BrightSpire Capital, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
BrightSpire Capital, formerly Colony Credit Real Estate, filed its unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company is a commercial real estate credit REIT focused primarily on senior mortgage loans, with additional mezzanine loans, preferred equity, net leased real estate and CMBS investments. On June 24, 2021, it changed its name, headquarters and ticker to BRSP.
On April 30, 2021, BrightSpire completed the internalization of management, terminated its external management agreement and became responsible for its own operating expenses.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $26.2 million | $24.9 million | $50.4 million | $52.8 million |
| Property and other income | $25.9 million | $35.4 million | $51.7 million | $97.3 million |
| Total expenses | $42.9 million | $84.9 million | $203.7 million | $230.7 million |
| Net loss | $23.6 million | $240.6 million | $118.1 million | $320.7 million |
| Net loss attributable to common stockholders | $19.7 million | $227.1 million | $112.0 million | $305.8 million |
| Basic and diluted loss per share | $0.15 | $1.77 | $0.87 | $2.38 |
| Distributable loss per share | $0.20 | Not provided | $0.10 | Not provided |
The six-month 2021 results included $109.3 million of restructuring charges, primarily the $102.3 million management termination fee and related professional costs. Excluding this unusual item and other non-cash adjustments, management reported second-quarter Distributable Loss of $27.1 million, or $0.20 per share.
- Cash flow from operating activities was an outflow of $128.6 million for the six months ended June 30, 2021, compared with inflow of $29.6 million in the prior-year period.
- Cash flow from investing activities was an outflow of $277.2 million, principally reflecting $822.8 million of loan originations and additional fundings, partly offset by $332.0 million of real estate sale proceeds.
- Cash flow from financing activities was an inflow of $155.9 million, primarily from $675.4 million of credit-facility borrowings, offset by debt repayments and distributions.
- Cash, cash equivalents and restricted cash totaled $292.0 million at June 30, 2021, including $210.2 million of cash and cash equivalents.
- Total assets were $5.44 billion and total equity was $1.79 billion at June 30, 2021. Stockholders’ equity was $1.52 billion.
- Loans and preferred equity held for investment, net increased to $2.81 billion from $2.18 billion at December 31, 2020. The allowance for loan losses was $42.2 million.
- Debt-to-equity ratio increased to 1.3x from 1.0x at year-end 2020. Total debt carrying value was approximately $2.60 billion, including $1.00 billion of master repurchase borrowings, $764.5 million of mortgage and other notes and $836.2 million of securitization bonds.
- GAAP book value per share was $11.75 at June 30, 2021, compared with $11.98 at March 31, 2021.
Material changes versus prior comparable periods
- Net loss attributable to common stockholders improved to $19.7 million in Q2 2021 from $227.1 million in Q2 2020, although the current quarter remained loss-making.
- Six-month net loss improved by $202.6 million year over year, primarily because the prior-year period included substantial loan-loss provisions, CMBS losses, real estate impairment and other fair-value losses.
- Net interest income declined 4.5% for the six-month period, while property and other income declined 46.9%, largely due to asset sales and a smaller real estate portfolio.
- Management fee expense declined to $2.3 million in Q2 and $9.6 million for the six-month period, reflecting the April 30 internalization. Administrative expense increased to $14.1 million in Q2 and $26.6 million for the six-month period as BrightSpire assumed direct personnel and operating costs.
- The company originated 14 senior mortgage loans during Q2 with total commitments of $402.1 million. Subsequent to quarter-end, it funded 11 additional senior loans totaling $327.4 million.
- BrightSpire sold retained subordinate interests in a securitization trust for $28.7 million, recognized a $19.5 million realized loss and deconsolidated approximately $830.9 million of assets and $802.2 million of liabilities.
- The company sold an industrial portfolio during the first half of 2021 for gross proceeds of approximately $335.0 million and recognized an $11.8 million gain.
Guidance, outlook, risks and unusual items
- Management expects internalization to produce operating-cost savings over time but cautions that higher direct compensation, overhead and execution risks could offset expected benefits.
- The board declared a third-quarter 2021 dividend of $0.16 per share, following the $0.14 per share second-quarter dividend. The company has not established a minimum distribution level and cannot assure future distributions.
- Subsequent to June 30, BrightSpire executed the BRSP 2021-FL1 securitization, issuing $800 million of investment-grade notes at an advance rate of 83.75% and a weighted cost of funds of LIBOR plus 1.49%.
- Subsequent to quarter-end, the company agreed to sell five co-investment assets to Fortress-managed vehicles for gross proceeds of $223 million. The sale was subject to customary conditions and was expected to produce an approximate net realized loss of $4.6 million; completion was not assured.
- The Los Angeles mixed-use project experienced a July 9, 2021 maturity default. BrightSpire’s related B-participation had a June 30 carrying value of $97.9 million and remained exposed to additional impairment or foreclosure risk.
- The San Jose Hotel borrower was in Chapter 11 bankruptcy, and the related senior loan and preferred equity were on nonaccrual status. Seven loans were on nonaccrual status at June 30, 2021.
- COVID-19 continued to affect hospitality, office, retail and development assets through lower occupancy, borrower payment stress, potential lease concessions, valuation pressure and possible margin calls or financing repayments.
- At June 30, the company had approximately $197.1 million of gross unfunded lending commitments, plus $8.6 million of commitments to equity-method investments.
- Management estimated that a 100-basis-point increase in applicable interest-rate benchmarks would reduce annual interest income, net of interest expense, by approximately $9.5 million.
- The company reported compliance with its Bank Credit Facility and master repurchase facility covenants at June 30, 2021. The Bank Credit Facility’s borrowing-base valuation supported up to $116.1 million of borrowing, while management reported approximately $381 million of liquidity as of the report date, consisting of $221 million of cash and $160 million of available bank-facility capacity.
Most important facts for investors to verify
- Whether the internalization generates the anticipated recurring savings after replacing management fees with direct compensation and overhead.
- The closing, proceeds and final realized gain or loss from the $223 million Fortress co-investment portfolio sale.
- The ultimate recovery value and foreclosure exposure for the Los Angeles mixed-use project and San Jose Hotel bankruptcy.
- Trends in nonaccrual loans, the $42.2 million CECL reserve and the company’s average loan risk ranking of approximately 3.5.
- Available liquidity after the subsequent $575.8 million repayment under master repurchase facilities and the July 2021 securitization.
- Compliance with borrowing-base, margin-call and tangible-net-worth covenants as collateral values and interest rates change.
- The sustainability of the $0.16 per-share dividend given negative GAAP earnings, negative Distributable Earnings and negative operating cash flow for the first six months.
- The filing’s subsequent-event disclosures, including additional loan originations, securitization financing, foreign-exchange hedging and the timing of the planned portfolio sale.