BrightSpire Capital, Inc.

Greetings and welcome to the Brightspire Capital's third quarter 2022 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. Please go ahead.

Good morning. And welcome to Brightspire Capital's third 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 Mazzi, President and Chief Operating Officer, Andy Witt, and Chief Financial Officer, Frank Saraceno. Before I hand over the call, 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, November 2, 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 reconciliation 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 of our results. The company reported third quarter 2022 GAAP net loss attributable to common stockholders of $20.5 million, or 16 cents per share. distributable loss of $24.7 million, and adjusted distributable earnings of $32.3 million, or 25 cents per share. The company also reported GAAP net book value of $10.87 per share and undepreciated book value of $12.08 per share as of September 30, 2022. With that, I would now like to turn the call over to Mike.

Thank you, David. Welcome to our third quarter earnings call, and thank you for joining us today. During the past three earnings calls, we've sounded alarms due to the Fed's aggressive stance on inflation. The current market situation has been substantially self-inflicted as a result of the Fed's epic misses on inflation forecasts. Suffice it to say, we are experiencing interest rate increases and inflation levels not seen in 40 years. Currently, markets are pricing in a 75 basis point Fed interest rate increase later today, followed by a 50 basis point increase in December. We expect the Fed to pause interest rate increases at the end of the first quarter of 2023. With single family mortgage rates recently hitting a 20 year high, over 7%, we, like others, are concerned the Fed has a bias to overshooting the mark and dealing with the consequences later. Given this backdrop, Brightspire expects the first half of 2023 to remain challenging. More presently, over the course of 2022, Brightspire has been preparing for the impact of rising rates and the current risk-off investment environment. To this end, we have been throttling back our loan originations and maintaining higher cash balances. To this point, our current liquidity as of today is $387 million, of which $222 million is unrestricted cash. Our cautious views on market conditions are evidenced by the fact that our last few loan commitments were issued back in early May. Since that time, our pipeline for new loan commitments has been in a wait-and-see pause mode. For now, our focus is on asset and liability management, maintaining liquidity, and protecting the balance sheet as well as our bank lenders. Furthermore, as we have said consistently during the past two quarters, there has been a scarcity of lending opportunities as the demand for commercial real estate credit has significantly contracted. On the capital market side, the CLO market continues to experience wide credit spreads, and new issuance has come to a virtual standstill. In the CLO secondary markets, recently issued AAA-rated bonds are now trading with dollar prices in the mid-90s with very attractive all-in yields at over 7%. However, secondary trading activity has been extremely thin and therefore not a meaningful opportunity to invest a lot of capital. We do not expect to see an improvement in credit spreads until the Fed becomes more dovish and there is an ensuing risk on attitude among bond investors. I would now like to address the third quarter $57 million specific reserve associated with our two Long Island City office loans. And Frank will later address in his comments the reversal adjustment to our general CECL reserves. It has been our philosophy to provide our constituents with high levels of transparency. Along those lines, we have continuously disclosed detailed narratives about certain loans in our public filing. This disclosure is provided in order to allow investors to focus on assets that we, as management, have on our radar screens for various reasons. We first provided loan-specific narratives for two Long Island City loans in the first quarter of 2021. Both loans also carried a risk rating of four since the first quarter of 2020. but now downgraded to a risk rating of five just this last quarter. Both of these loan borrowers have the same sponsorship, and both loans consist of a first mortgage along with a mezzanine loan position. The loans are not cross-collateralized. Despite the efforts of our borrower, who until recently has come out of pocket to cover negative carry costs, one of the Long Island City loans defaulted in October. This is loan number 41 in our investor supplement. Given this recent payment default, we engaged an asset sales advisor who provided an opinion of value for both loans, which led to these two specific reserves. I want to point out that the second Long Island City loan, loan number 18 in our investor supplement, is still current and performing as of today. While we cannot speak on behalf of the borrower, the specific reserve on that second loan reflects the potential of a similar outcome in the coming months. We are coordinating closely with our borrower in an effort to resolve loan number 41 in the coming months. Given all I have said here, we will of course consider current market conditions in our resolution decision process. We have not ruled out that possible outcomes could include providing financing or taking ownership of the underlying property itself. Also, please note this loan has already been removed from its financing vehicle in October and is reflected in today's liquidity numbers. Please refer to our third quarter filings where we have provided updated narratives on both of these loans. Finally, there will undoubtedly be great lending opportunities that will arise from this market dislocation. But to be clear, over these past few quarters and in the very immediate future, all things equal, our bias is that liquidity will generally take precedent over new loan originations and stock buybacks. With that, I would now like to turn the call over to our president, Andy Witt. Andy?