BrightSpire Capital, Inc.

Good day, and welcome to the Bright Spire Capital, Inc. Third Quarter 2024 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to David Palame, General Counsel. Please go ahead.

Good morning, and welcome to Brightspire Capital's third 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 Mazzei, President and Chief Operating Officer, Andy Witt, and Chief Financial Officer, Frank Saraceno. Before I end 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, October 30, 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 third quarter 2024 results. The company reported GAAP net income attributable to common stockholders of $12.7 million or 10 cents per share, distributable earnings of $17.9 million or 14 cents per share, and adjusted distributable earnings of $27 million or 21 cents per share. Current liquidity stands at $416 million, of which $251 million is unrestricted cash. The company also reported GAAP net book value of $8.39 per share and undepreciated book value of $9.11 per share as of September 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 third quarter 2024 earnings call, and thank you for joining us this morning. I am pleased to report that since our last call, not only have market conditions improved, but our continued focus and ongoing efforts on the portfolio have yielded tangible results this quarter. This meaningful progress on our existing portfolio and balance sheet has strengthened Bryce Byer's position As a result, we have started new loan originations while maintaining our financial flexibility to proactively manage remaining watchlist loans and REO. The commercial real estate debt markets are very active. Both CMBS and CLO capital markets issuances have made a strong comeback year over year. We have also seen tightening of both loan and securitization credit spreads. In addition, bank warehouse spreads have been following suit. Furthermore, the ongoing reduction in short-term rates obviously bodes well for the commercial real estate markets. Within this positive context, we can confidently say that our warehouse banking partners, as well as CLO investors, are incredibly supportive of Brightspire, underscoring the broad confidence in our brand. On that note, during the quarter, Brightspire completed its third CLO. This transaction was $675 million and features both an $85 million ramp as well as a two-year reinvestment period for further expanding on lending capacity and flexibility for future investments. This market-leading transaction was the first CRE CLO comprised of entirely seasoned loans. The collateral for this new CLO were a combination of loans from our warehouse lines as well as our 2019 CLO. these loans have a remaining final term of just 24 months. Therefore, given the short tenor of the loans, the likelihood of a complete turnover during the CLO's two-year reinvestment period is very high. Importantly, the optionality embedded in the CLO further enhances our asset and liability profile. This transaction was well received with 20 investors participating across all offered tranches. including the sale of the lowest rated investment grade tranche. Lastly, this transaction meaningfully added to our cash liquidity, which as of today is $251 million. This is our largest cash balance in 18 months. On our last earnings call, we mentioned that we would restart loan originations. On that note, subsequent to quarter end, we closed on our first loan and another loan is in process. While it may seem insignificant, To mention one loan closing, it marks an inflection point for our company. While still early in the process, our team is now consistently quoting new loans as we work to rebuild our pipeline. While capital market conditions for CRE lending have dramatically improved and should continue, demand for CRE credit is still gradually recovering. But the continued improvement in the capital markets along with ensuing rate cuts will serve as the much-needed catalyst for CRE asset sales and demand for credit in 2025. It's a very exciting time to be back on offense with a view toward growing the loan portfolio and earnings. Moving to the watch list. During the quarter, we reduce our exposure on a net basis to a combination of asset resolutions, loan upgrades, and conversions to REO. In addition, we have begun resolving existing REO assets as we sold the Washington, D.C., office property and have started marketing the Oakland office asset. Given our cash liquidity position, we have elected to delay the sale of our Phoenix multifamily asset until the second quarter of 2025. While the property is stabilized, we expect to achieve further near-term performance improvements while also gaining the benefit from the impending rate cuts. During the course of 2025, we anticipate exiting a number of our assets that are REO or currently in foreclosure. Our current liquidity position and low leverage allow us to pursue resolutions in a measured way with an eye toward maximizing value. Regarding our stock price, the current dividend yield of approximately 12% is roughly 200 basis points higher than the average for our peer group. Further, BRSP is trading at a roughly 40% discount on our underappreciated book value of $9.11. As a reminder, this book value includes a CECL reserve of $1.20 per share, as well as a cash balance of $2 per share. This discount to book value equates to almost $4 per share and implies a nearly $500 million additional haircut to our common equity capital of $1.18 billion. The market price also implies no value attribution to being internally managed. We acted on this disconnect during the quarter and opportunistically repurchased 1.2 million shares at an average price of 552. This buyback emphasizes our conviction of the embedded value in our current share price. Before I turn the call over to Andy, I would like to underscore the significant progress we made in the third quarter. From the new CLO and our enhanced liquidity position to the share buyback, the return of loan originations, and the positive results in our watch list, the Brightspire team has hit on all cylinders. We will continue to build on this progress and are encouraged about our ability to further strengthen and grow our loan book over time. And with that, I will turn the call over to our President and Chief Operating Officer, Andrew Witt. Andrew?