significantly accretive to earnings in 2021. This use of capital will provide a permanent return on equity in the mid-teens. To succeed the equity returns we target on loan investments by at least several hundred basis points. Furthermore, This transaction provides CL&C with important governance benefits as well as increased certainty and control over the company's future strategic direction. CL&C is now positioned as one of the few internally managed public commercial mortgage REITs. We feel strongly that being internally managed is simply a better structure for public shareholders. The internalized structure results in a more transparent organizational model. It provides a dedicated employee base that will focus exclusively on CLNC and be fully aligned with the company and its shareholders. Our CFO, Frank Saracino, will provide additional details regarding the internalization in his remarks. During this last quarter, we have continued to steadily redeploy capital into floating rate first mortgage loans. Since commencing with new transactions in the fourth quarter of 2020, we have closed or committed on 31 loans for approximately $1 billion. As we emerge from the pandemic, the commercial real estate lending markets have begun to stabilize. And while lending has become a bit more competitive, we are concurrently seeing pricing improvements on the liability and financing side of the balance sheet, resulting in lower cost of funds. Also, given the improvements we are seeing from the reopening of the U.S. economy, we are expanding our lending focus beyond multifamily and suburban office. Turning now to some key financial headlines. For the first quarter, we had adjusted distributable earnings of 14 cents a share. Our current liquidity as of May 3rd is $443 million. As we continue to work very closely with our borrowers who have been most impacted by COVID-19, we maintain what we believe to be sufficient liquidity to navigate through the lingering effects of the pandemic. With respect to our dividend, our Board of Directors has approved an increase in our second quarter dividend from 10 cents to 14 cents a share. This is the product of the cost savings achieved from the internalization as well as the continued successful execution of our business plan and resulted growth in earnings. We will continue to closely review our dividend policy as earnings increase. The CRMC team continues to make progress executing on the stated business plan. Now, I would like to provide a recap of where we are and where we are planning to go in 2021. The management internalization is complete and we will now begin to transition operational functions to CLMC. Since returning to active lending in the fourth quarter, we have sourced approximately $1 billion of new loans, and as such, we have recently initiated the process for the issuance of our second CLO. Most importantly, As we've continued to deploy existing cash and grow earnings, we have thus reinstated and have now increased our dividend. For the remainder of 2021, we will look to put the pandemic further behind us and work to resolve any remaining underperforming or non-earning assets. This last step will also allow us to repatriate capital into the deployment for new loans. Our success around these 2021 initiatives will lead to further earnings growth and the expansion of our dividend. We believe these steps will lead to closing the gap between our current market share price and book value. In closing, I would again like to thank my CLNC partners for their many achievements over this past year. I also again thank Colony Capital and our CLNC board members for their commitment and support as evidenced by this transformative event. I would like to now turn the call over to our Chief Operating Officer, Andy Witt. Andy?

Thank you, Mike, and good afternoon, everyone. The company remains focused on managing the balance sheet and continuing to build earnings and simplifying the business. Over the course of 2020 and through today, CLNC has meaningfully simplified the business. The first quarter results are consolidated as we are no longer reporting the legacy non-strategic assets as a separate segment. This portion of our portfolio is now insignificant relative to the overall portfolio. As such, we've eliminated the segment from our reporting and realigned the reporting segments to reflect how we view and manage the business. The business is now presented as one portfolio comprised of the following segments. One, senior and mezzanine loans and preferred equity. Two, net leased real estate and other real estate. Three, CRE debt securities. And four, corporate. As of March 31, 2021, excluding cash and net assets on the balance sheet, senior and mezzanine loans and preferred equity is comprised of 64 investments in an aggregate at-share net book value of approximately $1 billion. or 81% of the portfolio. This is the segment of the portfolio we anticipate allocating the majority of our capital towards as we continue to build company earnings. Net leased real estate and other real estate is comprised of 12 investments and an aggregate at share net book value of approximately $162 million, or 13% of the portfolio. The net lease assets remain core to our investment strategy due to the long-term stable cash flows they provide, in addition to the potential for capital appreciation. The cash flows generated from this segment of our portfolio are often associated with mission-critical infrastructure leased to credit tenants. GRE debt securities, a segment which includes one remaining private equity interest, is comprised of 10 positions and an aggregate app share net book value of $79 million, or 6% of the portfolio. Subsequent to quarter end, the company sold four CMBS positions related to one BP's transaction for a total of $29 million, resulting in a gain of approximately $9 million, further reducing the company's exposure to this segment. We anticipate little activity in this part of our portfolio, as the majority of the remaining value in this reporting segment is associated with bonds subject to risk retention provisions. Although the company holds real estate credit investments across a number of investment strategies, our primary strategy remains originating first mortgages, as evidenced by recent investment activity. During the first quarter and through today, the team has originated 18 new senior loans with an aggregate commitment of $554 million. All of these investments are first mortgages, the majority of which are acquisition financing, consistent with our stated strategy of reorienting the portfolio toward current and predictable cash flows. The blended unlevered yield on our loan book is approximately 5.3%, with an average loan size of $43 million. Importantly, the loan portfolio remains diversified in terms of size, collateral type, and geography, with a focus on multifamily and office properties. It is important to note the portfolio contains certain non-accrual assets, which are not contributing to earnings. We anticipate restructuring or repatriating capital associated with five investments comprised of seven loans on non-accrual status. which accounts for an ad share carrying value of approximately $296 million. Of this amount, $165 million is associated with the San Jose, California hotel's senior loan and preferred equity investment that was placed on non-accrual during the first quarter. During the first quarter, the borrower closed the hotel and filed Chapter 11 bankruptcy. We have entered into a restructuring support agreement with the borrower. Additional details will be included in the asset-specific summary section of the company's Form 10Q filing. Resolving these positions will allow the company to redeploy this capital into investments contributing to earnings. On the liability side of the balance sheet, we amended our bank credit facility to permit the internalization. As part of the amendment, we reduced the tangible net worth covenants, increased our ability to make restricted payments such as dividends and stock buybacks, removed material restrictions on new investments, increased the maximum amount available for borrowing to 100% of the borrowing base value, and reduced aggregate amount of lender commitments from $450 million to $300 million. In addition, the company amended six master repurchase facilities to permit the internalization and reduce the tangible net worth covenant, along with extending the maturity date on four master repurchase facilities. Lastly, our $1 billion managed CLO executed in October 2019 continues to perform and benefit from LIBOR floors at the underlying loan level. We continue to monitor the performance of the CLO which includes managing ordinary course loan payoffs. While some of our newly originated loans will replace prepayments in our existing CLO, we are planning to issue our second CLO in the relatively near term, assuming suitable market conditions. In summary, the company continues to focus on the existing portfolio while building and executing on a pipeline of new originations opportunities. For the remainder of the year, we anticipate deploying cash on the balance sheet and repatriating and redeploying capital associated with non-accrual assets in order to drive earnings growth to support increasing dividend payments to shareholders. With that, I will turn the call over to our Chief Financial Officer, Frank Cerasino, to elaborate on the first quarter results.

Frank Cerasino Thank you, Andy, and good afternoon, everyone. Before discussing our first quarter results, I want to mention that we expect to file our 10-Q tomorrow. In addition, I would like to draw your attention to our supplemental financial report, which is available on our website. The supplement continues to provide asset-by-asset details, as does our form 10-Q. With that, let's turn to our first quarter results. CL&T reported our first quarter 2021 total company gap net loss attributable to common shareholders of 92.3 million or 71 cents per share, and distributable earnings of 13.8 million or 10 cents per share. Excluding realized gains and losses and fair value and other adjustments, total company adjusted distributable earnings were 18 million or 14 cents per share. The gap net loss attributable to common shareholders of 92.3 million reflects our recording of $109.2 million in restructuring charges. The restructuring charges include a one-time cash payment of $102.3 million to terminate the management contract, as well as transaction expenses. During the first quarter, total GAAP net book value decreased from $12.96 to $11.98 per share. An undepreciated book value decreased from $14.14 to $12.84 per share. This change is primarily due to the upfront cash investment made to terminate the contract with our external manager. As expected, first quarter 2021 adjustable distributable earnings came in lower than our 4Q 2020 results of 26.1 million or 20 cents per share. The difference is primarily a result of our first quarter sale of our net lease industrial portfolio fourth quarter resolution of legacy non-strategic assets, the timing or ramp of new loan originations, and the placing on non-accrual of the San Jose, California hotel investment that Andy mentioned earlier. Looking ahead, we expect earnings growth from these levels as we recognize a full quarter of income from first quarter loan originations of $475 million, deploy idle cash, and realize the cost benefits of the internalization. which brings me to my next point. As Mike mentioned at the top of the call, perhaps our most significant achievement for CL&C so far this year is the completion of the transaction with our external manager to internalize the company's management and key operating function. We believe this internalization will provide meaningful benefits and significantly enhance shareholder value in a number of ways. First, the transition to a self-managed structure is expected to be considerably accretive to earnings and reduce the company's general administrative expenses. Excluding the one-time termination charges payable to the manager, totaling $102.3 million, we anticipate generating operating cost savings of approximately $14 to $16 million per year, or approximately 10 to 12 cents per share. In addition to providing management continuity from CL&T's existing leadership team, The internalized structure also offers a more transparent organizational model as well as a dedicated employee base, which will focus exclusively on CL&C. All that said, we believe that the economics of this transaction, along with the certainty and focus it creates for our newly dedicated team, will lead to greater shareholder value. Another important highlight is on the dividend front. After reinitiating the dividend last quarter, I am pleased that our Board of Directors has authorized a substantial increase to the second quarter. Given our improved financial position, operating performance, business outlook, and cost savings from the internalization, we declared a dividend of 14 cents per share for the second quarter of 2021. This represents an increase of 40% from last quarter's 10 cents per share. The second quarter dividend is payable on July 15th to shareholders of record as of June 30th. The expanding dividend provides further evidence of the Board's confidence in our ability to generate distributable earnings growth as we emerge from the pandemic and economic conditions continue to improve. As Mike mentioned, we will continue to evaluate our dividend quarterly. Moving to our balance sheet, our total at-share assets stood at approximately $4.1 billion as of March 31, 2021. Our debt-to-assets ratio was 55%, and net debt-to-equity ratio was 1.1 times at the end of the first quarter. This is relatively unchanged compared to the fourth quarter. In addition, our liquidity stands at approximately $443 million between cash on hand and availability under our bank credit facility. Turning to risk rankings, our overall risk ranking at the end of the first quarter improved slightly compared to the fourth quarter. Our first quarter risk ranking is 3.6 as compared to 3.7 at the end of the prior quarter. Finally, at the end of the first quarter, our CECL provision was $41.7 million and represents approximately 1.5% reserved against our loans. This is a slight increase of approximately $3.2 million as compared to the prior quarter. The difference is primarily driven by new originations. This concludes our prepared remarks, and with that, let's open the call up for questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from Matthew Howlett with B. Riley. Please proceed with your question.

Thanks, everyone. Thanks for taking my question, and congratulations. Michael, could you spend just a few more minutes now that you've sort of taken this company back, you're going to run the company, you've taken it back, you talked about unlocking value. It's yours, it's the employees. Talk a little bit about the vision, your vision for the company going forward, a little bit more on how you're going to create shareholder value. Just a little bit more, just a few minutes to talk about what the long-term plan is.

Thank you, Matt, and welcome to our coverage universe. Look forward to working with you. So the vision could be a long-winded answer. Let me start by kind of giving you a summary of where we are right now. So where we are is in terms of earnings, we're in like the trough phase. part of the earnings point in our growth. Why are we a trough? We're a trough because we have peak liquidity, right? We've had more cash than we've ever had, and we're working it down. We're starting to originate loans. We've originated a billion dollars, and so that is going to pull us out of the trough as well. The internalization is done. Frank mentioned the economics of that in terms of adding to earnings. And then we mentioned that we are starting a process for what will be our second CLO probably sometime in the early third quarter. And we've now identified assets, and I spoke about this in my remarks, these underperforming assets or non-earning assets that we're going to be focusing on, largely due to COVID-impacted assets. So that's where we are in terms of right now and why we feel like we're on the trough of earnings and coming out. In terms of the vision, I hate to disappoint you, it's kind of simple. We want to transition this balance sheet and this company to becoming a peer in what we consider the best in class commercial mortgage REITs in our set. Now, I'm not going to tell you who I think the best in class are. I don't want to insult anybody by leaving them out. But we want to evolve this balance sheet into more of a pure play commercial mortgage balance sheet with predictable earnings, and predictable credit going forward. This management team has signed on for trying to accomplish this in 2021 fully. This is an eight-month goal. How we do it is we're going to – the things involved, we have to obviously grow earnings. We have to improve our ROE. And this is really also largely entails a rotation of the asset base and continuing to rotate the asset base as we've been doing mostly – into first mortgage bridge loans. So now how, that's kind of a what. We want to be among the best in class, pure play commercial mortgage REITs and the how we get there. And we alluded to some of this in the prepared remarks. We continue to deploy cash into first mortgages and now selective MES and expand the property types that we're looking at. We've done a billion dollars so far. And we continue to evolve the balance sheet into a pure play commercial mortgage. I think 90 percent of what we've done out of the 30-plus loans has been multifamily acquisition loans, average loan size around $30-ish million. We mentioned, again, we want to execute on our second CLO to maneuver into non-request financing. That will probably also boost earnings a few cents. We look to tee that up now for the, as I said, mid-summer and hopefully get another one done maybe late Q4 or very, very early in Q1. And then the balance of that is really what I would call really the game changer for CLNC in 2021. And the game changer is turning the current non-earning assets around. And we could do that in a couple of ways. One, we could simply get assets off the bench and on the field and producing revenue again. and financed again. And Fairmont San Jose is a great example of that. It's an asset where the borrowers in bankruptcy, the loans are non-accrual. We're pulling it off of its financings. And so if we could turn that asset into an earning asset again and get it financed, that means a lot. And we're looking to do that and we're working closely with that borrower. And another way is just simply repatriating capital on non-earning assets by monetizing them in some way and then reinvesting those the monetization of those assets into new loans. An example of that would be, for instance, Century Plaza. They're in the process of trying to sell the hotel at Century Plaza right now, and the condo towers are being completed, and if that hotel is successfully sold, it'll pay down the debt substantially, and then it may unlock value for us and the ability to monetize. So this last step of of dealing with the non-earning assets, it really counts as a full game. One, you're turning assets into earning assets or you're turning cash into new assets. And also what it does is on the cash balance side is it gives you more visibility into the cash that you need or I should say that you don't need to defend these assets any longer. And then once you're able to understand what cash you no longer need to sit on, you then unlock that cash and you invest it. And so we're no longer sitting on too much idle cash. And it gives us the confidence to get down to more of an operating level of cash. And so I'll close with what's the math, the basic math around that. We want to operate the company, say, with two, three CLOs outstanding, a couple of several billion dollars. You know, we probably need, you know, call it a buck and a quarter of cash, $125 million of cash, plus our undrawn revolver. Right now we're sitting on about $330 million in cash. And so if you get that down to where you've got $200 million in cash to spend, as soon as you know that we're spending part of it now and we'll spend the rest of it when we know that we've got these assets protected. And then you've got something like Century Plaza, which is $97 million in market value. And let's say you could unbridle that because good things happen at the asset over the course of the summer. And then you've got Fairmont San Jose, which in and of itself is $180 million that's going unencumbered. And if you can get that earning again and then maybe finance it at 50% advance rate and produce another $90 million in liquidity, you're looking at $200 plus $100 plus $90. You're looking at close to $400 million in liquidity. And, you know, you put a 10.5 on that or an 11, it's like $0.35, $0.40. And so... To summarize, and I'm sorry for being long-winded, you know, we want to transition the balance sheet. We're doing that into a pure play. We want to be best in class among what we think in our peer set. This is the roadmap, how to get there. We're doing most of it now. We just need to return these non-earning assets and monetize them. We'll get them earning again and unlock the last portion of – of our earnings.

I really appreciate it. And you're making great progress. And I don't want to get you too ahead of yourself, but the way the company's structured today is going to be highly efficient. The shareholders own the management company. They own the origination platform. You mentioned some mid-teens returns, but is there any reason not to think that this company, when it is fully ramped and you've turned the portfolio, will not have one of the top highest ROEs in the sector?

Well, we're shooting to be in our peer group with ROE. We're sitting on a lot of assets right now, including cash, which are earning nothing. When you look at the rest of our assets, ROE falls within the peer group. We think the internalization is important for shareholders. Not only does it add to earnings, but it improves the governance, streamlines the governance, makes the company more transparent. We're getting a mid-teens return on that. And yes, our goal is to absolutely close the gap between market value and book value. And we think these next quarters in 2021, we've gone through a lot with COVID in terms of raising capital to defend the balance sheet and working on some of the difficult assets that we had. But now we're seeing a path toward higher earnings, getting the dividend up, and closing that gap between market value and book value.

I really appreciate it. I'll end it there, but I really appreciate it and look forward to covering the story.

Thank you. Thank you for asking the question.

Thank you. Our next question comes from Tim Hayes with BTIG. Please proceed with your questions.

Hey, good evening, guys. Hope you're doing well. My first question focuses around the dividend, and I know it's a board decision, Mike, but I just want to get a better feel for the decision to increase it to $0.14 this quarter and how to think about it in the next couple of quarters here. So I know that you guys reported adjusted distributable earnings of $0.14 per share. Is the move you know, is that the best, first of all, is that the best benchmark for the dividend going forward? Is that adjusted distributable number? And then second of all, you know, is it, you know, kind of the move to the dividend there? I know you said you expect this quarter to be kind of trough earnings, but, you know, is the board expecting adjusted distributable earnings to be covering this 14 cent dividend on a quarterly basis going forward? Or, you know, there's some growing into that, you know, that you expect to kind of happen over the coming quarters?

Thank you, and hello, Tim. There's no growing into it that when you look on a cash basis, we were able to pay that out of cash. And then again, as I earmarked before, with the originations that are closing and coming online, and as we continue to deploy cash, And with this, that'll also increase earnings. And then over the next coming quarters, not only deploying cash balances that we've already expected to out of that 330, but really, as I laid out earlier, the math is we cover the 14 cents and, you know, we're looking to get these earnings up with this extra quality $340 million of capital, which could provide you know, 35, 40 cents in cash. So the math is pretty basic. We feel like we're in a trough quarter. But, you know, we think things are pointing up. We've got the CLO that we'd like to do. Hopefully that enhances the ROE on the assets that we have in place now. The internalization will get fully vetted and absorbed over the coming quarters. We have some upfront, you know, accruals that we had to take in this quarter as well for compensation to make that adjustment. So I think this is, as I said, I think this is a trough quarter. It's covered out of cash. And I kind of gave you the roadmap for how we think we'd get it up. It's just a matter of executing on the cash and mainly on those non-earning assets.

Right. Okay, that makes sense. So, yeah, I guess, you know, just based on the trend we saw in the past couple quarters, is it fair to expect that you will gradually increase the dividend as, you know, some of that capital is deployed over time versus, you know, like waiting and seeing kind of where stabilized earnings shakes out as you make more progress with that initiative and then kind of resetting the dividend? It's kind of a dumb question because we just saw you do this, but I just want to, you know, hear from you guys and make sure I'm thinking about it correctly. Okay.

Well, to be clear, nobody wants to go backwards. So that's not our intention. So I think the step that we took, we feel confident that we're not going to go backwards. And I do think, as I've said, our job is to grow earnings. This is the path to grow earnings. And as we grow earnings, we're going to increase that dividend. We will be cautious in terms of making sure that we don't overstep. We don't want to do that. But I do think that the plan will be – I can't say it will be dollar for dollar, penny for penny, but it will be on that same path. So I do think this is a trough in earnings. I do think my expectation is we will see dividend growth in the future. But, again, when we assess that with the board, we want to make certain that we're not going backwards.

Yep, certainly can appreciate that. Thanks, Mike. And then – Just based, you know, another question on a comment you made earlier about the pipeline. And, you know, the past couple quarters you've been focusing on first mortgage loans and largely the multifamily space, and you mentioned kind of suburban office as well. But, you know, it sounds like you're expanding outside of that, expanding that scope a little bit. So can you talk about, you know, in what sense you're expanding the scope? Is it asset type? Is it structure? Are you willing to do a little bit more MESs? than you were a quarter or two ago? Is it level of transition? You know, are you willing to do some construction lending, that kind of stuff? So any color on kind of this enhanced pipeline would be helpful.

Well, I think that, you know, we want to do substantially first mortgages. Construction laws can be first, but we also want to execute, as I said, in another CLO, even after the one we do in the summer. So I think the assets will substantially look like that first. Secondly, We will expand in terms of other property types. We will expand into even hotel, other office markets. We've been sticking to suburban office markets in what we thought are high growth areas of the country. And we'll continue to do that. And yes, there will be a portion of the balance sheet where we use, call it 100, 150 million bucks of capital to do MES transactions. Those could be MES transactions where we do the senior, We lay off the senior, but it will be a senior that we can definitely defend in terms of size. And so we may do Mez loans between $10 and $25 million. We've done some Mez behind multifamily construction before that is working out very well. There's some other Mez that we've done, for instance, Century Plaza, which was just too big in terms of scope and size, and we are where we are with that. So, yeah, we are going to focus on some Mez. and we are gonna expand the property types. Is it possible we do construction? I would say very, very, very selectively. There are some developers that we've worked with in the past that are very good, and if one of them came to us again today, that would be something we definitely would consider given the track record we've had with a handful of those developers we've worked with in the past.

Okay, got it. And then just one more for me, you know, you mentioned kind of your funding costs coming down a bit. And, you know, you obviously mentioned the CRE CLO. Like, I don't know if that was what the basis for the comment was or if it was more around kind of what you're seeing from your repo providers. If you could just provide a little bit more color around that comment and if you are seeing your repo costs come down and if, you know, if there's been any movement on advance rates as well.

Yeah, so the banks have been coming lockstep with the market and have been getting very aggressive. You do have to look beyond that. If you're executing on a CLO, you're on that bank line for 30 days, 90 days, and you're on the CLO for a few years. So we are looking through to the CLO. That market has been stable, and it really is a market that is focused on collateral and issuers. And certain issuers with certain collateral pools will definitely do better. And so we're targeting that probably sometime in July. And so hopefully there will be, you know, a few cents of upside per share in that execution. But, you know, market conditions between now and then can change. But the banks have been absolutely tightening. Both in advance rates and in – They've been increasing advance rates slightly, and they've been coming. Banks much prefer to drop the rate than increase the advance rate. They've been increasing the advance rate modestly, but they've been dropping the interest rates on warehouse facilities much further.

That's helpful, Keller. Thanks, Mike. I'm going to hop back into the queue.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. Thank you. Our next question comes from Steve Delaney with JMP Securities. Please proceed with your question.

Yeah, hello, Mike, and congrats to you and the team on the internalization. That's a huge step. So glad to have you in that position. So everything, a lot of stuff's been covered. I just had a question about the CLOs. I wasn't clear whether you had one or two existing CLOs. Is it two?

Yeah, that's my fault, you know, because in my remarks I'm referring to a second. We have one outstanding that was done in 2019 for a billion, and we are, our second one, we are teeing up. You're teeing that up. We're teeing that up right now with the process with the rating agencies and the banks, and that could be call it a July deal, end of July deal, and then hopefully we'll look at another one at the end of the year, given the trend rate that we're on. But the one that's heat up for July is pretty substantially locked and loaded.

Great, great. And the one, let's call it the old CLO, is there any replenishment in that or is that done? Is that static now?

That's not static yet. Andy, do you want to, and maybe Andy can cover some of that for us.

Yeah, so we have the ability to replace collateral in PLO 1 through October of 2019. So we are replacing collateral as loans pay off, and we're able to do so until then.

Okay, thanks. And on the new one, I've seen a couple deals recently. You know, aggregation is the deal, right? I mean, you've got to work with the banks. You've got to get to the size that the execution you want, whether that's $800 a billion or whatever. I've seen a couple ramp-up periods. I know you probably have to pay for that because the collateral is not specified, but is that something that might work for you since, you know, you're sort of in this period of restarting your lending activities?

I think that we would – we're looking to go more of a specified pool, and I think there might be some ramp-up, but I think we'll keep that – we'll keep that limited because we really want to get the best execution we can. So we are taking a little bit of market risk when you're aggregating more, but we'd rather have a smaller ramp-up and better execution.

Super. I appreciate the caller and look forward to talking soon. Thank you.

Thank you, Steve.

Thank you. Our next question comes from Tim Hayes with BTIG. Please proceed with your question.

Hey, just another quick follow-up here. Just on the CMBS securities that were sold in the second quarter, was there a material gain or loss associated with that transaction?

Frank, do you want to take that?

Yes, I can take that. Yeah, there was a gain. There was a gain on one and a slight loss on the other, but I would not qualify either one as material.

Okay. Um, got it. And, um, you know, I know that you mentioned Mike just, you know, highlighted some specific assets where it kind of makes sense to prune, um, the core portfolio further, but, you know, just from, from a high level, you know, you do have a few kind of troubled assets that you've highlighted and we've talked about over the past few quarters. And here's the, maybe you mentioned century city, um, Are there any others that you'd point to as, you know, these are liquidation candidates versus, you know, we want to try to work this out and, you know, we're in this one for the long haul? And maybe just broadly, how much more pruning of the core portfolio do you think there is left?

Well, let's, you know, I'm not going to say that we're looking to liquidate an asset, but let me just identify, you know, what we have and what you'll see in our reporting here. as the assets that are mainly the non-earning assets, and that's the Dockland-Dublin development deal, Century Plaza, the Fairmont San Jose. Now, Fairmont San Jose is just an asset that needs to come out of bankruptcy. There may not be anything we do there, and we may actually just continue to hold that asset, but we need to get it back to earnings. So that's an example of something that – We're focused on it, but we're just trying to convert it into earning. We're not trying to necessarily liquidate that asset. Those are the three biggest to keep an eye on.

Right. And then maybe the Long Island City office asset and the Berkeley Hotel might have been the other ones that we've talked about in the past. Are any of those – I guess Fairmont San Jose is the only one where there's maybe some more, you know, it's in the court, handed to court right now. So there might be some more kind of deadlines or some timelines rather around clarity for that asset. Or do you expect any near-term resolution to any of the assets I just kind of mentioned?

Well, on the Century City, Century Plaza deal, as I said in my remarks, the borrower right now has that hotel on the market. I can't speak for where they are in that. I don't want to speculate, but I do know the hotel is on the market. There have been some condos that have closed in the hotel condo portion of it that have paid down the loan modestly, $20 million. And there are outstanding commitments on the tower condos, but the towers aren't going to get completed until later in 2021. So there are There's something going on at the property level at Century Plaza, which we're just watching and observing. And as that works its way through, then we'll have an opportunity to potentially monetize. And that's all being done at the property level. In the Fairmont San Jose situation, that's a convention center hotel. And unlike the other hotel you mentioned, which has an enormous tennis facility and could be considered a destination hotel where people want to go to it just to get out, um, and like a resort, they're different hotel assets. And, uh, and so that's why Fairmont, uh, San Jose is where it is because it is mostly a group type of convention type of, uh, of asset. Uh, but that too will work its way through. We think relatively quickly because we, you know, we hope that the, uh, the bankruptcy judge understands that, uh, getting that asset turned on as quickly as possible is best for, uh, the equity and for the asset in, uh, involved. And then in terms of the Dublin asset, that's one that is a little bit more squishy, if you will. It's land. We're waiting for entitlements to come through to enhance the development prospects of the property, both on the residential and on the office side. And the borrower is still working with – COVID has just kind of lightened up in Ireland. Workers are back at the site. And the developer is still working on securing an anchor tenant for the office development. So that one has got a little bit more uncertainty there. The others we think have more of a short-term time horizon.

Got it. It's helpful color. Thanks again for taking my questions.

Thank you.

There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Well, thank you for your support and for joining us on today's call. We look forward to updating you on our second quarter earnings call in early August. Thank you.

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