BrightSpire Capital, Inc.

Greetings ladies and gentlemen and welcome to Brightspire Capital second quarter 2022 earnings conference call. At this time all participants are in listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star then zero on your telephone keypad. As a reminder this conference is being recorded. I'd like to turn the conference over to your host, Mr. David Palame, General Counsel.

Good morning, and welcome to Brightspire Capital's second quarter 2022 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, August 3rd, 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, present 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, I will provide a brief recap on our results. The company reported second quarter 2022 GAAP net income attributable to common stockholders of $34.3 million, or 26 cents per share, and distributable earnings and adjusted distributable earnings of $31.4 million, or 24 cents per share. The company also reported GAAP net book value of $11.26 per share and undepreciated book value of $12.42 per share as of June 30, 2022. With that, I would now like to turn the call over to Mike.

Thank you, David. Welcome to our second quarter earnings call, and thank you for joining us today. Given the exceptional market volatility in this past quarter, I will focus my comments on market conditions as a segue into Andy's comments on capital deployment and portfolio activity. Finally, our CFO, Frank Saraceno, will discuss our second quarter financial performance. Starting first with the headline, we had another quarter of earnings growth. Distributable earnings increased from $0.22 per share in Q1 to $0.24 per share in Q2, more than fully covering the quarterly dividend of $0.20 a share. The lending strategy that Brightspire has undertaken since emerging from the pandemic was designed for challenging market conditions. Our portfolio is more diversified than ever before, with an average loan size down from $50 million in 2020 to $35 million today. Over that same period, our multifamily segment has grown from 30% to 52% of our loan portfolio, and 80% of all new loan originations have been acquisition financings. Our middle market lending program targets higher population growth regions, drive-to-work markets, and value-add asset level strategies. This portfolio strategy was designed to reduce large loan risk concentrations with a focus on assets whose underwritten NOI growth projections should outperform these rate increases. On our previous two earnings calls, I specifically referenced record levels of inflation and the Federal Reserve's well-advertised plans to increase interest rates. Rather than rehashing macro events of the last quarter, I will simply state that it is abundantly clear that these market dynamics have begun to permeate the economy. The capital market's reaction has been to shift into risk-off mode, brought on by these sharp interest rate increases. Just recently, the Treasury yield curve inverted to its widest spread in 20 years, while credit spreads have continued to widen. Overall market sentiment has become extremely bearish, and this was validated with last week's report indicating GDP declined again during the second quarter. With two quarters in a row of GDP contraction, we have technically entered into a recession, although its ultimate length and depth remains uncertain. If the current strong employment numbers can hold up, it will make any downturn more shallow. Separately, there also seems to be a disconnect between public equity markets and the Treasury and credit bond markets. Equities are rallying on recession news, while 10-year Treasury rates have moved lower and credit spreads have widened. Based on history, we think the bond markets have it right. Turning now to commercial real estate lending. The market volatility, along with higher costs of capital in both benchmark indices and credit spreads, cause commercial real estate investment sales and lending activity to meaningfully contract during the second quarter. Accordingly, at Brightspire, our origination volume has been trending lower. This is not just lenders being more cautious. As I mentioned on the last earnings call, the reverse information feedback loop from lenders to mortgage bankers back to borrowers and asset sellers has worked to substantially shrink transaction sales and refinancing pipelines. Therefore, the demand for commercial real estate credit has contracted. CMBS and CLO mortgage loan securitization volume has followed suit and declined in June and July, while CLO spreads have widened further during the quarter. Given these market conditions, we will be delaying the issuance of our third CLO in the near term and will reassess the market in the next few months. We concur with others that the dearth of new issuance, along with AAA CLOs already yielding over 5%, should lead to spread tightening in the coming months. It makes sense that these market dynamics would also result in a slowdown in existing loan payoffs, which we are in fact seeing in our own portfolio. Borrowers who have engaged in selling properties have suspended the marketing process in favor of maintaining their existing financing while continuing to execute on their asset level business plans. All of our loans have built-in extension options subject to meeting certain criteria. In the meantime, With interest rates and replacement costs both higher, construction development and single-family home sales should continue to slow. We therefore expect that multifamily occupancy rates will continue to benefit from both sides of supply and demand. As a result of these risk-off market conditions, Brightspire has shifted its focus with an eye toward maintaining higher levels of cash liquidity. While we will continue to selectively quote new loans, actionable lending opportunities have become increasingly scarce. This will continue to be the case until lenders and property owners see signs of market and valuation stability. This will require meaningful indications of downward inflationary trends, along with more visibility as to the length and extent of the Fed's rate increases. Until that visibility occurs, maintaining higher levels of cash liquidity is prudent. This is a time to closely monitor our balance sheet and stay especially close to our borrowers and banking counterparties. With that, I would now like to turn the call over to our president, Andy Witt. Andy?