BrightSpire Capital (BRSP) Q2 FY26 earnings call: guidance and Q&A

How should we think about the run rate for Distributable Earnings (DE) given the significant loan portfolio growth to $3.5 billion by year-end, and its impact on dividend coverage, especially considering the REO and watchlist resolutions?

Management stated that capital from REO and watchlist resolutions, currently a drag on earnings, will be funneled into the loan book. They initially expected to cover the dividend at $3.5 billion, but the Albertsons sale, while strategic, delayed this by about two quarters. Positive dividend coverage is now anticipated by Q2/Q3 2027 as the loan book approaches $4 billion and freed-up capital is redeployed at higher ROEs.

“So as we move into 2027, the goal is to hit an unsolicited to get the loan book closer to $4 billion by mid-year. And I think that as you get to Q2, Q3 2007, that's where we probably see more positive dividend coverage as we get to beyond $3.5 billion and we redeploy the capital from Albertsons at what could be about 150 basis point higher ROI.”

asked by Gabe Pogge · answered by Michael Mazzei

Given previous concerns about Texas and Arizona, what's the current landscape and opportunity set for new loans in these markets, potentially cleaning up other firms' problems?

Management noted a reset in these markets, fueling asset sales at reset bases due to lenders pushing borrowers to execute short sales or foreclosures. They are now glad to re-enter these markets at much higher debt yields. They also highlighted positive dynamics like job growth and in-migration, with supply tailing off, setting up for rent increases in 2027 and beyond.

“We're selling things at, in some cases, yes, below where our loan amount was. So there's been a reset in that market and that is fueling a lot of asset sales right now. ... And we're glad to go into that market again at much higher debt yields than we were in during the interest rate bubble.”

asked by Gabe Pogge · answered by Michael Mazzei

Does the current interest rate environment, with the 10-year treasury remaining elevated, slow the pace of REO sales and potentially push out the $3.5 billion loan book target, or is the company willing to run higher leverage?

The company expects to run slightly higher leverage to meet the target, partly through a planned Q4 CLO issuance which offers higher leverage. While interest rates are challenging, they are seeing active buyers in the market at cap rates around treasuries, anticipating future rent growth. They plan to forge ahead, only pausing if bids don't reflect value, and are actively managing the opportunity cost of capital.

“I think by definition, as we get there, we're going to be wanting to leverage a little bit higher in the loan book. We're going to do a CLO, you know, fourth quarter. I won't say much more about it, but that leverage is 8% higher than what you get in the loan book. So the leverage will pick up a little bit more.”

asked by Tom Catherwood · answered by Michael Mazzei

What were the main contributions to the substantial uptick in CECL provision—was it specific assets like the Las Vegas multifamily, or broader portfolio-wide economic concerns?

The increase in CECL provision was roughly 50-50 between specific assets and macroeconomic conditions. The company takes a hard look at office loans quarterly, and the generation of new loans also contributes to CECL.

“So I think that, you know, we don't give a lot of insight, but it's probably 50-50 between specific and economic conditions. what we still have a fair number of office loans and we take a hard look at those loans every quarter, but also remember we generated a bunch of new loans during the quarter and that obviously adds CECL.”

asked by Tom Catherwood · answered by Unknown Speaker

Given multifamily loans are written at SOFR + 250, what is the pricing for industrial loans, especially since industrial has been a larger chunk of originations in H1 FY26 compared to FY25?

Management clarified they haven't done many industrial loans due to preference for granularity in rent rolls and avoiding binary lease-up risk. Industrial pricing has tightened, now much more inside 300 basis points, likely 25-30 basis points wider than multifamily. They are seeing sufficient multifamily opportunities to fill their book and are rotating towards smaller, multifamily loans.

“Industrial has gotten tighter, I'd say much more inside of 300 than it was last year where it was posting around 325. So you're seeing the market is getting very aggressive and my guess is industrial is going is probably 25, 30 basis points wider than multifamily.”

asked by Timothy Diagnostino · answered by Michael Mazzei

With a strong start to Q3 in originations, how is the pipeline shaping up, and what should be the expected cadence through the end of September?

The year-to-date pipeline volume is $57 billion, targeting the middle market. This strong trend is expected to continue into the back half of the year, potentially reaching $110 billion to $120 billion by year-end, which would surpass the robust volumes of 2021 and 2022. While primarily refinancing-driven, acquisitions are starting to increase.

“To date, we've seen about $57 billion worth of product. And again, it's important to highlight that we are targeting the middle market. So that's over a substantial number of opportunities. And in terms of what we're seeing going forward, we expect the trend to continue into the back half of the year.”

asked by Jason Weaver · answered by Andrew Witt

What is the impact of the expected REO and triple net sales on the run rate Net Operating Income (NOI) going forward?

Management stated that the impact on run rate NOI from the REO property sales is not significant.

“Just one property. It's not significant, the property, REO property that are going to be sold. It's not significant.”

asked by Gaurav Mehta · answered by Unknown Speaker

With $29 million remaining under the stock repurchase plan, should we expect more share repurchases going forward?

The company will balance the origination pipeline against cash on hand, with a preference for organic loan book growth. While the current stock price is attractive compared to their last buyback price of $5.46, they will assess circumstances and the pipeline before committing to further repurchases.

“We'll always balance the origination pipeline versus cash on hand. There is always a preference or bias toward organic growth of the loan book. Having said that, we indicated that our buybacks last quarter were at 546 a share. We know where the stock is trading today. It's attractive.”

asked by Gaurav Mehta · answered by Michael Mazzei