Greetings, and welcome to the BrightSpire Capital, Inc. First Quarter 2024 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce David Palame, General Counsel. Thank you, David. You may begin. David Palamé: Good morning, and welcome to BrightSpire Capital's First 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 Saracino. 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, May 1, 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 first quarter 2024 earnings call and thank you for joining us this morning. In my remarks today, I will focus on some key financial highlights for the company, briefly discuss market conditions and provide visibility as to what is ahead. Then I will turn the call over to Andy for more specifics on the portfolio. Starting off with some financial highlights. For the first quarter, we reported GAAP net loss of $57.1 million or $0.45 per a share, positive DE of $22.5 million or $0.17 per share and adjusted DE of $29.7 million or $0.23 per share. Our current liquidity stands at $323 million, of which $158 million is cash on hand. This quarter, we recorded a $0.68 reduction in undepreciated book value, which currently stands at $10.67. This reduction was primarily driven by a net increase in our CECL reserves a few $0.07 per share. This brings our total CECL reserves to $151 million or $1.15 per share. Our leverage ratio remains unchanged at 1.8x, and our adjusted DE dividend coverage for the first quarter was 1.15x. Now let's briefly discuss the financial markets. In the first 2 months of this year, the markets went into a high gear risk-on mode, which resulted in an everything rally. As we all know, this was driven by the Fed telegraphing the end of the higher-for-longer period and that the next move would be a near-term cut in the Fed funds rate. This fueled a strong conviction for continued economic growth and at worst a very soft landing. However, as the first quarter progressed, it became apparent that inflation is sticking while geopolitical risks have increased. Therefore, while the Fed's next move will likely be a cut. The expectations have shifted from multiple cuts starting in…

Thank you, Mike. Good morning and thank you all for joining. During the first quarter, we received $114 million in repayments across 4 investments, which included our largest office loan for $88 million. On industrial loan for $20 million and 2 partial repayments. We expect repayment activity to remain slow for the remainder of 2024, given tempered expectations for interest rate relief. Deployment for the quarter consisted of $14 million of future funding obligations. At the end of the quarter, remaining future funding obligations stand at $139 million or 5% of total outstanding commitments. Subsequent to quarter end, we upsized one loan by $9 million to consolidate collateral related to a mixed-use asset in Pasadena, California. The original collateral consists of a fully leased 94,000 square foot office building with developable land. Upsizing the loan provided the borrower proceeds to complete the purchase of additional parcels of land previously under contract. Assembling the collateral under one lender was an important step towards protecting entitlements consisting of a 310-unit senior living development project. In terms of the asset level updates, the San Jose hotel loan borrower is continuing to market the property for sale and exploring refinancing alternatives. The loan remain current in April. Last quarter, we downgraded a Denver, Colorado multifamily loan from a risk rating of 4 to a 5 and placed the loan on nonaccrual. During the quarter, in cooperation with the borrower, we marketed a property for sale. The marketing process evidenced ample liquidity in the multifamily sector. There was substantial interest in the property, and it is currently under contract with a hard deposit. We anticipate the sale will close this year. On the REO side, the Washington, D.C. office property, which we took ownership of during the fourth quarter is now under contract at our…

Thank you, Andy, and good morning, everyone. Before discussing our first quarter results, I want to mention that our first quarter 2024 supplemental financial report is available on the Investor Relations section of our website. As Mike mentioned, for the first quarter, we generated adjusted DE of $29.7 million or $0.23 per share. First quarter DE was $22.5 million or $0.17 per share. DE includes a specific reserve of the Denver, Colorado multifamily loan of approximately $7.1 million. Additionally, we reported total company GAAP net loss of $57.1 million or $0.45 per share, which reflects a sequential increase in our CECL reserves. Quarter-over-quarter, total company GAAP net book value decreased to $9.10 from $9.83 per share. Undepreciated book value also decreased to $10.67 from $11.35 per share. The change is mainly driven by an increase in our CECL reserves and partially offset by adjusted DE in excess of dividends declared. I would like to quickly bridge the first quarter adjusted distributable earnings of $0.23 versus the $0.28 recorded in the fourth quarter. The change is driven by loan repayments, nonaccrual loans and performance at our operating real estate portfolio. Looking at reserves. Our specific CECL reserves totaled $7.1 million and is related to the Denver, Colorado multifamily loans. As Andy mentioned, this loan was downgraded to 5 in 4Q and the underlying property is currently under contract with hard deposits. During 1Q, no loans were downgraded to a 5. Our general CECL provision stands at $143.7 million or 488 basis points on total loan commitments, an increase of $67 million from the prior quarter. The increase in the general season was primarily driven by economic conditions as well as specific inputs on certain loans. Looking at our watch list loans, our one risk-ranked 5 loans represents 1% of the total loan portfolio carrying value, 11 loans equating to 18% of the total portfolio carrying value are risk-ranked 4. This concludes our prepared remarks. And with that, let's open it up for questions. Operator?

[Operator Instructions]. Our first questions come from the line of Stephen Laws with Raymond James.

Mike, I may have been typing faster and should have been listening. But I wanted to touch base back on the cash flow comment around the real estate. I think you said $0.15 is kind of the number that those 3 assets contribute. It looks like adjusted distributable earnings. If I look, say, trailing 12 months, clearly has overearned by more than $0.15 on the dividend. So can you talk a little bit to make sure I'm clear as far as the coverage comments that it's just a little bit less coverage on the dividend? Or maybe if you could speak to that?

Great. Some of the coverage deterioration that we had came from various -- that $0.05 also came from various sources that we can go through the 3 kind of places where that came from. So those are all small numbers adding up to $0.05. But as we look forward, we really are -- there are a lot of questions we see on these calls about. It's not just about DE, it's about cash flow and our companies paying out capital to sustain the dividend. So we want to be very clear going backward, telling you what that cash flow coverage was. And that cash flow coverage drop is similar to the drop -- the same drivers, if you will, as the drop in DE coverage, dividend coverage. So when we look out ahead, we're seeing that there are certain events that while they may not affect actual DE, i.e., if you're getting cash trapped at an entity level with your lender, you're still getting that distributable earnings in your income, but we do recognize that they can affect cash. And so that $0.15 was something that we want to make sure putting out there and telegraphing. Everyone knows about these assets. Everyone knows about the Norway asset. We passed the dividend test last year, but we see this test is going to be more difficult. So we just want to make sure that we're ahead of that and that we know everyone is also focused on cash flow coverage, and we want to make sure we earmark that. And as I said in the call, we have other things that we're working on that will offset that. It will be a timing issue with the equity investments, you have a drop-dead date certains that these events, maturities, the covenant tests are going to happen. The two U.S. assets, those tests are going to be maturity dates, I should say, are going to be at the end of the year or very beginning of next year. So we'll start working with the lenders there. So that -- those 3 things add up to the $0.15 we're talking about. And hopefully, what we're working on with the watch list and resolutions will offset that.

No. I appreciate the clarity there. And that leads to my next question. When I think about the Denver loan, it's already on nonaccrual. Now it's under contract for sale. Can you talk about whether there's financing on that? Will we see a pickup in net interest income? Is that debt is repaid on sale? And similarly, the D.C. office, the REO that expects to finalize the sale mid-year. Is that capital that will be recycled into new performing loans that's accretive to earnings? Or can you talk about the potential lift from -- after that transaction is completed?

There were a lot of requests. As Andy said, we had so many bids on the Denver multifamily assets. Many of them were requesting some sort of seller -- effectively seller, even though we're the lender or staple financing both of those transactions, the REO are both all cash. So there'll be no debt provided from us. And that kind of also indicates that it feels like there's a trough in the market where investors can come out and say, you know what, that's expensive, but this looks on an all-cash basis, okay. And so if you're getting transactions happening on an all-cash basis, it is an indication that you're kind of bottoming out in some of these markets.

And then, I guess, generally, around portfolio leverage appetite for new investments. As you look here at the end of the year, you think the loan portfolio is flattish. Do you expect it to increase as you see opportunities? Kind of how do you expect new originations versus repayments to trend over the year?

We're going to drive this down before we drive it up. So when the resolution of the watch list assets and some of the remaining REO there. We've been chopping wood on that watch list for quite a long time. We're actually tired of talking about it as well. But we are going to make headway. We think there are some assets on the watch list that are going to stick around. We see two assets there, multifamily assets that look like we can upgrade them. We're waiting another quarter to make sure that those business plans are really on track before we do so. So we probably could have done that this quarter. But we hesitated. We have another multifamily asset that is the marketing process, a Phoenix asset. I believe it's about $19 million. That marketing process has started. We don't know if we're going to provide debt on that. And on a large hotel asset in San Jose, there's been some public chatter about that. We're not going to comment on it here. But that public chatter would indicate that things are underway there. We're going to wait patiently to see how that gets resolved. So we do think there's going to be some movement on the watch list, which is going to give us a decrease in assets but give us an increase in the amount of capital we'll have to work with. So it's going to happen sequentially. Let's get that watch list fixed and then utilize that capital to reinvest, and it will be a timing issue with regard to the trigger dates on the equity and what those effects on cash flow will be coupled against how fast we can resolve and repatriate the capital on the watch list. One other thing I'll add is on the REO, we did sell the D.C. one. We could sell the Long Island City two assets that we have there, collectively roughly $70 million in capital unencumbered. We are playing those through. We have a single user that is looking at those closely and that would be significant enough, I'm not shorting anything, that would be significant enough to play those through and allow that to see where it goes. I'd say we're in the early innings there. But otherwise, if that falls down, then we'll take those to market and sell them where is as is. But -- so to get back to your question, do you think we're going to trough a little bit more on the balance sheet, more focused on the watch list and REO before we start putting money out and growing the assets again.

Our next questions come from the line of Steve Delaney with Citizens JMP.

So look, Mike, I was going to ask about new loan originations, but I'm glad I scratched that. Your -- I applaud the clarity about playing defense and being effective in managing your liquidity as opposed to putting a toe in the water as far as new loans. It's kind of -- it sounds like to me, the focus of the team, it's just better to be 100% focused on the near-term task rather than to sort of ease into new lending. So I just want to applaud that. I think that clarity of the focus of management is very helpful to us where we sit. To that, [ Ian ], the boost in the CECL reserves in your opening comments, you talked about the Fed's shift in policy. How impactful was higher-for-longer in terms of your thought as you were evaluating the assets and the need for boosting the reserve by $0.57?

Thank you for the kind words. You're very generous. I want to underscore that we are playing defense a little bit longer than we'd like. And we do recognize that we have seen others in our peer group make substantial headway on their watch list assets and now focusing on REO and we've seen that -- what the effect of that been -- that has been. And so we are really looking to accomplish the same. And so we've been working really hard on making progress there. I don't want to use the word the dams are going to break, but we are. We've been at this for a while. We do think some things over the next quarter or two are really going to start to rear their heads in terms of resolutions around that. And we do underscore that. That has had a big effect on our -- some of our peers in terms of getting certainty around what's out there. And we recognize that, and we want to be forward with that. With regard to the CECL we generally, listen, we saw the Fed reduce its commercial real estate index, which rolls into the [ threat ] model. We did that right after our earnings last quarter, no surprise. This longer-for-higher, we've heard this mentioned on other calls where it's wearing borrowers out. Second half of the year is going to look better, and now that's looking further away. And so we're kind of recognizing those aspects in our model. And we're trying to be -- to lean more into it. We're not -- where we can and then also where markets are softer, we're really trying to make sure that the model is reflecting the softness in those markets. So we really -- it's a combination of those 3 things. I can't say there won't be any more seasonal coming, but we are -- this rate environment persisting where it is, did have a big effect on how we were looking at our model and the underlying trends.

Applaud that for being ahead of it. With respect to the buyback, I know that liquidity is important to be able to manage your bank financings, et cetera. Obviously, with the stock in the 60% of book range or so and the peer group at 70-some percent of book, gosh, it would be great to -- I guess my comment about not lending. I mean, if I was in your seat, I think I'd rather buy back some stock and make a new loan. But I hope the -- I applaud the Board for putting the new authorization up and we'll just watch to see how you're able to work that into your cash flow going forward?

I would say to you, arithmetically, you're correct. But we're here for a reason, let's just be blunt. The stock is where it is because of the uncertainty around that. And I think our first job is to resolve that, all that lead and make sure we're doing that. And right now, I think buying back some stock, you're right, it would have a bigger impact than making new loans, but letting capital get out of the firm isn't really helpful right now. We are trading where we are. And I think resolving those watch list assets will pay us a bigger reward than buying back the stock.

We'll keep that in mind and maybe defer that for modeling purposes until later this year after you resolve some more of the problems.

We'd love to be in a position where we can do that. But right now, I think near term, it's exactly what I said make headway on the watch list.

[Operator Instructions]. Our next questions come from the line of Matthew Erdner with JonesTrading.

On some of these watch list loans, are you guys seeing a specific group of sponsors or borrowers kind of play out the same way.

Okay. So all watch list is really divergent in terms of sponsors, but I think what you're getting at politely is there are deals, especially in the multifamily sector, where there have been syndicators, and I think those are the weaker deals. We're finding on the multifamily loans where you have local owners with friends and family money that they could go back and tap, those are proving more resilient, and we're finding that where they're more highly syndicated and you don't have that connectivity with your limited, that is where we're seeing more of a breakdown. We're working more closely with those GPs. So really, it's whether they're syndicated. That's the big sensitive point soft tissue in multifamily. And office it don't matter. I mean in office, its office is the issue. And as we resolve the watch list, and I think this is going to be the case with everyone in our peer group as we resolve the watch list and we get through the multifamily and there's plenty of liquidity out there for multi and hotel, as Andy indicated in his remarks, we think that the watch list and -- or the REO, we're going to start to gravitate more towards the office. But to answer your question, it's indicators in the multifamily sector that is probably the weakest tissue.

Got you. Yes. That's helpful. And then talking about loan extensions, are you guys open to continue making those? And then I guess, what's the willingness on your guys' part to do that? And then are the borrowers willing to do that as well?

There's willingness on all sides of the table to do that. And the willingness is really where it makes sense. There's only so much and so far we can go. If a borrower is showing that they're really focused on the asset, they're the best operator for that asset, and they're putting some level of skin back in the game, then there's a willingness to absolutely work with those borrowers. We're not here to pull the rug out from folks we're really committed to the assets and where we think they could do a better job at running them than we can or somebody else is buying them and hitting a bid. So on both sides, there's a willingness. If we think we've run out of rope, and that's really the watch list loans that got downgraded. We felt like that we've worked with those borrowers, the economic situation out there with the higher-for-longer environment is really weighing on those assets, and we're really questioning the ability to go forward with them. And so that's why we downgraded those loans.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Michael Mazzei for closing remarks.

Well, thank you for joining us today, and we look forward to seeing you in August. And before we go, we just want to give a shout out to Sarah Barcomb, who was leading BTIG. She joined the sector just a short time ago, but in that short time, she made a big impact. We have a lot of respect to Sarah. We wish her luck in her new role. And again, thank you for joining us today, and we will see you in August.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.