Greetings. Welcome to the BrightSpire Capital Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I'll now turn the conference over to David Palamé, General Counsel. Thank you. You may begin. David Palamé: Good morning, and welcome to BrightSpire Capital's Fourth Quarter and Full Year 2021 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 Saracino. 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 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 10-Q 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 22, 2021, 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. And, before I turn the call over to Mike Mazzei, Chief Executive Officer of BrightSpire Capital, I'll provide a brief recap on our results. The company reported fourth quarter 2021 GAAP net income attributable to common stockholders of $81 million, or $0.63 per share, and distributable earnings of $22.9 million or $0.17 per share. Excluding realized gains and losses, and provision for loan losses adjusted distributable earnings for the fourth quarter of 2021 was $36.1 million or $0.27 per share. The company reported GAAP net book value of $11.22 per share and undepreciated book value of $12.37 per share as of December 31, 2021 With that, I'd now like to turn the call over to Mike.

Thank you, David. Welcome to our 2021 fourth quarter and full year earnings call. I would like to start by wishing everyone well, and I thank you for joining us today. I will provide a high level overview of the BrightSpire team's accomplishments in 2021 as well as our key objectives as we look ahead to 2022. Earlier this year, our Board of Directors elected to purchase the firm's management contract to become a fully integrated, internally managed company. This structure provides for more transparent organizational model, with improved alignment between the company and our shareholders. All operational functions are now under one roof. And we are delivering annualized G&A cost savings of $16 million or $0.12 a share. Post internalization, we rebranded under the BrightSpire flag and we hired 11 professionals across all areas of the firm, bringing our total headcount to 55 people. In addition, we have added further experienced leadership and diversity to the BrightSpire Board of Directors, with the additions of Cathy Long and Kim Diamond, along with the elevation of Cathy Rice to the position of Chairman. We are very pleased with the team's efforts in 2021 in transforming the BrightSpire portfolio. We actively managed and sold select pre-COVID-19 assets, which also resulted in paying off our COVID-19 related preferred equity financing at the end of the year. We further evolved our portfolio by pruning select non-strategic assets, while ramping up mortgage loan originations. During 2021, we originated 64 loans, totaling $1.9 billion, in doing so we grew the loan book to $3.5 billion and further diversified by reducing average loan size to 36 million from 48 million. In addition, we made other improvements in our portfolio by resolving higher risk and non-accrual loans, while substantially increasing our exposure to newly originated first mortgages on…

Thank you, Mike and good morning everyone. 2021 was a transformational year for BrightSpire. We set out to simplify the business and grow company earnings. During the fourth quarter, BrightSpire continued to execute on its business plan focusing on capital deployment and portfolio management. During the fourth quarter, the company deployed $490 million in aggregate loan commitments across 17 newly originated senior mortgage loans. On the portfolio management front, most notably, BrightSpire completed the $223 million sale of five co-investments across seven legacy positions. The proceeds from this transaction were used to retire the five-pack preferred financing entered into June of 2020. Completing these transactions goes a long way towards further simplifying our balance sheet. Our originations platform remains active with a continued focus on middle market in high growth geographies. During 2021, the team originated 64 loans in an aggregate commitment amount of $1.9 billion. All of these investments are floating rate first mortgages on cash flowing assets, the majority of which are acquisition financing, often with repeat borrower relationships. During the fourth quarter, we received $138 million in pre-payments across two subordinate loans and one partial senior pay down. Subsequent to the fourth quarter, we have closed seven investments for an aggregate commitment amount of $303 million. Currently, there are an additional 12 loans in executions with an aggregate commitment amount of approximately $355 million, resulting in 19 loans totaling $658 million of aggregate commitments that have either closed or in execution so far during first quarter of 2022. As Mike noted in his prepared remarks, our primary focus in 2022 is the net deployment of cash on balance sheet and staying ahead of prepayments. Throughout 2021, our stated goal has been to simplify the portfolio by focusing on senior mortgages with in place cash flow, generating current…

Thank you, Andy, and good morning, everyone. Before discussing our fourth quarter and full year results, I want to mention that we expect to file our form 10-K later today. In addition, I would like to draw your attention to our supplemental financial report, which is available in the shareholder section of our website. The supplement continues to provide asset-by-asset details as does our Form 10-K. As previously mentioned, this quarter concludes a remarkable year with strong results across our key metric. For the fourth quarter, we reported total company adjusted distributable earnings, which excludes realized gains and losses of $36.1 million, or $0.27 per share. We also reported full year adjusted distributable earnings of $0.87 per share. Additionally, for the fourth quarter, we reported total company GAAP net income attributable to common shareholders of $81 million or $0.63 per share and distributable earnings of $22.9 million or $0.17 per share. The GAAP net income reflects the $52.9 million net gain associated with the Co-Invest Portfolio sale. This includes the combination of recording the investment gain associated with the sale and a gain on related hedge positions, offset by tax payments related to these gains. Distributable earnings, mainly reflects a $13.2 million realization of a previously recorded unrealized loss on mortgage loans and obligations held in a securitization trust and excludes the impact of the Co-Invest Portfolio sale. During the fourth quarter total GAAP net book value increased to $11.22 from $11.04 per share and undepreciated book value increased to $12.37 from $12 per share. This increase is primarily due to the combination of recording the net gains from the Co-Invest Portfolio sale and our triple-net industrial distribution portfolio reverting back to BrightSpire 100% ownership as a result of repaying our five-pack preferred financing. Looking in more detail at the…

Thank you. [Operator Instructions] Our first question is from Tim Hayes with BTIG. Please proceed.

Hey good morning guys. First question, just around the dividend. Look, I know that you're on different schedule now with declaring it. I know it's a Board decision, but Mike you made some comments in the press release about expecting to continue to grow it. I know that kind of the run rate going forward is about $0.22 of adjusted EPS versus $0.18 quarterly dividend off to a nice start in the first quarter with some portfolio growth. So, just if you can maybe put into context, how you at the management level think about the trajectory of the dividend would certainly be helpful?

Let me have Frank touch on that. And then I could follow through.

Sure. Tim, for -- what -- we factor in the increase of our run rate earnings, our new originations, the fully realized G&A savings from internalization. And we look at the coverage we're getting from adjustable distributable earnings and obviously our net cash flow. Origination volume [Indiscernible] prepayments continues to assess potential to increase our run rate earnings and allow us to recommend an increase dividend to our Board.

So really Tim, where we are right now is -- our expectations are that we will increase the dividend in 2022. But right now, we're at that inflection point where its originations and net deployment and we do have some prepayments coming in. What we had experienced during COVID was a stall effectively in prepayments. And so now what you're seeing are the assets that were expected to pay off during that timeframe are starting to pay off now. And what we're also experiencing is, given, as I made in the prepared comments, we've had really a robust impressive growth in rents. In fact, some of our value-add borrowers are actually experiencing rent growth before they actually initiate the programs. And so we are starting to see some loans in the – that are post-COVID loans potentially pay off. And so right now our asset managers are away from doing the hand-to-hand combat on loan modifications that they did during COVID are really staying very close to every borrower and trying to gauge if any of those loans are paying off. And so that's really where we need to stay ahead of it, to see if any of the loans that were put in place post-COVID are paying off because they're way ahead of their business plans. And that's the balancing act that we're at right now. The economy is doing very well. And so loans aren't going out for the initial term of two to three years. They're actually paying off earlier. So I think what we need to do in terms of maintaining and growing that dividend is we need to do more originations than we did last year. Last year we did $1.9 billion, 64 loans. We probably need to grow that average loan size, a little higher. And we need to do about 10% to 20% more in loan originations than we did last year, depending on how fast the prepays come in, and how fast these business plans are accelerating.

That's helpful guys. I appreciate it. Maybe there's a couple questions around that. But do you feel confident in the platform's ability to originate 10% to 20% more loans going up in loan size, probably helps you out a bit, but while also maintaining the credit parameters that you want to? I mean, I know it's pretty competitive out there. And you guys have done a good job growing through increasing competition, but just wondering, if you still think you can maintain the asset quality and grow the portfolio to the amount that you're targeting?

Yes and yes. We think we could do that. We did 64 loans pretty seamlessly this year, in many ways starting off as a new organization with my arrival two years ago. So we actually think we have the capacity to do that. Our pipeline for the first quarter is looking pretty solid. And I do think we have to try to do some larger loan sizes. We are trying to balance as I said, path of growth, rating agency preference for larger MSAs. So we get to those larger loan balances. Sometimes it gets more competitive and spread, but they can benefit your CLO. I will say that, we did not do much at all below [Indiscernible] plus or LIBOR plus 300. And some of our competition did that and with the spreads widening, the way they did in this first quarter, you may see some CLOs getting less than 11s ROE because they had loans -- substantial amount of loans that were below the 300 threshold, despite their advanced rates. And so we're really trying to keep an eye on making sure that if we do CLO that we get additional lift beyond what our warehouse lines are providing us in terms of ROE. So, we're trying to balance that, but that's what we do.

Got it. I mean when you originate a loan today, is it -- are you assuming that CLO takeout, I guess, that's the target, but do you still think going a little bit tighter on spread going higher loan balance, if you have to put that on repo for a bit, can you achieve the ROEs that you're looking for?

Yes. We are -- when we originate a loan, we are looking at both executions. We're looking at the warehouse line, to make sure, it's giving us an adequate ROE on the warehouse line, and we're not doing an execution that is substantially through our ROE targets on the warehouse line with anticipation that CLO spreads will tighten. We're looking at current CLO spreads all the time and looking at adequate ROEs on the warehouse line first and foremost.

Okay, got it. And then just one last question and I'll hop back in the queue, just around repayments. And I know that they're tough to predict, but I think we saw a couple of Multi-family loans, one in Arlington, Texas, one in Jersey City upgraded to a 2. Are those signs that those loans might be getting kind of ripe for repayment? And then also if you're having some newer vintage loans repaid, you expect -- you could benefit from some nice prepayment income this year as well?

Andy, do you want to talk about some of these upgrades, and there may be a correlation there now. Let me let Andy address that and I'll pick it up if there's anything left to say.

Yes. Thank you, Mike. In terms of repayments, this year, we're expecting somewhere between $300 million and $400 million of repayments each quarter. And that's really as a result of looking at the underlying business plans, how they're tracking to underwriting and what the borrower's plan for the asset is. So, we do anticipate repayments. It's something that we're constantly looking at. And yes, when you do see our risk rankings tighten up a little bit, that's evidence of borrowers being ahead of business plan and the assets performing, so that could be an indicator of increase prepayments going forward.

All right. Well, I appreciate the comments this morning.

Thank you, Tim

Thanks Tim.

Our next question is from Steve Delaney with JMP Securities. Please proceed.

Thanks. Good morning everyone. And Andy congratulations on your well deserved promotion, to President.

Thank you.

Sure. So, obviously, bridge loan demand across the board has been really strong throughout most of 2021 and as you said, early this year. I'm just curious, the Fed is going to be in play here, Mike, and whether we get 100 basis points or 150 basis points, we could get something meaningful. Is this generally just based on past experience in these markets and this type of borrower, a lot of acquisition, buyers -- property buyers, what's the psychological and bottom-line impact on the Fed in play and taking rates up pretty aggressively over the next 12 to 18 months? Thank you.

Hey, thank you, Steve for your question. Well, if that is such a dynamic question, and it's in terms of – you've got – you've got a yield curve flattening here, as well. And so that – that the Fed is going to increase rates, you've got a number of factors like inflation, some inflationary pressures have nothing to do with interest rates. It has to do with some of its supply chain, some of it is the demand for energy, the lack of energy production and gasoline prices factored into everything that we touch every single day. On our side, generally speaking, rates going up, you'd see some economic slowdown, you would see a deceleration potentially in rents. And you may – as I said in my prepared remarks, may affect cap rates. Some borrowers may decide to go fixed rate, if they can, but that's not the sector we're playing in. We're playing in the value add sector. We are seeing areas of the economy, where I mentioned the states that were winners. Arizona, has probably seen some Multi-family price appreciation, like almost no other state, except for Texas and Florida. But I think they – may even be the leaders, where we're seeing properties that have doubled, or more in value. Having said that, the other fact of the matter is we've all been reading that, there is generally a lack of housing units single-family and Multi-family, and Arizona is a market there are certain sections of Arizona swaths of it, whether they are just under house. So we're seeing property values that have doubled. But we're seeing as we make a new loan on those, we're seeing debt yields that are very significant. We just quoted a deal in Arizona, with a going in debt yield…

Sure, sure. So, throughout the course of 2021, 71% of our activity was in the Multi-family sector. And if you look at our latest quarter, actually 52% was office. So we are starting to do more in the office sector and looking forward as we look into Q1 and our pipeline. We're seeing some other asset classes, industrial as well, so we're seeing it broadening out generally of the asset classes that we're focused on and – and where the opportunity set is moving. So, so that is – that is moving.

Thank you. Appreciate the color. And just one final thing for me, you guys may have noticed that, that iStar sold its large net lease book to Carlyle for $3 billion. Obviously, it's a very stable, consistent, predictable source of revenue for you. So I'm not so much thinking you know that, you didn't see that, you saw that as a core asset is, what I want to confirm and unlike the five investment portfolio. But could you comment, you carried it at a depreciated book value and rightly add the depreciation back to your book value calculation. Do you expect, just looking at where things are trading there, that there is unrecognized value? You're not marking it to market, but do you think that there is value in that portfolio that exceeds your depreciated basis?

So the short answer is, yes. There are two different -- very different assets there. We've spoken at length about the industrial asset, which is the Albertsons, two Albertsons facilities. And we almost had, I think, an excess of a 7% NOI and that deal is one where the financing is until 2028. And I've mentioned this before that really, it's the defeasance, you really need to lose the CMBS loan for that to trade at its best value. And given that we've got five years left, I think we're a little early there. Having said that, it is a core asset given its industrial, its U.S. based, its food anchored in its tendency, it's got a long-term lease, it's throwing off an excess of 11. Right now, the recurring earnings are a huge benefit for us. And so, that is something that we would consider in a couple of years from now when that defeasance didn't weigh as heavily on the transaction. But yeah, there is a lot of locked up potential value in that asset, just based on where we own it. The other asset is a non-U.S. based asset. It is the Equinor headquarters in Stavanger, Norway, it's a AA rated tenant. It's a 2030 expiration on the lease. We've got the currency hedge, I believe, Alex [ph], for about another two years. He's nodding. He said, yes. So that’s a yes. And we've got that hedge out of 820 kronor. And it's roughly around US$9 today. So we hedged it well. And that is one where the debt matures in 2025. We're getting about a mid-9s ROE on that at this point with the hedge in place, and that is something I think where we would more revisit when we get closer to the debt maturity, and the game there would be to see if we can extend with the tenant such that we can get a better shot at refinancing those proceeds out and have less dilution at maturity in 2025. So I would really ask shareholders to look at both of those assets as bookends. One, we have tremendous amount of value and the other, we have value in, but there may be dilution, and we'll get to 2025 and look to see if we can extend that lease where we can get that refinancing in place. And listen, we sold our non-USA assets to Fortress, Equinor is the last one we have. And quite frankly, if we can get that lease extended closer to maturity, that might be an asset that we sell, given its non-U.S. based.

Yes. Well, certainly, they’re certainly not assets that you have any trouble sleeping at night when you've got those on your books. I appreciate everybody's comments. Thank you.

Thank you.

Our next question is from Stephen Laws with Raymond James. Please proceed.

Hi. Good morning. I think you've touched a little bit on this Mike and Andy in your answer to Steve Delaney's question. But kind of thinking about the volumes, looks like the portfolio mix, I think, I saw in the supplement office is largely unchanged, but multi-family has grown significantly at the expense of all the other property types. Is that simply kind of what you talked about, multi-family is where you're seeing most of the transaction volume? Is it the focus on the CLO financing and you're looking at getting multi and office assets to put into those CLOs? Are there other things that we’re pushing you away from -- you know, hotel or retail or other property types that you really haven't done much of the past few quarters?

It's a little bit of both of those things. We try to balance CLO execution, what the CLO market wants. Andy, why don’t you – why don’t you give some more context there and I'll follow through?

Yes. So I think, you know, what you've seen in our underlying portfolio is more exposure to Multi-family and that's been a function of a couple of things. One, a strategic initiative to get more exposure to the asset class; and two, it's really been where the majority of the investment sales have been and you did touch on the CLO market. A lot of what's happening there is very skewed, you know, to the tune of about 80% Multi-family and most of the offerings. So that seems to be where we're seeing the opportunity. That being said, in Q4, you saw some more activity on the office front. And some of the other asset classes like hospitality are starting to become more attractive as there's more visibility post-COVID. So, it's been a function of one wanting to get exposure and two where the opportunity has been.

Great. Thanks, Andy. And Andy, kind of thinking about the balance sheet where you're operating you know, I think leverage you mentioned ex-securitizations is kind of 1.9x now. That's up like 1.1, I believe, for one flat at the end of last year. Kind of, where do you see that going? Where are you comfortable operating the portfolio for that metric?

Yes. So I do see. Go ahead, Frank.

You want to take it Andy?

No, Frank.

So – hey Steve. So, you know, we're very clear, we are 1.9 today and we see that you know, increasing to over the course of the year, and you know, based on our projections could get us high as 2.4 times. That would kind of put us in line with where you know, the comps are trading, but -- that kind of -- is kind of a high side is where we see that that ratio going to.

That’s helpful. Thanks very much, Frank. Appreciate it.

Our next question is from Matthew Howlett with B. Riley. Please proceed.

Good morning, everybody. Thanks for taking my question. First one is for you, Mike. On closing this discount to the stock price and undepreciated book or how you -- or Andy do you have -- you look at it? I'll ask again, why are buybacks considered if there is significant runoff and I know you want to go over the nation, but why wouldn't that be looked at as a source of excess capital repurchasers here?

First of all, thank you for your question, and welcome to the call.

Hello. Glad to be here.

I don't think buying back, you know, a million share is well -- $5 billion of stock and a quarter is really going to move the needle. The management team when the -- when DBRG executed its secondary offering, the management team stepped up and bought shares at roughly collectively 9.5 price. Right now, I think -- and we don't -- we can't speak for DBRG, they are our largest shareholder. They'll address the -- this holding in their call. I think that is a -- an overhang on the share price, for sure. Whenever we get to that 10 level we seem to pull back. Obviously, dividend yield is going to be a big driver of that as well which we're working on our part. With regard to DBRG, it's a very unique scenario, where you have somebody who is a potential seller. They've sold already, the 10 million or 9.5 million shares this past year. So our expectation is they may come back to the market again. Right now, I would tell you that DBRG has been incredibly supportive of this team here at BrightSpire, and we appreciate and look to earn that support every day from them as our largest shareholder. We have increased our dividend three times in 2021. So objectively speaking, we've taken less of the opportunity cost factor out of the hold element for DBRG. So perhaps, they can be again, I can't speak for them, but perhaps they could be more deliberate in their thinking about when they would execute more of that secondary, if they so chose to do so. I think there is the potential opportunity for us is rather than buyback 0.5 million shares here or there, as to whether or not DBRG does come to market again with another secondary. And then we would have to look at ourselves and our balance sheet in terms of can we participate should that event occur? And we would look at a number of factors, one, right away what is the cash on the balance sheet? Do we have enough liquidity to do so and participate? How much would they be selling and what amount would they be left with if they chose to do another secondary? And then most importantly, we would be pricing. So right now, I would say, the business plan is we're going to move add to deploy cash on a balance sheet into balance sheet loans. Balancing that deployment as we said, that's the number one focus. And if and when DBRG raises their hand to do a secondary, I think at that point in time, we would contemplate whether we could do something larger than just buying small amounts of shares back during any quarter. So I think we would wait for that opportunity to happen. If it doesn't, we can reassess toward the end of the year depending on were the stock price is.

Well, first of all, I'm pleased to hear that the company would consider something like that I mean, on the subject of pricing…

Again, I want to emphasize. I'm sorry to interrupt you. I want to emphasize, we have no information. We do not speak for the company. What I'm saying here, these are just my own thoughts from the outside looking in. They've sold in 2021. They are very supportive and have been supportive of this management team and we are paying a dividend. So, if he is not paying a dividend, so we've taken some of the opportunities staying cost out of holding it, but now -- the balls with them as to what they may decide to do. We don't have any information as to that.

Just to follow on that, I mean, in term of -- hypothetically, I know pricings issue, but if they saw anywhere near the last deal they did, wouldn't it not be significantly accretive to you to repurchase those shares given your any of these $12.5, $13?

It really depends on pricing. But we would look at that math, and if the opportunity was there, and our balance sheet had the liquidity in place, we would consider it. But we can't make that call until that situation arises.

Great. Well, I'm glad you addressed it, and I appreciate the comments. And so we won't speculate, but certainly good to hear that that the company could -- capacity to do that. On that note, so there are two things first, you mentioned last quarter about capital capacity. I know, you're being -- you look at things every day, but where are we in terms of the perpetual preferred market? We've seen that come out with some of your peers would BrightSpire look at that if they needed capital? And then last one is on operating expense guidance. I think there's a real potential here for you guys to shine on the expense ratio given the internalization any guidance to get you up to 55 people, just what can you tell us in terms of guidance where that to run it for 2022? Thanks a lot.

Okay. I’ll let Frank take the expense question and I'll start off with the pref. Frank wants to add to that. He can. We've looked at the pref, but given the cash we have on hand, I don't think that is something we would consider until Q4 or Q1. We do acknowledge the fact that interest rates rising could affect rates in the pref market and the value add of doing a pref could diminish during the course of the year, but right now that would not be accretive to all earnings, if we did a pref early on just have the capital, especially given how much net cash we have on balance sheet and the expectation for repayments. And then again, I would venture to say, another driving factor in that will be what DBRG does or doesn't do with its holdings. So, that's another factor in the equation. But I would say, all-in, do not expect the pref from us during the course of the year. That would be something we would look at potentially, as I said, year-end or beginning of 2023.

Great. Thanks Mike.

And Frank?

And then on the expense side, we had spoken to the $36 million run rate or $9 million per quarter, which we achieved during the year that will tweak up a little bit as we go into the year and go through pay increases and D&O insurance and everything else, but we're going to stay around that $9 million, $9.2 million per quarter on a cash basis run rate.

So, in other words, no significant hiring to achieve origination expectations.

I don’t think anything that would materially move that number.

Great. Thank you.

Our next question is from Derek Hewett with Bank of America. Please proceed.

Good morning everyone and congrats on the quarter. Most of my questions were already addressed. But could you provide some additional color on that Houston Multi-family loan that was resolved in January and specifically was it resolved at the year end carrying value?

Okay. That was a student housing deal. It was part of a three pack -- three property plus collateralized loan, where the borrower was liquidating assets one-off and that was the last remaining asset. The net result on that was $1 million loss versus book. And does that factor in the CECL fact and there was reversible CECL included in that. So, that was a $1 million loss.

That's correct.

Great. Thank you.

Thank you for joining the team by the way. Thank you.

We have now reached the end of our question-and-answer session. I would like to turn it back over to management for closing comments.

Well, thank you for everyone joining us today and we look forward to speaking again in May for our first quarter earnings. Have a great day.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.