BrightSpire Capital, Inc.

Greetings and welcome to the conference, Bright Spire Capital, fourth quarter 2023 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 to you David Palame, General Counsel. Thank you, David. You may begin.

Good morning and welcome to Brightspire Capital's fourth quarter and full year 2023 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, which 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 10-K 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, 2024, 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. Finally, during this call, management may refer to distributable earnings as DE. With that, I would now like to turn the call over to Mike.

Thank you, David. Welcome to our fourth quarter and full year 2023 earnings call, and thank you for joining us this morning. I'll start by giving a brief update on the fourth quarter and what we anticipate for this year. Then I will turn the call over to Andy for more specifics on the portfolio. Let's first turn to Bryce Barr's results. For the fourth quarter, we reported gap net loss of $16.3 million or 13 cents per share. DE of 25.4 million or 20 cents per share, and adjusted DE of 35.9 million or 28 cents per share. Our dividend coverage for the fourth quarter was 1.4 times. Now let's briefly discuss the financial markets. While the Fed has been backpedaling on the timing of rate cuts, it is now clear that the higher for longer policy has come to a close. This pivot has caused a significant risk on in credit spreads, long-duration bonds, and big tech. Even office REITs have come off their lows from several months ago. The 10-year Treasury yield initially dropped over 100 basis points and is currently about 75 basis points lower versus the October earnings call. In the commercial real estate debt markets, CNBS AAAs have tightened by roughly 50 basis points, and we saw very strong investor demand for the first CRE CLO print of 2024, which was also an actively managed structure. The CLO cost of funds has tightened roughly 75 basis points over the past four months. Furthermore, most of our line lenders have expressed interest in increasing their warehouse balance sheets for new loans, and for good reason, as through this cycle, these banks have seen their best credit performance in this segment of their lending portfolio. For commercial real estate owners, these are clear signals that help is on the way. During the second half of this year, we expect the beginnings of a meaningful reduction in the pricing of interest rate caps. And while lower rates alone will not solve all market issues, it will go a long way in reducing credit stress across all asset classes. Turning back to Brightspire, 2023 was challenging, but we continue to protect the balance sheet. maintained higher levels of liquidity, and now have one of the lowest leverage ratios in the peer group. Maintaining these liquidity levels coupled with our smaller average loan size of approximately $34 million has helped us navigate the last 18 months. As we have stated in the past, it is problematic for liquidity when large loan concentrations constitute multiples of shareholder equity. On that note, Andy will provide an update on our two largest loans, the ultimate resolutions of which will further reduce our own concentrations. Looking ahead, with rates expected to decrease in the second half of this year, we're all looking forward to the positive bias this will have on credit quality. Alternatively, our entire sector has experienced earnings increases from the 500 basis points and rate hikes. And now with the coming rate reduction of the Fed funds rate, this positive trend will begin to reverse in the latter portion of 2024. In addition, over the last 18 months, the sector, along with Brightspire, has recognized write downs in capital. Further, we experienced capital inefficiencies due to a combination of maintaining higher cash balances, lower leverage from both loan payoffs and warehouse line pay downs, as well as an increase in unencumbered assets. These factors will be headwinds for earnings later this year. Therefore, the sector's 2023 dividend coverage levels should not be used as a guide for future earnings. These coverages should narrow for most as the year progresses. Now, looking forward, it will be about re-optimizing your existing capital base to offset these factors. Accordingly, in 2024, we will need to reverse the balance sheet trends of the past two years. As I previously stated, overall leverage stands at 1.8 times, and our unrestricted cash is approximately $203 million. We also have low or non-earning capital in REO and some other assets. During 2024, we will work to monetize and redeploy this capital more effectively. Importantly, The resolution of watch list assets and providing more certainty on our loan book should also help close the gap between our market price and book value. As we execute our plan to further stabilize the balance sheet, we will also begin to assess new lending opportunities. The actual deployment of capital will most likely be a second half of the year objective. Lending opportunities should further open up in 2024. Along with the Fed easing rates, the regional banks will be seeking to reduce their CRE exposures. Keep in mind that regional banks hold about 70% of the commercial mortgages in the bank system. So as loans mature, especially construction loans, these banks will be far less incentivized to refinance these loans on their balance sheets. In addition, more regional banks will be included under the new Basel III rules. These factors will become tailwinds for non-bank lenders. In closing, we are becoming more positive about the opportunity set. In the not-too-distant future, we will look to play offense for the first time in almost two years. And with that, I will now turn the call over to our president, Andy Witt.