Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BrightSpire Capital Inc (BRSP, Financial) has reengaged in loan origination efforts, indicating improved visibility on liquidity needs and potential portfolio growth.
- The company successfully resolved a number of watchlist loans and REO during the second quarter, maintaining a stable watchlist loan count.
- BrightSpire Capital Inc (BRSP) has $152 million in unrestricted cash, providing a strong liquidity position for future investments.
- The company anticipates benefiting from the anticipated interest rate cuts, which could boost refinancing opportunities and asset resolutions.
- BrightSpire Capital Inc (BRSP) is actively exploring new lending opportunities, particularly from regional banks, which could enhance portfolio growth.
Negative Points
- BrightSpire Capital Inc (BRSP) reported a GAAP net loss of $67.9 million for the second quarter, primarily due to impairments on legacy office equity investments.
- The company reduced its quarterly dividend from $0.20 to $0.16 per share, reflecting a need to preserve shareholder equity amid cash flow challenges.
- Significant impairments were taken on the Norway investment, which no longer provides cash flow income, impacting overall financial performance.
- The San Jose hotel loan, a significant portion of the watchlist, is in default, and foreclosure proceedings have commenced, indicating ongoing challenges in asset management.
- BrightSpire Capital Inc (BRSP) has a high general CECL reserve at 6% of the loan book, reflecting ongoing concerns about potential loan losses.
Q & A Highlights
Q: As you think about the watchlist loans as we move through the back half of the year, which of those 12 do you think are potential second half resolutions?
A: Michael Mazzei, CEO: Out of the 12, the majority are in various stages of progress. We expect significant progress by the end of the year. The largest, the San Jose loan, is in default, and we've started foreclosure. We anticipate substantial resolutions in the second half.
Q: Can you talk about your pipeline of deploying capital and how that balances against expected repayments in the second half of the year?
A: Michael Mazzei, CEO: We expect the portfolio to start growing. We have $152 million in cash and anticipate more from asset resolutions. We plan to redeploy this capital and aim for a CLO execution by mid-2025.
Q: Could you comment on where you stand with evaluating new loans? Do you have a pipeline at this time?
A: Michael Mazzei, CEO: We are actively looking at products and meeting on investment committees weekly. No commitments yet, but we are engaged with mortgage bankers and brokers. We expect more opportunities as regional banks allow runoff.
Q: Is the general CECL reserve increase this quarter the last, meaning book value should be at a bottom or near bottom?
A: Michael Mazzei, CEO: We feel the CECL reserve is on the high side at 6% of the loan book. We anticipate progress in the second half, and our low average loan balance gives us confidence in our current reserve levels.
Q: How are you thinking about the competitive environment going into year-end and beyond with new private capital entering the space?
A: Michael Mazzei, CEO: It's going to be competitive. We see a lot of demand for credit from private capital. However, we believe there's enough opportunity from regional and community banks to satisfy our needs in 2025 and 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
