Brightspire Capital, Inc. quarterly report, Q2 FY2020

Brightspire Capital, Inc. — 2020 Q2 Form 10-Q Summary

Filing identity: The supplied filing is for Colony Credit Real Estate, Inc., ticker CLNC, not Brightspire Capital, Inc. The filing covers the quarter and six months ended June 30, 2020 and was filed August 7, 2020. The financial statements are unaudited. The company was an externally managed commercial real estate credit REIT focused on CRE loans, preferred equity, CMBS and net leased real estate.

Financial condition and performance

Metric	Three months ended June 30	Six months ended June 30
Net interest income	$24.9 million, versus $23.9 million	$52.8 million, versus $45.9 million
Property and other income	$35.4 million, versus $65.2 million	$97.3 million, versus $128.5 million
Net loss	$240.6 million, versus $110.8 million	$320.7 million, versus $95.8 million
Net loss attributable to common stockholders	$227.1 million; $1.77 per share	$305.8 million; $2.38 per share
Operating cash flow	Not separately provided for the quarter	$29.6 million, versus $63.1 million
Cash flow from investing activities	Not separately provided for the quarter	$449.8 million provided, versus $421.3 million used

Total assets were $6.85 billion at June 30, 2020, down from $7.41 billion at December 31, 2019. Cash and cash equivalents were $438.0 million; including restricted cash, total cash was $522.0 million.
Loans and preferred equity held for investment, net were $2.24 billion, after a $52.5 million loan-loss allowance. The allowance declined from $272.6 million at year-end, primarily because impaired loans were transferred to held-for-sale or resolved.
Real estate securities declined to $60.0 million from $252.8 million. Real estate, net declined to $823.5 million from $1.48 billion, while assets held for sale increased to $760.3 million from $189.5 million.
Total equity was $2.00 billion, including $1.68 billion attributable to common stockholders. Common stockholders’ equity declined from $2.12 billion at year-end. The reported debt-to-equity ratio was 1.2x, versus 1.4x.
Total debt carrying value was approximately $2.91 billion, consisting principally of $1.17 billion of mortgage and other notes, $900.2 million of credit facilities and $834.1 million of securitization bonds.
At June 30, outstanding credit facilities included $195.0 million under the bank facility, $666.8 million under master repurchase facilities and $38.4 million under CMBS credit facilities. The company subsequently repaid the $195.0 million bank facility.

Material changes versus the prior comparable period

Net losses increased substantially because of COVID-19-related valuation declines, asset sales and impairments. Six-month loss attributable to common stockholders increased to $305.8 million from $92.4 million.
Six-month net interest income increased 15.0% to $52.8 million, but property and other income fell 24.3% because of property dispositions and reduced hotel activity.
The company recorded $69.9 million of loan-loss provision for the six months, versus $110.3 million in the prior-year period, and adopted the CECL model effective January 1, 2020, reducing opening equity by $23.2 million.
Other significant losses included $57.0 million on sales of 27 CMBS securities, $29.2 million of CRE securities impairment, $30.1 million of real estate impairment, $28.4 million of unrealized losses on consolidated securitization trusts and $68.1 million of losses from unconsolidated ventures.
The company’s average loan risk rating increased to 3.9 from a pre-COVID-19 average of 3.1 at December 31, 2019; ratings of 4 and 5 represented 76.5% of the Core Portfolio loan and preferred-equity book value.
The monthly common-stock dividend was suspended beginning with the period ending April 30, 2020. The company declared $0.30 per share for the first quarter before the suspension.

Liquidity, capital actions and outlook

Management identified cash preservation, liquidity and portfolio management as its primary priorities. As of August 6, 2020, management reported approximately $325 million of cash and $200 million of availability under the bank facility.
In June, the company obtained up to $229 million of preferred financing, including $200 million of proceeds at closing and up to $29 million of additional funding. The financing carries a 10% preferred return and reduced stockholders’ equity by approximately $70 million through noncontrolling-interest accounting.
The company amended its bank and repurchase facilities to reduce tangible-net-worth requirements, restrict dividends and stock repurchases, reduce certain advance rates and obtain temporary margin-call or modification flexibility. It remained in compliance with financial covenants at June 30.
Management expected asset sales and preferred financing to generate approximately $1.1 billion of gross proceeds and $610.5 million of net liquidity, but also expected a $258.5 million reduction in book value, or $2.01 per share, from the related actions and marks.
Management reported collection of 99% of loan interest, excluding PIK loans and one delinquent hospitality loan, and 97% of rent from the Core net-leased portfolio since April 1. Legacy portfolio rent collection was approximately 89.2%.
The company expected to remain focused on existing investments, dispositions and liquidity preservation. New investment and growth initiatives were expected to resume only after COVID-19-related liquidity pressures and market uncertainty improved. No specific earnings or dividend guidance was provided.

Risks, contingencies and unusual items

COVID-19 materially affected hotel, retail and other CRE investments, borrower payments, tenant collections, property values, financing availability and margin requirements. Management stated that future impairments, revenue declines and liquidity pressure could be material.
The company had $205.0 million of unfunded loan commitments and $39.3 million of remaining commitments to unconsolidated equity-method investments. Total lending commitments, including loans held for sale, were $296.7 million.
A Los Angeles mixed-use development had cost overruns, funding shortfalls and maturity defaults. The company funded $28.5 million of protective advances, retained a $14.5 million proportionate unfunded commitment and recorded an $89.3 million proportionate fair-value loss. Failure to fund future shortfalls could lead to foreclosure of subordinate interests.
Four Legacy portfolio loans were on nonaccrual status, and one Core hospitality loan was delinquent at quarter-end. Subsequent sales and discounted payoffs resolved several exposures, but additional losses remained possible.
Interest-rate hedges were unwound, producing a $34.0 million realized loss and leaving the company more exposed to interest-rate movements and financing-related margin calls.
Debt maturities and financing exposures were significant, including $39.7 million of scheduled principal payments during the remainder of 2020 and $242.8 million during 2021, based on the filing’s maturity assumptions.
The company was externally managed by an affiliate of Colony Capital. Discussions regarding internalization or other strategic alternatives were postponed or unresolved.

Investor verification checklist

Confirm the issuer name: the source filing identifies Colony Credit Real Estate, Inc., while the request identifies Brightspire Capital, Inc.
Reconcile the reported liquidity after the subsequent repayment of the $195.0 million bank facility and verify remaining borrowing-base availability.
Review the status, valuation and sale proceeds of assets held for sale, including the two industrial portfolios and hospitality and office loan resolutions.
Assess remaining exposure to the Los Angeles mixed-use project, including the $14.5 million unfunded commitment and potential additional funding or foreclosure risk.
Evaluate the sustainability of cash flow after CMBS sales, property dispositions, reduced hotel income and the suspended dividend.
Review repurchase-facility margin-call provisions, covenant amendments, maturity dates and potential refinancing needs.
Verify the impact of the $70 million equity reallocation from the preferred financing and the accounting treatment of noncontrolling interests.