BrightSpire Capital, Inc.

Greetings. Welcome to Brightspire Capital Inc. Fourth Quarter 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. Please note this conference is being recorded. I will now turn the conference over to David Palame, General Counsel. Thank you. You may begin.

Good morning. and welcome to Brightspire Capital's fourth quarter and full year 2021 earnings conference call. We will refer to Brightspire Capital as Brightspire, BRSP, or the company throughout this call. Speaking on the call today are the company's Chief Executive Officer, Mike Mazzei, President and Chief Operating Officer, Andy Witt, and Chief Financial Officer, Frank Saraceno. 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. For a 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, February 22, 2022, 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 morning 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 before I turn the call over to Mike Mazze, Chief Executive Officer of Brightspire Capital, I'll provide a brief recap on our results. The company reported fourth quarter 2021 GAAP net income attributable to common stockholders of $81 million, or 63 cents per share. and distributable earnings of $22.9 million, or 17 cents per share. Excluding realized gains and losses and provision for loan losses, adjusted distributable earnings for the fourth quarter of 2021 was $36.1 million, or 27 cents per share. The company reported gap net book value of $11.22 per share, an undepreciated book value of $12.37 per share as of December 31, 2021. With that, I'd now like to turn the call over to Mike.

Thank you, David. Welcome to our 2021 fourth quarter and full year earnings call. I would like to start by wishing everyone well, and I thank you for joining us today. I will provide a high-level overview of the Brightspire team's accomplishments in 2021, as well as our key objectives as we look ahead to 2022. Earlier this year, our board of directors elected to purchase the firm's management contract to become a fully integrated, internally managed company. This structure provides for a more transparent organizational model with improved alignment between the company and our shareholders. All operational functions are now under one roof, and we are delivering annualized G&A cost savings of $16 million, or 12 cents a share. Post-internalization, we rebranded under the Bright Spire flag, and we hired 11 professionals across all areas of the firm, bringing our total headcount to 55 people. In addition, we have added further experience, leadership, and diversity to the Bright Spire Board of Directors with the additions of Kathy Long and Kim Diamond, along with the elevation of Katie Rice to the position of chairwoman. We are very pleased with the team's efforts in 2021 in transforming the Brightspire portfolio. We actively managed and sold select pre-COVID-19 assets, which also resulted in paying off our COVID-19-related preferred equity financing at the end of the year. We further evolved our portfolio by pruning select non-strategic assets while ramping up mortgage loan originations. During 2021, we originated 64 loans totaling $1.9 billion. In doing so, we grew the loan book to $3.5 billion and further diversified by reducing average loan size to $36 million from $48 million. In addition, we made other improvements in our portfolio by resolving higher risk and non-accrual loans while substantially increasing our exposure to newly originated first mortgages on multifamily properties. the result of which improved our average risk rating to 3.1 from 3.7. We were also active on the liability side of the balance sheet, issuing an $800 million CLO in the third quarter. And most recently, earlier this month, we right-sized and extended our corporate revolver. The culmination of this activity has resulted in significant growth in adjusted distributable earnings for the full year 2021, which enabled us to reinstate our quarterly dividend and grow it throughout the year to 18 cents per share for the fourth quarter. Looking ahead to 2022, the Brightspire team has successfully positioned the firm to be a pure play commercial mortgage REIT focused on first mortgages backed by high-quality assets and sponsors. Going forward, this business model will generate current and predictable earnings to support our dividends. After all of this effort over the past two years, the mission for 2022 has finally been narrowed down to net deployment of capital and growing assets. To maintain and grow earnings, we need to substantially deploy the remaining cash on hand while staying ahead of loan repayments by increasing our origination volume from 2021. This year, we will also continue our focus on closing the gap between our current stock price and under-appreciated book value. Now, let me briefly touch on current market conditions. Over the course of 2021 and into 2022, the overall commercial property markets have continued to stabilize. Within that macro context, there has emerged several important trends. Notably, performance has varied by property type and by region. Multifamily has been a clear winner, while regionally, there is a continued population migration out of higher taxation states. The most notable winners there have been Florida, Texas, and Arizona. While some CLO rating agencies generally give more credit for larger MSAs, we at Brightspire are not ignoring the continued trend of population and income growth in more localized regions. This thesis holds true not just for multifamily properties. We have also been targeting office properties in these regions where population growth exceeds the national average and where taxes, lifestyle, and commuting are more appealing than many larger cities. While overall rent growth in 2022 has been very impressive, we are now also facing inflation rates at their highest levels in 40 years. The Fed has been very clear about its plan to aggressively increase interest rates in order to subdue inflation. Therefore, we need to be mindful that rent growth may eventually decelerate and cap rates may gradually adjust to the new rate environment. On the loan pricing side, despite fixed income investors' increased appetite for more defensive, shorter duration, and floating rate bonds, the recent heavy new issuance calendar for CRE CLOs has led to spread widening over the last 60 days. Therefore, we've been adjusting our loan pricing accordingly. In closing, I am very grateful for the hard work and dedication of the Brightspire team. We are delighted to have reached this inflection point, and I am confident we will succeed in meeting our objectives for 2022. And with that, I would now like to turn the call over to our president, Andy Witt. Andy?