BrightSpire Capital, Inc.

Hello, and welcome to the Brightspire Capital, Inc. second quarter 2024 earnings call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. We ask that you please limit yourselves to one question and one follow-up. As a reminder, this conference is being recorded. It's now my pleasure to turn the conference over to David Palame, General Counsel. Please go ahead, David.

Good morning, and welcome to Brightspire Capital's second quarter 2024 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 Mazze, 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, July 31st, 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 yesterday afternoon 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. Before I turn the call over to Mike, I will provide a brief recap on our second quarter 2024 results. The company reported GAAP net loss attributable to common stockholders of $67.9 million or 53 cents per share, distributable earnings of $17.0 million or 13 cents per share, adjusted distributable earnings of $28.8 million or 22 cents per share, and cash earnings of $26.8 million, or 21 cents per share. Current liquidity stands at $317 million, of which $152 million is unrestricted cash. The company also reported GAAP net book value of $8.41 per share and undepreciated book value of $9.08 per share as of June 30, 2024. 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 second quarter 2024 earnings call, and thank you for joining us this morning. Throughout the second quarter, the Brightspire team remained focused on asset management initiatives in order to improve certainty around the portfolio and position the firm to move forward. We, like most, welcome the anticipated interest rate cuts starting in September. This will provide further momentum for our watch list and REO resolutions. To note, in aggregate, our watch list has remained stable quarter over quarter, but with some underlying movement that we will discuss. Now, I would like to provide insights as to our results. This quarter, we are taking impairments on certain legacy office equity investments. These investments were made roughly nine years ago by predecessor companies prior to the formation of Brightspire. These have been highlighted in past filings and mentioned in my prepared remarks last quarter. In taking the impairments, we will write down these investments to zero. This write-off makes up approximately 80% of our book value adjustment during the second quarter. The remainder of the book value adjustment is attributable to the increase in our CECL reserve, which now stands at $1.32 per share. The most significant impairment of these equity investments is the Norway investment. As of this month, we are no longer receiving cash flow income from this asset. As a reminder, last quarter we also stated that we anticipated losing cash flow income on the two other office equity investments in the coming quarters. Importantly, we have also recently commenced loan originations and will redeploy capital, which will, in part, offset the lost cash flow earnings associated with the legacy equity positions. While the loss of these cash flows occur over six months, our capital deployment is anticipated to have an impact over a lengthier time period. I highlighted this dynamic last quarter. This timing mismatch became a significant factor in the decision to reduce our quarterly dividend from 20 cents to 16 cents per share beginning in the third quarter of this year. A reduction in our dividend will preserve shareholder equity in the near term. This will also allow the company to be more deliberate in pursuing value-enhancing strategies within the existing portfolio as we work through watch lists and REO investments. More specifically, as it relates to our Norway investment, although the debt comes due in June of 2025, a cash flow sweep went into effect this month. As a reminder, this is a net lease property and the global headquarters of Equinor, the state oil company of Norway. Equinor has been evaluating their future office requirements. Their options include remaining at our property, leasing an alternative building, or constructing a new headquarters. For us to accomplish a sale or refinancing, we would need to be able to negotiate a lease extension beyond its current 2030 expiration. If Equinor decides to remain on our property under the current terms of the lease, the five-year remaining term beyond the debt maturity is insufficient to refinance the property without a significant pay down of the debt. Also, Equinor's timeline for their occupancy decision may not align with the maturity of our mortgage debt. We will continue to work alongside Equinor in that process. We will also engage with the lender group in an effort to modify the debt to improve the outcome. But at this time, investing more capital into this asset does not appear likely. Unlike Norway, the two U.S. office equity investments are multi-tenanted properties financed with CMBS mortgages. Although the respective underlying property cash flows provide more than adequate coverage on both interest and amortization, these investments fall short of the criteria necessary to refinance in today's market. A cash flow sweep on these assets is anticipated to commence at their respective loan maturities in October 2024 and January 2025. Therefore, we have proactively initiated discussions with the servicer to explore options for maturity extensions. But given the uncertainties, we took the prudent approach of incurring impairments on both of these investments. During the second quarter and subsequent to quarter end, we successfully resolved a number of watch list loans and REO. In addition, we continue to be conservative in our approach to risk ratings, and in doing so, we downgraded certain other loans. However, on a net basis, the watch list loan count and aggregate loan balance remained constant. Furthermore, 65% of the aggregate watch list is current in interest payments. The largest portion of the non-accrual is attributed to our San Jose hotel loan, which Andy will discuss in his remarks. At this point in time, we do not anticipate meaningful migration onto the watch list. Alternatively, we believe that the remainder of the year will provide a window for significant resolutions and reduction to the current watch list. As we head into the second half of the year, we have experienced improved visibility on our liquidity needs. And as a result, we have reengaged loan origination efforts to deploy capital. While it is still early, we are encouraged to see opportunities emanating from the pullback by regional banks. We also expect that future rate cuts will provide a boost to dislodge more assets for refinancing. The private credit sector should be a net winner in this pivot away from regional banks. Lastly, restarting originations underscores our continued progress in our anticipation of resolving underperforming loans and REO. Again, we believe the second half of the year will yield significant progress on this front. And with that, I will now turn the call over to our president, Andy Witt.