Greetings and welcome to the BrightSpire Capital Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David Palamé, General Counsel. Thank you, sir. You may begin..

Good morning, and welcome to BrightSpire Capital's Third Quarter 2021 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 President and Chief Executive Officer, Mike Mazzei; 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 are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially, including the continuing potential adverse effects associated with COVID-19.

For a discussion of risks that could affect results, please see the Risk Factors section of our most recent 10-Q 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, November 3, 2021, 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.

And now I'd like to turn the call over to Mike Mazzei, President and Chief Executive Officer of BrightSpire Capital.

Mike?.

Thank you, David. Welcome to our third quarter earnings call. I would like to start by wishing everyone well, and I thank you for joining us today. Starting off with some key financial highlights. For the third quarter, adjusted distributable earnings were $0.26 per share, up 30% from last quarter.

Our current liquidity as of November 1, stands at $367 million, and our undepreciated book value per share is $12. The reduction in book value from the prior quarter reflects the write-off of the L.A. Mixed-Use mezz loan, which I will discuss in my remarks later.

With respect to our dividend, I am pleased to report our Board of Directors has approved an increase in our fourth quarter dividend to $0.18 a share. This is up from $0.16 in the prior quarter and is the third increase since reinstating our dividend earlier this year.

The increase is supported by the cost savings realized from the internalization of management and the continued successful execution of our overall business plan. Our goal is to further increase our dividend as we reach full deployment of our cash balances.

Looking at our third quarter performance, we had a solid quarter in capital deployment, which Andy will discuss in more detail. At a high level, in the last 12 months, we have closed on or committed to 69 loans totaling $2.1 billion.

Also, in the third quarter, our largest non-accrual loan, the San Jose hotel, has been reinstated to accrual status without loss. The borrower is emerging from bankruptcy, and the property will open as a newly rebranded Signia Hotel under the Hilton Hotel's umbrella.

During this last quarter, we have steadily increased our loan originations outside of Multi-family to include more middle-market office properties. Further, subsequent to quarter end, we have committed to a Multi-family mezzanine loan with a repeat borrower that has a strong performance track record with BrightSpire.

Going forward, we will continue to selectively consider mezzanine lending opportunities, but only in situations where we have the wherewithal to fund the first mortgage, if necessary.

For the remainder of 2021 and into 2022, our plan is to continue to redeploy company cash into new loan originations and substantially complete the rotation of our asset portfolio and liability structure with an eye toward issuing our third CLO.

Finally, I would like to discuss the write-off of the remaining book value of $98 million in the mezzanine participation interest on the L.A. Mixed-Use property. As you may recall, we retained a junior mezzanine participation interest in connection with rescue capital that came in the form of a $275 million senior participation in that mezzanine loan.

This was funded and controlled by a substantial third-party investor in September of 2020. The existing first mortgage, mezzanine and EB5 loans went into maturity default this past July.

Just last month, we were notified that the same private investor in that senior mezzanine participation exercised their right to purchase the defaulted first mortgage loan. This mortgage had a loan balance of approximately $950 million and a fully committed amount of $1.035 billion.

While the hotel at the property has efficiently opened to business, the sale of the hotel has still not yet been achieved. Furthermore, sales of additional condo units have also been non-existent. We have been in dialogue with the key parties regarding a possible restructuring and the situation remains very fluid.

However, with this recent change in the ownership of the first mortgage, there is an increased likelihood of a mortgage foreclosure on the entire capital stack. While we have not yet received a formal foreclosure notice, we have been advised that this may occur.

A foreclosure action would clearly result in a substantial negative impact on any potential recovery. This recent change in circumstances, along with continued stagnant property and condo unit sales has resulted in a write-off of the investment. Please refer to the past and current disclosures in our Form 10-Q for more details.

Now, before turning it over to Andy, I would like to close by mentioning an important new addition to the price BrightSpire Board.

Last month, we announced the appointment of Kim Diamond as a new Board member, as a former founding executive of Kroll Bond Rating Agency and Managing Director at Standard & Poor's, Kim has more than 30 years of experience in commercial real estate and risk oversight.

Following her appointment, the BrightSpire Board will now have five independent directors. We look forward to working with Kim and drawing upon her vast experience as we continue to grow our business. And with that, I would now like to turn the call over to our Chief Operating Officer, Andy Witt.

Andy?.

one, senior and mezzanine loans and preferred equity; two, net lease real estate and other real estate; and three, CRE debt securities.

As of September 30, 2021, excluding cash and net assets on the balance sheet, senior and mezzanine loans and preferred equity is comprised of 90 investments and an aggregate at-share net book value of approximately $1 billion or 84% of the portfolio.

The loan portfolio remains diversified in terms of size, collateral type and geography, given our recent originations activity. The portfolio has lower average loan balances with a higher focus on Multi-family and office properties.

Looking ahead, the majority of the company's capital will be allocated towards this segment and more specifically to first mortgages. However, as Mike mentioned, we are starting to see mezzanine debt opportunities and are currently in execution on a Multi-family mezzanine loan.

Net lease real estate and other real estate is comprised of 12 investments and an aggregate at-share net book value of approximately $153 million or 12% of the portfolio, in line with last quarter.

CRE debt securities, a segment which includes CMBS and one remaining private equity interest, was comprised of 6six positions and an aggregate at-share net book value of $48 million or 4% of the total portfolio at quarter end. Subsequent to quarter end, we sold one position for $5 million of proceeds, resulting in a small gain.

89% of the pro forma remaining value in this reporting segment is associated with bonds subject to risk retention provisions through June 2022. At that point, we will explore a sale of the risk retention securities.

In summary, we continue to make good progress in transforming our portfolio composition towards senior mortgage loans that deliver current and predictable earnings.

Looking ahead, the execution of certain portfolio management initiatives, coupled with a strong fourth quarter loan pipeline has BrightSpire, well positioned to continue the positive momentum as we head towards the year-end.

With that, I will turn the call over to our Chief Financial Officer, Frank Saracino, to elaborate on the third quarter results..

Thank you, Andy, and good morning, everyone. Before discussing our third quarter results, I want to mention that we expect to file our Form 10-Q today. In addition, I would like to draw your attention to our supplemental financial report, which is available in the Shareholders section of our website.

The settlement continues to provide asset-by-asset details as does our Form 10-Q. With that, let's turn to our third quarter results. We reported total company adjusted distributable earnings, which excludes realized losses and fair value adjustments of $35 million or $0.26 per share.

We also reported a total company GAAP net loss attributable to common stockholders of $70.1 million or $0.54 per share and a distributable loss of $68.4 million or $0.51 per share. Both the GAAP and the distributable loss reflect the $98 million fair value adjustment associated with our mezzanine loan participation interest in the L.A.

Mixed-Use property that Mike described in detail. During the third quarter, total company GAAP net book value decreased from $11.75 to $11.04 per share, an undepreciated book value decreased from $12.66 per share to $12. This change is primarily due to the fair value adjustment noted earlier.

As Andy mentioned in his remarks, close of the loan portfolio of sale transaction is anticipated in late 2021 or early 2022. We plan to utilize the proceeds from the transaction to pay off of the [indiscernible] preferred financing.

The result of doing so is a net projected increase to our September 30, 2021, undepreciated book value of over $0.50 per share. This increase reflects the combination of recording the investment gains associated with the sale as well as our triple-net warehouse distribution portfolio, reverting back to BrightSpire 100% at-share ownership.

We have provided a narrative summary of this investment in this quarter's Form 10-Q. Looking in more detail at the third quarter adjustable distributable earnings.

Quarter-over-quarter growth primarily reflects the company's appointment of idle cash, reinstatement of our largest loan to accrual status and the full realization of the cost saving benefits from the internalization of our management contract, which was completed midway through the second quarter.

On an annualized basis, we anticipate generating operating cost savings of approximately $16 million per year or approximately $0.12 per share from the internalization. Turning to our dividend.

Given our growth in adjusted distributable earnings, along with our improved operational performance and business outlook, we declared a dividend of $0.18 per share for the fourth quarter of 2021, up from $0.16 per share last quarter. The fourth quarter dividend is payable on January 14, 2022, to shareholders of record as of December 31, 2021.

Moving to our balance sheet. Our total at-share underappreciated assets stood at approximately $4.4 billion as of September 30, 2021. Our debt-to-assets ratio was 61% and net debt-to-equity ratio was 1.6x at the end of the third quarter, up from 1.3x at the end of the second quarter. This increase was primarily driven by new loan originations.

In addition, our liquidity as of today stands at approximately $367 million between cash on hand and availability under our bank facility. Looking at rich rankings and CECL reserves, our overall loan portfolio risk ranking at the end of the third quarter improved to 3.2 compared to 3.5 at the end of the second quarter.

This change is primarily related to the borrower of our largest senior loan emerging from bankruptcy and reinstatement of the loan to accrual status as well as third quarter loan originations. And finally, our CECL provision was $43.7 million and represents approximately 1.3% reserved against our loans. This is essentially flat to the second quarter.

That concludes our prepared remarks. And with that, let's open up the call for questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Tim Hayes with BTIG. Please proceed with your question..

Hey good morning guys. First question around Century Plaza. I appreciate all the color on the prepared remarks and for the - being prudent with the write-down to zero. But Mike, can you maybe just walk through a scenario where you might have some recovery there? And now that the hotel is open.

You had previously mentioned that there were - or was a potential buyer lined up.

And I'm just curious what happened with those conversations and what it might take for you guys to see some recovery?.

Thanks, Tim, and thank you for the question.

Can you hear me okay?.

Sure can..

Okay. So this was a transaction that when I first joined the firm, I spent, I think, the first five months with a tremendous amount of - disproportionate amount of my time focused with the group on the rescue capital here. So this is - it is a disappointment for us to have gotten to this spot. The underlying value of the asset is there.

When I say there, I mean, into our piece of the junior participation mezz as well, there's value there. Unfortunately, we do not have the capital and the wherewithal to play that through. Hence, why we brought the rescue capital in last year, albeit expensive. The backdrop is also with inflation and supply chain issues and replacement costs going up.

So we really believe that there is value in our piece.

But the culmination of the senior mezz participant buying the first mortgage for $950 million, which was the outstanding balance, as I said in my prepared remarks, along with the fact that the hotel sale has not yet been completed, and that would be at $1 million a room and 400 rooms that would significantly pay down the senior debt.

So I've been saying on previous calls that the sale of the hotel and the closing of that is critical. That has not yet occurred. And there's also lack of traction in sale of and presale of condo units.

So I think, with all of that information and the delays that we've had, especially with the acquisition of the first mortgage that happened in October would be unreasonable to not anticipate that there's a foreclosure that's looming. And then that would be a binary outcome potentially there, a heavy bias sort of a binary outcome.

We are in continued contact with the mortgage and senior mezzanine participant who are the same party. Is it possible for a recovery? As I said, there's value in our piece, but time and cost of funds matter. And so we think based on what we've seen thus far that, that is most likely unlikely.

There is a potential restructuring path with the private investor, where a UCC foreclosure is done. And we're part of the mezz, so we would be preserved in that process, and that may allow us to play through longer. But there is still a very high cost of capital that will be imputed upon us now that the private investor owns the first mortgage.

So discussions have stopped at this time. It doesn't mean that they can't pick up at a later date, but they - we have spent considerable time on that with them and have come at an impasse thus far.

It is also possible that through a mortgage foreclosure, there is a public auction that could occur - would occur, where third-party bidders can see that there is value beyond the senior mezzanine participation. But that would have to happen quickly because time and the cost of capital will weigh on the value of our piece.

So it is possible that if there was a mortgage foreclosure, and that moved along quickly, other bidders would see that there is value in the property, in the collective property beyond the senior participation.

And if they did that, you've done - it's plausible that excess cash flow would come through, but you - there are a number of variables involved with that, that make that very hard to predict. So in all cases, the time delays are really - and the cost of capital destroy our value and the lack of sales momentum has been a big part of that.

So the takeaway for this, moral of the story is that lenders should not be in the mezz cap stack where they don't have the ability to do the first and protect. And that was the situation here, and this is the result.

That answer your question?.

Yes, definitely. Yes. Just appreciate you walking through the different paths here potentially. So right now, it's at zero. So no economic impact to the financials going forward, which is good. But just wanted to get a sense for if there could be some upside.

Now, just maybe turning to some of the other watchlist loans you've highlighted in the Q previously, Long Island office, or Long Island City office, excuse me, Claremont, Berkeley and the student housing portfolio.

Just wondering if there are any updates to any of those assets worth passing along? And now that Century Plaza's at 0 and the Fortress sale is under - is scheduled to close at some point and Fairmount has been resolved. You don't really have any more outside non-accrual.

So just curious if you see any of these watchlist loans, maybe taking that spot or if there's any constructive updates to get?.

Well, as we pointed out, the San Jose asset is now back on accrual status. We applaud the borrower's efforts to get through bankruptcy quickly.

We applaud the borrower's efforts to keep funding the property, which is the reason why we stuck by that borrower, and we did not charge that borrower with default interest during this period because that was our stance, during COVID. The borrower was funding, and we valued that considerably.

We've had situations where the borrowers have acted differently and so has our response. It's been very different. We've sold loans where we felt the borrowers were not helping with the issue. The only other asset really that is worth discussing is the Long Island City deals, both of those deals are with the same sponsor. They are uncrossed.

There is overall improvement in both assets and the one asset where we got capital contribution from the borrower that we mentioned, there's been more leasing in the retail. And then, the other asset, there's more activity in the office. In the lesser occupied asset, the borrower did put up capital to fund negative carry.

And that was one where we were considering potentially selling the loan, but the borrower came to the table with enough cash to do so, and we felt that, that made sense to work with the sponsor, given that over the next 12 months, we felt there would be far greater visibility into New York metro leasing versus today and selling the loan into this uncertainty.

So we felt that, that was a compelling modification. We did a partial repurpose of some of our future advances. First, the borrower's money, the sponsor's money will go ahead of us. And then, we'll repurpose some of our future advances to assist with negative carry on the back end.

And then, the sponsor will then go ahead of us and fund future good news money in TI capital, if needed. So we made that arrangement with them, which we thought was fair. So again, we thought that getting another year's worth of visibility in Long Island City, given the borrowers' contribution to capital need a lot of sense.

The second property has more occupancy to begin with, and there is another lease in the works. And so, the negative carry on that is far less. And the borrower already has until February to talk to us about the next step on that. But we are seeing some activity there that's positive. So that's pretty much it on those assets.

I think, the fact that the borrower put up money does say a lot. And I do think that 12 months of time will give us a ton more visibility than we have today..

Great, that's a good update there.

And then, just my last question around Fairmont, San Jose, how much - when did you start putting that loan back on accrual? I'm just curious how much interest income was recognized this past quarter from that asset and relative to what we should expect next quarter?.

Sure. Tim, it's Frank. So the loan went back on accruing in September as it emerged from bankruptcy, but we picked up seven months of interest income. So that was about $6.8 million or $0.05. We expected when it goes to - moving forward, it will be about $2.4 million a quarter, which is a little under $0.02 per share, and that's before financing..

We are in the process of procuring financing for that loan at this point..

Good deal. We'll stay tuned on that. Thanks again for the time this morning..

Our next question comes from the line of Stephen Laws with Raymond James. Please receive with your questions..

Hi good morning. First off, appreciate the color on those assets that Tim went through. So thanks for the details there. Andy or Frank, if you think about leverage and growth from here, you talked - quantified the pipeline for us. I think just generally said prepayments will probably pick up in the next couple of quarters.

Can you talk about the net portfolio growth expectation? And then, maybe quantify what your leverage targets are with - assuming the majority of investments are in senior loans?.

Andy, do you want to touch on what we're experiencing in prepayments over the next few quarters and Frank can pick up the leverage piece?.

Sure. Sure. So we've had relatively modest prepayments in the recent quarters. And as we highlighted in the prepared remarks, we expect that activity to increase over the coming quarters. So here in the fourth quarter, may see $200 million to $300 million of repayments.

And then, going into next year, we anticipate seeing higher prepayments on a quarterly basis.

And so, obviously, the focus of our originations program is to continue to add assets on a net basis to the portfolio, and we see our portfolio growing from where it is today to about $3.5 billion in loans here in the fourth quarter, somewhere in that neighborhood and then continuing to grow throughout the course of 2022.

And Frank, I'll turn it over to you for the impact..

Sure. Sure. As far as, Stephen, leverage, our debt-to-assets was at 57% last quarter, 61% this quarter. That will continue to grow into the fourth quarter. And as we think to 2022, it's getting into the high 60s, maybe touch 70, just again, depending on our ability to deploy and the timing of the prepayments..

Great. Appreciate the color there. Mike, you talked last quarter about some attractive suburban office, and you mentioned in your prepared remarks that you guys have been more active there.

Can you give us a little more color, property type geography, where you're seeing the best most attractive investment opportunities and what we should look - what we should expect to see increases in the mix of the portfolio going forward?.

Okay. First, let's talk about where we're targeting ROEs. But still, despite all the movement that's going on and shipping to property types, we're still targeting low double-digit ROEs on balance sheet and hopefully achieving above that, maybe knocking 100, 150 basis points higher if we're able to execute a CLO.

We saw credit spreads continuing to tighten in the third quarter around other property types, warehouse spreads with the banks also came in as - and their advance rates have increased and have kept abreast with the overall market.

In Q3, we did start to see multi-family spreads [Technical Difficulty] and the office properties were in the mid to high - mid-3s, high-3s, and in some cases, 4%, depending on the leasing at the property. Hotels are high-3s to high-4s, and we're starting to see activity in hotels. We've actually bid on a couple, but haven't been successful.

The real story is the credit demand in Multi-family remains [Technical Difficulty]; and that's partly due to the fact that there's been so much CLO supply that we're seeing CLO AAA spreads widen as we back into year-end. And a lot of issuers are trying to issue this year based on LIBOR. So that has caused the backup in spreads in Multi-family.

In terms of underlying asset valuations, what we're experiencing now is that in Multi-family, rents have grown considerably almost everywhere.

And new acquisition borrowers are - and we're seeing this in our own portfolio of loans that we've just done over the past year, borrowers are actually popping spreads before they even put in a new countertop or a refrigerator. Before the renovation program has kicked off, they're just popping rents on existing tenants as is.

So that has been interesting to see.

Almost every component of replacement cost is up, further exacerbated by supply chains and time delays, which we think is a big headwind for future development and bodes well for existing supply, but we're also thinking that some of our existing portfolio that we're doing now may have a longer duration on it because borrowers may be behind in their business plans by three, four or five months because of appliances and labor shortages.

Now, we're not concerned about that because the loans we're doing have debt yields where there's coverage of the property. So we're not worried about interest advancing or shortfalls with that. But we do think there'll be longer duration in the portfolio. Multi-family cap rates have dropped considerably. We're seeing cap rates in the 3 handles.

And in some cases, we're seeing cap rates in the two handles and where we have double-digit rent growth. The cap rate compression is a little bit alarming in some instances. And this is happening in the face of a Fed that is becoming more hawkish and will eventually taper and tighten. So that is something that we're being watchful of.

We're pushing off on Multi-family deals, where we're seeing increasing valuations and compression in cap rates, not only occur, but at current rates of speed that we were getting some alarms on. So we're pushing back on some Multi-family deals late in this fourth quarter here as we see cap rates compress very tight.

And the concern that we have is that the Fed is going to play catch-up with inflation and have to tighten or taper more considerably while buyers are stepping into low 3% cap rate. So that's something to keep an eye on. And that's why I think there's another reason why [Technical Difficulty] of valuation.

With regard to other property types, we're continuing to find value in path of growth, suburban office, the rating agencies and CLOs to heavily favor stronger markets, where there's higher market rankings and lead to higher advance rates on CLOs, but we're finding the most risk reward value in middle-market office, where there is a drive to work as opposed to mass transit commute, and there's more value, and we're getting loan sizes that we'd like to play in that are more in the $50 million and below loan sizes.

As I said, we are seeing some hotel that has just started, but because of the few assets that are out there, they're getting actively bid for..

That's great color. Thanks for the comment..

[Operator Instructions] Our next question comes from the line of Matthew Howlett with B. Riley. Please proceed with your question..

Tanks everybody for taking my question. Mike, just a big picture question. I mean, your year-over-year into this transition. You've talked about getting up the dividend up to peer levels, trading above NAV.

I mean, where are you - how long do you think it'll take to light the cigar, so to speak? Where are we, how far away are we? Just some general color, if you will?.

Okay. So I think 2022 is the year we think that happens, where the basic strategy is very simple. We want to continue along the lines of a pure-play commercial mortgage REIT and deploy the cash that we have into first mortgages and selective mezzanine loans where we can defend ourselves and protect.

And to try to stay one step ahead of the prepayment tariff, which we think that prepayments, we're budgeting for prepayments to pick up. We don't know that they will. We're budgeting for that.

And when you're seeing what I just described in valuations and cap rates, along with what Andy mentioned as pent-up COVID demand for credit, those are the things that we're looking at borrowers ahead of schedule on their rents increases before their renovation programs have begun. That is giving us a bias toward anticipating more prepayments.

It doesn't necessarily mean that, that will happen, but we're budgeting for that. But that still does not take us off of our plan of getting to that approximately bucket share in 2022. I do think that we will try to increase our average loan size as well, especially as we do a little bit more office.

With regard to triple-net, we're basically holding the positions that we have. We did add some further disclosure on the Albertsons triple-net lease sale we have. One, because it's going to be coming out of the GSAM preferred financing when this sale of assets to Fortress occurs, this quarter or probably first quarter of next year.

So we want to give more disclosure on that asset because it's going to be coming out of that financing vehicle and 100% on the balance sheet when that occurs. We own that asset at a roughly 7% cap rate. It is throwing off about an 11% ROE based on the debt that's in place today. We have been asked a lot of questions about that.

And so when we look at 2022, that is not something that we anticipate selling. One, because it's a great yield for us. And two, also because there's CMBS get in place until I believe 2020 separate from '28, and there's a large defeasance payment associated with that.

And so we would not really consider selling that asset until that maturity date got much closer and the defeasance payment are much smaller. And then, the last thing I'll say, we're still not yet engaged on the conduit business, the gain-on-sale business, that's not part of the budget yet for 2022.

And the reason for that is that we think that market, the supply is light. Of the three or four various CMBS silos out there, it is the one that has the least amount of issuance versus single asset, single borrower and CLOs. So competition in that business is tight, supply is tight.

So that is something that we haven't factored into our budget for 2022..

So you're thinking about reentering that business and the conduit business?.

We're not - that's not - when Frank goes through his bridge to get to the path to the earnings in 2022, it is not - the conduit business, the gain-on-sale business is not part of that budgeting. And the reason for that is, as I said, we think that business is very competitive right now.

And the amount of effort it would take versus the yield you'd get on our EPS is not relevant enough for us to consider it. It is something you can look at for 2022, but it's not part of our earnings expectation..

So, it's certainly not going through the capabilities, potential prospects in that business. And I think you answered my question on the net leases, that I was going to ask you. Seeing the tight bid on it, wondering if you just sort of put it up for a bit. I mean, I'm sure you could probably get something even above undepreciated book value.

But I think you answered that. So I want to go to the bigger picture is a technical issue. I know you get this on every call and I know you can't control it what you're your largest shareholder selling that.

So anything you can give us in terms of the technical issue with that, what they've conveyed to you? And is there anything that you can do on your end, such as at some point, buying some of their stake back?.

I think the best thing that we could do on our end is to perform and have that hopefully reflected in the stock price. They are very - TBRG Digital is very supportive of BrightSpire. We certainly evidenced that when they gave us the green light to go ahead and do the internalization.

They have stated publicly that they are sellers of everything non-digital. So we do expect that they will continue to sell, but we are not aware of any specific timetable. They have reduced their holdings by 13 million shares, about 10 million of it came from the secondary offering that they did.

And I think 3 million units were embedded in a sale of other assets that took place at the company. So they're down to about 35 million, plus or minus, in terms of shares. I do think that given the fact that they've achieved a reduction can allow them to be perhaps more deliberate. I can't speak on their behalf.

This is just my speculation that they can be more deliberate. And certainly, given the fact that we are paying a dividend and have just increased the dividend this quarter, I think that allows them, at least to get income on the asset and to factor that into their timetables.

I also think that given that we are trading below book, I do think that the firm is a believer of our thesis that we will get to book via the execution of our plan and getting our earnings up and dividend up, but that would be speculation on my part as to why they're holding and what their time frame is. So the best thing we can do here is perform.

In terms of a buyback, with the shares trading where they are closer to book value. And unfortunately, we got closer to book value, the wrong way today. I acknowledge that fully.

But based on where the shares are trading, we don't think the buyback is compelling, and that is also because we just bought back the management contract, and we think we have to go the other way in terms of shareholder equity and realize on the benefits of the internalization and the operating economies that, that gives us.

So the goals are very simple with regard to the buyback. We don't think that it's a smart thing right now. We don't want to reduce our scale and have our cost of G&A as a percentage of shareholder equity go up. So the goals are simple for 2022, deploy the capital, grow the earnings, then maybe do a press and then maybe do comment above book value.

But that is just as every commercial mortgage we should do..

Yes. Look, I mean, you have all the making system thing that should trade in line to above the peer group. I'd just love to see you get there. I appreciate the answer. I know you can't control it. I still appreciate the color. You said their share count is down 3 million post the secondary that they did in September..

So it was down to 38 million post the secondary, but they have included - about 3 million shares are embedded in their wellness business that they sold to Highgate and Aurora earlier this year. That transaction will close at the beginning of 2022..

Great, thanks a lot. Thanks, everyone..

Our next question comes from the line of Steve Delaney with JMP Securities..

Hey, good morning, everyone. Thanks for taking my question. Good to be on with you this morning. Cap rates, we're seeing it hearing it everywhere, and Mike, you alluded to it with respect to Multi-family. When we look at the plan for going forward a simplification, basic blocking and tackling around the bridge loan business.

It does raise the question of the net lease and the ORE portfolio of $700 million. And you did comment on that generally. But obviously, cap rate compression is certainly creating value in there as we've seen across the space.

Could you comment specifically on that large $300 million asset in Norway, just given the uniqueness of that, the size of that,.

Is that specifically something that you think you could find a strong bid for, given that it has a 9-year duration?.

Thank you, Steve. Welcome to the call. Nothing against Norway. But owning an asset there is something that we probably are not asked to do. So I think that, that's something we'll look at doing something with at a later date.

There is - and one of the reasons why the disclosure on that is important, and be very direct on that, is that we've got a 15-year lease that was financed with a 10-year debt maturity. And I believe that comes up in about 2025. So we have a 5-year lease overhang that needs to be addressed.

So we don't have a dilutive event and having to pay down the debt at a later date to refinance the asset.

So that would entail working with the borrower, which is done often to go back and extend that lease and work out some sort of beneficial - mutually beneficial transaction, where we extend that lease long enough so that we can - we could extend that financing.

I do not think that we should sell that before that is done because that is something that needs to be addressed. You're leaving some value on the table if you're doing that. Having said that, this is their world headquarters. And they are effectively, if you will, their private - their public company, Equinor, and they are very prominent.

Their stock has done very well this year, as you would expect with some energy stocks. And so, we do think that given who the credit is and given this is their headquarters, that there would be a bid for the asset. But we do need to get to that point closer to 2025, where we can renegotiate that lease and then extend the debt.

In the meantime, we've got it hedged. We've got the euro hedged for about another 2.5 years, and we'll look at that, extending that hedge, if possible, if it goes back in the money. That hedge has been a good hedge right now. We hedged it when the Corona was in the low $8, and now it's in the mid $8. That has been very volatile.

But as I said, we're substantially hedged for the next 2.5 years..

Great. That's wonderful color. And just lastly, just in a very broad general sense. Gosh, on calls the last week or so and just commentary people are making.

It seems like hotels are somewhat back in favor, at least, there must be a lot of maybe opportunistic or you call it stress money, something coming into that space that we certainly didn't see 12 months ago and maybe not even six months ago, but it just seems like we're seeing loans transfer at par. We're seeing property selling.

And I'm just curious, your personal thoughts and the team, as you're looking at your hotels or just the market generally, how are you feeling about that sector? Just given the - for the right property, I would think the debt yields are pretty darn attractive relative to Multi-family and office..

Andy, would you like to comment on that?.

Sure, Mike. So in terms of what we're seeing in the hotel sector is we are seeing a rebound in the sector. We're seeing performance in the hotels that are in our portfolio increase and get better over time. And on the origination side, we have started to look at select opportunities. So we've been active in that particular space.

It's a space that I think we all thought we would become more active in this time of year, the second half of 2021, and we are starting that process. We have yet to connect on any of those opportunities, but there are some very compelling spots in the hospitality space, and we'll look to do more there..

Thanks, Andy. Appreciate that color..

Navia had great earnings this morning. So we agree with you. We just need to see more asset sale activity occur so that credit demand follows suit..

Got it. So just to benchmark values. Yes. Listen, thanks for the comments. Stay well..

We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments..

Thank you all for joining us, and we look forward to speaking again at the end of quarter four. Have a good day..

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day..