BrightSpire Capital, Inc.

Greetings and welcome to the Brightspire Capital, Inc., fourth quarter 2022 earnings conference 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 Pallamay. General Counsel. Thank you, David. You may begin.

Good morning and welcome to Brightspire Capital's fourth quarter and full year 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, 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 21st, 2023, 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. Before I turn the call over to Mike, I will provide a brief recap on our results. The company reported fourth quarter 2022 GAAP net income attributable to common stockholders of $4.2 million or 3 cents per share, distributable earnings of $34.2 million or 27 cents per share, and adjusted distributable earnings of $35 million or 27 cents per share. The company also reported GAAP net book value of $10.77 per share and undepreciated book value of $12.06 per share as of December 31, 2022. With that, I would now like to turn the call over to Mike.

Thank you, David. Welcome to our fourth quarter and full year earnings call, and thank you for joining us today. Over the last year, we have been very vocal about the impact of the Fed's aggressive tightening policies. Therefore, today, I will keep my market comments brief, and I will address current dynamics affecting the office sector, and then turn the call over to Andy, who will provide more detail on asset management developments and our balance sheet. Early last year, we decided to not fight the Fed and made a strategic pivot to a risk-off mode. We substantially throttled back our loan originations in order to prioritize liquidity. We turned inward to focus on asset management and engaging with our borrowers. We made certain to apprise them well in advance of the significant increases in interest rate cap costs and the implications of rising rates on future loan extension tests. We believe that these early actions in 2022 helped us to get ahead of the curve. Turning to 2023, Brightspire's strategic direction will somewhat hinge on how long the Fed maintains its restrictive policies. The expectation is for the Fed to increase rates another 25 basis points in March and again in May. So while the rate increases are substantially behind us, the number one question for 2023 is, Just how long does the Fed mean when it says higher for longer? We believe that outside of a panic event, higher for longer means through the end of this year. And for what it's worth, we also believe that the Fed will need to change its 2% inflation target. Therefore, as we navigate through this uncertain period of Fed policy, we continue to emphasize maintaining higher cash balances and proactively managing our loan portfolio. Regarding our liquidity, As of today, we have $284 million in unrestricted cash and $449 million of total liquidity. Now, turning to the capital markets, there have been some green shoots in the CRE CLO market, which has seen two securitization issuances thus far this year. The most recent issuance was met with significant investor demand, and albeit, while pricing improved from Q4, it's still wide. and the transactions do not yet allow for a reinvestment period. There has been continued tightening of credit spreads in both the corporate bond and CMBS securitization markets. Therefore, we expect to see more follow-on improvements in CLO credit spreads and deal terms through the course of the year. Now I would like to discuss the office property sector. We believe this is a more significant issue in commercial real estate than high current level of interest rates. While rates will inevitably come down and benefit all property types, the headwinds in the office sector are longer term and in some cases could be more permanent. The work from home model, whether full time or hybrid, has become the new normal. This is impacting all types of private businesses as well as federal and state government agencies. This is also having a concerning impact on city and state sales tax, and transit revenues. A major tracking tool for the industry has become office attendance data. While slowly improving, office attendance is generally tracking an average of only 50%. There are also significant disparities. While cities in Texas are experiencing office attendance in the mid-60s, the San Francisco Bay Area and Washington, D.C. are both in the low 40s. In addition, the attendance rates are consistently concentrated midweek. Even New York City is now considering a work-from-home model for its municipal office employees. And all of this is even further complicated in certain large metro markets where quality of life issues, along with higher income taxes and higher housing costs, are adding to employee preferences to work from home. and whereby home has too often become a completely different state than their employer. These dynamics are creating leasing headwinds and asset valuation uncertainties that have also culminated into a risk-off environment by lenders who become substantially frozen from making new loans on office properties. In fact, most lenders are now focused on managing office loan exposures in their own portfolios. Shifting to Brightspire, We took into consideration these work from home factors in our post-COVID office loan originations. We focused on drive-to-work markets, office properties with diverse rent rolls, as well as lower average loan sizes. Portfolio granularity was a major consideration for our strategy. We contemplated the liquidity and dry powder that theoretically might be required should there be a need to protect the balance sheet for larger multi-hundred million dollar loans. We believe that boxing in your designated weight class for loan size concentrations is a critical part of risk management. Hence, our average new office loan size was 32 million. We further recognize that our loans are non-recourse. and that even large institutional borrowers have financial limits, and in the end, will act in their own economic self-interests. In closing, we are very pleased with our 2022 results, which reflect our team's ability to quickly pivot the business in a fast-changing market. We closed the year with both solid earnings and increased liquidity. Brightspire is positioned to be opportunistic once we have better visibility. In fact, some of the best lending opportunities will be in the office sector. In the meantime, all things being equal, our bias continues to remain toward maintaining higher levels of liquidity versus making new loans. With that, I would now like to turn the call over to our president, Andy Witt. Andy?