BRSP - NYSE

Thanks, David, and welcome to our fourth quarter 2025 earnings call. As we reflect on the past year, I'm pleased to highlight the significant progress we've made across our business. We entered 2025 focused on rotating the portfolio by addressing challenged investments while simultaneously increasing our new loan originations. Throughout the course of the fourth quarter and into the new year, we have continued to reduce watch list loans and REO property exposure. As a result of these efforts, we've improved the quality of the portfolio, ensuring a solid foundation for future growth. Perhaps most importantly, we gained considerable momentum in originations. As the year progressed, our pipeline grew steadily with loan inquiries and quoting activity increasing with each quarter. Against this backdrop, the fourth quarter ended the year on a high note and was one of our most active periods in several years. Since commencing originations at the tail end of 2024, we have closed 32 new loans for $941 million of total commitments, of which 13 loans of $416 million were closed during the fourth quarter, our largest funding quarter since restarting originations. As of December 31, the loan portfolio increased by $315 million to $2.7 billion. That equates to a 13% increase from the third quarter. We also had a very active period executing REO sales as well as resolving loans from the watch list. We made the strategic decision to accelerate the resolutions in this part of our portfolio. We concluded that the certainty associated with monetizing these assets and reinvesting the proceeds outweighed the prospective upside associated with holding the assets longer term. As a result, we took a limited reduction in book value to effectuate these sales during and subsequent to quarter end. In the fourth quarter supplemental presentation available on our website, we included 2 pages summarizing the watch list and REO activity. The materials illustrate the substantial progress made to date, along with our projected resolution time line for each of these 2 segments of our portfolio. I want to reiterate that these resolutions continue to be a major focus as they represent a critical source of capital for new loan originations. Over the coming months, our goal is to cut our current as is watch list exposure to 2 loans totaling approximately $66 million. Further, each of the remaining REO assets has a business plan for their ultimate exit. This, of course, does not reflect the possibility of any downgrades in the future. Also, as David mentioned, our adjusted DE for the fourth quarter was $0.15 per share. As discussed on previous calls, when we resized our dividend to $0.16, we noted there could be a brief period of modest coverage shortfall primarily related to the timing of capital deployment. For the full year 2025, we covered our entire annual dividend. However, as anticipated in this last quarter, our adjusted DE reflects a dividend coverage of just $0.01 shy of breakeven. Our plan is to once again cover the dividend by midyear and achieve a positive coverage by year-end. Turning our attention to the market. Commercial real estate debt capital markets are wide open with a surge of new issuance in the first 45 days. This was met with high investor demand, especially for CRE CLOs, which is driven by strong historical credit performance and attractive spreads versus other credit sectors. Along those lines, I'm pleased to report that we announced the closing of BrightSpire's fourth managed CLO. This transaction was $955 million and features a $98 million ramp as well as a 2.5-year reinvestment period, further expanding our lending capacity and flexibility. This transaction was also very well received with 19 investors participating across all offered tranches, including the sale of the lowest rated investment-grade tranche. Looking ahead at the demand side for CRE loans, we expect there will be a significant tailwind from continued increases in property sales transactions. On one side, property equity investors are anxious to see monetizations of legacy assets. While on the flip side, mortgage lenders are also encouraging borrowers to refinance or sell these same underlying assets. This is precisely what we are experiencing in our own portfolio. We are, therefore, optimistic that there will be a solid demand for loan originations as more assets change hands in 2026. In closing, allow me to reiterate and underscore our priorities for 2026. First, grow the loan book to approximately $3.5 billion. Second, to accomplish this, we must continue to resolve our remaining watch list loans and monetize the majority of our remaining REO, most notably the San Jose Hotel. Third, execute on a fifth CLO in the second half of the year to match fund our loans and further maximize our capital deployment efficiency. And lastly, in accomplishing these initiatives, we will grow earnings and reestablish positive dividend coverage by year-end. I would like to thank our team, clients and banking partners for their contributions and collaborations throughout the year. With that, I would like to turn the call over to our President, Andy Witt. Andy?

Thank you, Mike. It has been a transformational year for BrightSpire and a productive fourth quarter. This year was punctuated by a robust fourth quarter originations activity. It was our most active quarter in 2025, closing on $416 million in commitments across 12 multifamily loans and 1 mixed-use loan. Repayments during the quarter were minimal and largely attributable to 2 loan payoffs. As a result, our loan book as of quarter end grew to approximately $2.7 billion, up from $2.4 billion last quarter. The portfolio is comprised of 98 loans with an average loan balance of $27 million and a risk ranking of 3.1, consistent with the previous quarter. Following quarter end, we have closed on an additional 3 loans for $118 million. We anticipate the loan book will expand to nearly $3 billion by approximately halfway through the year. Furthermore, we anticipate our loan book will continue to grow in the back half of the year, targeting at least a $3.5 billion loan portfolio by year-end. As it relates to portfolio management, during the fourth quarter and subsequently, we have been active and made significant progress. I will start with a review of watch list loans. During the fourth quarter, 2 loans were added to the watch list, both associated with the same borrower, bringing the total watch list to $220 million or 8% of our loan portfolio. As it relates to these 2 loans, our Dallas-based asset manager observed a notable shift in borrower behavior and property performance. As a result of these observations and further analysis, we decided the best course of action was to accelerate a resolution of the entire borrower relationship comprised of 3 loans, one of which was already on the watch list. Ultimately, we moved decisively, taking ownership of one property by foreclosure and working cooperatively with the borrower to market the other 2 properties. Following quarter end, 2 watch list loans have been resolved via sales processes that were previously underway. As mentioned earlier, 2 additional properties are in the process of being sold and one watch list loan property is now REO. Pro forma for the anticipated sales of these 2 properties, our watch list would consist of 2 remaining loans, a Dallas office loan and an Austin multifamily loan for a combined total of $66 million. Repayment proceeds from the resolution of these watch list loans will be repatriated and deployed into new loans. The plan for the Dallas property, which was foreclosed on post quarter end is to implement a value-add business plan, stabilizing operating performance and ultimately, to sell the property. As for the REO portion of the portfolio, during the quarter, we sold 1 of the 2 Long Island City office properties as well as the Oregon office property. At the end of Q4 2025, REO exposure stood at $315 million across 6 properties. As previously noted, post quarter end, a Dallas multifamily property from the watch list moved to REO through foreclosure, bringing the total number of REO properties to 7 with an aggregate balance of approximately $360 million. Currently, the remaining Long Island City property is under contract to be sold. We expect that transaction to close during Q1. Additionally, 2 multifamily properties are listed for sale, one located in Fort Worth, Texas and the other in Mesa, Arizona. Pro forma for the sale of these 3 properties, our remaining REO will be comprised of 4 assets totaling $266 million. The San Jose Hotel represents 50% of the remaining balance with 2 multifamily and 1 residential predevelopment property making up the remainder. We anticipate marketing the majority, if not all, of the remaining REO properties for sale during the back half of 2026. In closing, we made substantial progress throughout 2025, managing and growing the loan portfolio, particularly during the fourth quarter. The decisive actions taken this quarter should result in resolution proceeds, which will fuel continued portfolio and earnings growth throughout the course of 2026. With that, I will turn the call over to Frank Saracino, our Chief Financial Officer. Frank?

Thank you, Andy, and good morning, everyone. For the fourth quarter, we generated adjusted DE of $19.3 million or $0.15 per share. Fourth quarter DE was a loss of $35.5 million or $0.28 per share. DE includes specific reserves of approximately $54.9 million. Additionally, we reported total company GAAP net loss of $14.4 million or $0.12 per share, which also included an approximately $8 million impairment charge related to the sale of our Long Island City office properties. For the full year of 2025, we generated adjusted DE of $83.6 million or $0.64 per share, representing a return on undepreciated shareholders' average equity of approximately 7.4%. Our dividend for the year of $0.64 per share was fully covered on time. Quarter-over-quarter, total company GAAP net book value decreased to $7.30 from $7.53 per share in the third quarter. We reported undepreciated book value of $8.44 versus $8.68 per share in the third quarter. As Mike mentioned earlier, we made the strategic decision to pull forward the resolution of certain watch list and REO assets, noting that resolving and reinvesting these proceeds from these investments outweighed the prospective upside associated with holding the assets longer term. As a result, we took a limited reduction in book value. During the quarter, we also repurchased approximately 1.1 million shares of stock at an average share price of $5.39, which resulted in approximately $0.03 of book value accretion. Given the strong origination momentum and improvements in the portfolio, we continue to believe the stock is significantly undervalued. Looking at reserves. During 4Q, we recorded specific CECL reserves of approximately $54.9 million. As Andy mentioned earlier, we took ownership of a Dallas multifamily property that was previously held on the watch list, resolved 2 watch list loans via sales process and have 2 properties underlying 2 additional watch list loans anticipated to close in the first half of this year. Since these loans are either resolved or will be resolved imminently, we have charged off the reserves. Our general CECL provision decreased to $88 million or 315 basis points on total loan commitments versus $127 million or 517 basis points reported in the third quarter. Our debt-to-assets ratio is 66%, and our debt-to-equity ratio stands at 2.3x. Lastly, our liquidity as of today stands at approximately $168 million. This includes $98 million of cash, of which $64 million will be received tomorrow associated with our CLO execution and unwind of the 2021 FL1 CLO. Additionally, we have $70 million available under our credit facility. This concludes our prepared remarks. And with that, let's open it up for questions. Operator?

[Operator Instructions] And our first question today will come from Gabe Poggi with Raymond James.

Mike, Andy, how do you think about the amount of -- just ballpark here, leverageable capital that sits underneath the various assets have been resolved or are in process of resolution kind of year-to-date? That's question one. And question 2 is a quick follow-up of just how do you think about the credit portfolio on a -- from a go-forward basis, you've only got now 2 4-rated watch list loans, a few assets in REO. What's the general kind of sense on where the book sits now from a 2026 credit perspective?

Gabe, it's Mike. Welcome back. Pleasure to have you. Thanks for your question. When you look at our portfolio and we talk about getting to the back half of the year where we get to positive coverage, that's really linked to your question. We have about given the foreclosure we had subsequent to quarter end, we have about $200-plus million of equity tied up in REO assets, which are basically a drag on the portfolio. The only thing throwing off anything meaningful there is the San Jose Hotel, whose NOI is probably just shy of $9 million. So really, at the tail end of the year, you get a full game in the sense that we unwind that REO as best we can and redeploy that capital into 12-plus ROE levered assets, and that's really what's going to kick us up. So to answer your question directly, about $200 million of latent capital is tied up in the portfolio right now, and we plan on getting out of that toward the end of the year. And as Andy said, a large part of that is the ROE on the San Jose Hotel. We're doing some deferred maintenance on that right now, much needed. We have a lot of things going on in San Jose during the course of the year that will help the cash flow. And so I think we're looking more towards the back half of the year for that asset. So the 2 multifamily assets that are REO just need to be stabilized like we've done with the rest of the portfolio, and we'll sell those at the back half of the year. In terms of credit and the overall portfolio, given the turnover that you're seeing, we're feeling pretty good about it. We haven't said that for a while, but we are seeing a lot of positive things happen, especially with the movement of the watch list and the REO assets that we're embracing right now. So we're pretty optimistic about the credit in the underlying portfolio. And then you look at the average loan size, we've got rid of some of the bigger assets. Our average loan size is down $30 million, maybe it's slightly less. And so we're feeling pretty good about the diversification in the portfolio.

A nice job on the recycling or the resolving of the book.

The next question will come from Timothy D'Agostino with B. Riley Securities.

I just want to touch on the San Jose property a little bit more. If you could just provide a little bit of color there. I know you said a couple of earnings calls ago that you're probably holding this through second half of '26 due to events like the Super Bowl, March Madness, the World Cup. I was just wondering with Super Bowl behind us, how that event went for the hotel? And are things progressing there ahead of expectations or at expectations?

Thanks for the question. No, the event went very well. The staff handled the volume incredibly well. We're doing some things in the hotel. We're upgrading the lobby, and we're upgrading the elevators and all of that takes a little bit of time. The lobby is well underway. We want to redo some of the washrooms in the ballroom and get that done. These are things that if you sold the property today, any buyer would look at those items and take those off of the sale price. So we want to get that done and get that behind us. And we also have, as you said, these major events coming up that we want to see through, including in July, we have the CrossFit National Championship there and CrossFit is using our hotel as the headquarters for that staging event. So we're looking forward to that as well. We did have some nonrecurring stuff that hit the NOI last year, some cancellation of events that fell right to the bottom line. We're not modeling that this year. Those were basically windfalls. So we're not modeling that this year. So we do expect -- right now, we're budgeting plus or minus for our purposes of our accrual, about $9 million of NOI, and we hope to punch through that as we get to the end of the year to get to more of a double-digit NOI cash flow. And then we'll consider selling the asset. But at this point in time, we're pretty comfortable. We're holding it well, well below replacement cost. We're seeing other assets trade at higher dollars per key. So we're going to be patient. But again, because we have a lot of capital tied up in that asset, it's throwing off some cash flow, but about $80 million, $85 million of equity based on the leverage we have on it today, we really want to sell that asset and redeploy into the loan book.

Okay. Great. And then just a quick follow-up. Could you just provide maybe a little more color on kind of the plan for the net lease and other real estate portfolio in '26? I know you touched a bunch on the loan portfolio, but it would be great to get some color there.

Okay. So the net lease is really made up of 3 components. We have a triple net to Labcorp in Indianapolis. We have a triple net to Northrop Industries in Colorado, and we have the largest part of that is the Albertsons portfolio. And nothing really is happening there at this moment. We have lease term on the Labcorp until 2030. That debt doesn't mature until 2027 and the Albertson debt not until 2028. Quite frankly, we're not really looking to grow the triple net portfolio. So if we could get into a position where we may be able to sell some of those assets, we'd consider doing it. But right now, there's really nothing going on in that portfolio.

The next question will come from Chris Muller with Citizens Capital Markets.

So it's nice to see originations picking up and looks like that momentum is carrying into the first quarter so far. I guess, how are you guys thinking about the pace of originations in 2026? Is 4Q a good baseline? Or will it be more back weighted in the year?

Andy, do you want to take that?

Sure. Thank you, Mike. In terms of the pace of originations, we had a great quarter in Q4 with just over $400 million, and we're on track here in Q1 in terms of loans closed and those that we have visibility in execution on at just over $300 million. And we think that's probably a pretty good rate going forward, somewhere between $300 million and $400 million a quarter is what we're modeling from a go-forward perspective.

Got it. That's helpful. And then just a quick follow-up. On the multifamily foreclosure that was subsequent to quarter end, should we expect to see a realized loss in the first quarter related to that?

No, everything was taken in the fourth quarter, in the fourth quarter, so it came through CECL.

So was that the $8 million impairment that hit the income statement?

No, that's for Long Island City. So the amount of the loss was associated with one of our specific reserves in the $59 million.

[Operator Instructions] And our next question will come from Gaurav Mehta with Alliance Global Partners.

I wanted to follow up on your comments around strong demand for loan originations. I was wondering if you could maybe provide some more color on which sectors you're seeing the demand? Is it mostly multifamily? Or are you guys open to the sector as well?

We expect a lot of demand for credit in multifamily for the things that we laid out in the prepared remarks. We have seen -- we're pretty much at the end of the rope here. You've got 2021, '22 loans that are getting to the point where they have passed their first extension hurdles. Some are getting close to maturity now. We are seeing the equity getting exhausted and they want to move on. They want to get that equity repatriated back to the limited partners. So that's one of the drivers that we're seeing. The other driver we're seeing are lenders like us and what we just described in our own portfolio. We're encouraging borrowers to move assets, those same assets. And we think the confluence of those 2 things are really going to push volume in 2026. We saw a little bit of a dip in originations in the fourth quarter, and we just equate that to some of these owners were saying, hey, it's past Thanksgiving. I'm not going to put something in the market at this point in time for refi or for sale. But we're starting to see that activity pick up tremendously in January and February, especially with the conferences, the mortgage banking conferences and the multifamily conference in Vegas, that just transpired after those conferences, it's very typical to see volume pick up. So I think while transaction volume was up in 2025 over 2024, we anticipate in multifamily, the transaction volume will exceed 25 this year. So we're very optimistic about the demand for credit because we think we're just going to see a lot of assets changing hands.

The next question will come from Matthew Erdner with JonesTrading.

I'd like to kind of stay on the credit side there. Spreads have compressed a good bit since this time last year. How are you guys thinking about that going forward and more competition kind of being in the space?

I've been doing this for 40 years, and there's never been a year but for a handful where we haven't had severe competition. So that's kind of business as usual. But what I'll say is I'll emphasize the points that we had around the capital markets. We just executed a CLO. The demand for that and for the army of CLOs that came out before and after us, the demand was incredible. I would have actually expected and told the team, hey, we may see spreads widen given that supply, and we saw the opposite. Every deal, the demand was better. I think the market is outperforming the corporate market. We're seeing what's going on in the BDC market, the term loan market. and what's going on in software stock prices and the concern that's having in corporate credit. And we're seeing the opposite in the CRE market. A lot of it has already been dealt with over the past 2 years, and the CRE CLO market has performed very well. So spreads have come in. Bank lenders on our warehouse lines have also brought in spreads commensurately with loan spreads. We have seen loan spreads kind of floor out here. Maybe that's because of the supply that we're seeing. So we don't anticipate a tremendous amount of more tightening in the loan spread market. But right now, as long as we're getting the ROEs that we need based on where we're financing things and the liability structure, it's okay. And we've seen that. The market has been met with a lot of demand from investors on the CRE CLO side. Matt add anything to that? We have Matt, who runs our capital markets here as well.

Yes. No, as Mike said, we saw tremendous demand. A lot of that market has kind of migrated to full multi. Our deal was predominantly multi, but with the ability to reinvest in various property types. So we're trying to keep our options open over the next 2.5 years to deploy capital where we see fit, whether it be in some limited amount in hospitality, industrial, retail. So we're trying to keep options open and deploy where it's accretive.

Got it. That's very helpful. And then a quick follow-up. The loans that you guys originated in the fourth quarter, what was kind of the timing of that throughout? Or was it pretty paced throughout the quarter?

It got pretty aggressive through the end of the quarter. A lot of deals pulled forward actually from the first quarter where borrowers wanted to close by year-end. So we did have some pull forward there. So I think we'll see the first quarter not be like the fourth quarter, but I think it will pick up during the course of the year.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Mike Mazzei for any closing remarks. Please go ahead, sir.

We're very excited about the momentum we've had coming into 2026, both from our origination side and from the resolution of the assets in the watch list and REO. We're very much looking forward to updating you on our progress on those matters in April, and we thank you for joining us today.