BrightSpire Capital(BRSP) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents BrightSpire Capital, Inc.'s unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents BrightSpire Capital, Inc.'s unaudited consolidated financial statements for the quarter ended June 30, 2025, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, along with detailed notes explaining business operations, significant accounting policies, and specific financial instrument details Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and equity Consolidated Balance Sheet Highlights (in Thousands) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :----------------------------------- | :-------------------------- | :------------------ | | Total assets | $3,409,481 | $3,723,478 | | Total liabilities | $2,421,221 | $2,677,667 | | Total equity | $988,260 | $1,045,811 | - Total assets decreased by approximately $314 million from December 31, 2024, to June 30, 2025, primarily driven by a reduction in cash and cash equivalents, and loans and preferred equity held for investment[11] - Total equity decreased by approximately $57.5 million from December 31, 2024, to June 30, 2025[11] Consolidated Statements of Operations This section outlines the company's consolidated statements of operations, including net interest income, total property and other income, total expenses, and net loss Consolidated Statements of Operations Highlights (in Thousands, Except Per Share Data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net interest income | $16,728 | $25,252 | $32,603 | $52,681 | | Total property and other income | $37,261 | $28,099 | $66,737 | $56,303 | | Total expenses | $97,463 | $121,698 | $138,584 | $234,519 | | Net loss attributable to BrightSpire Capital, Inc. common stockholders | $(23,118) | $(67,860) | $(17,777) | $(124,965) | | Net loss per common share - basic | $(0.19) | $(0.53) | $(0.15) | $(0.99) | - Net loss attributable to common stockholders significantly decreased for both the three-month and six-month periods ended June 30, 2025, compared to the same periods in 2024, indicating improved financial performance[18] - Total expenses decreased substantially for both periods, primarily due to a significant reduction in the increase of current expected credit loss reserve (CECL) and impairment of operating real estate[18] Consolidated Statements of Comprehensive Income (Loss) This section details the company's consolidated statements of comprehensive income (loss), including net loss and other comprehensive income (loss) Consolidated Statements of Comprehensive Income (Loss) Highlights (in Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(25,172) | $(68,683) | $(21,465) | $(125,792) | | Total other comprehensive income (loss) | $4,506 | $1,097 | $6,337 | $(2,497) | | Comprehensive loss attributable to common stockholders | $(18,612) | $(66,763) | $(11,440) | $(127,462) | - Total other comprehensive income (loss) showed a positive trend in 2025, with a gain of $4.5 million for the three months and $6.3 million for the six months, primarily driven by foreign currency translation gains[21] Consolidated Statements of Equity This section presents the company's consolidated statements of equity, showing changes in total stockholders' equity and accumulated deficit Consolidated Statements of Equity Highlights (in Thousands) | Metric | December 31, 2024 | March 31, 2025 | June 30, 2025 | | :-------------------------------- | :------------------ | :--------------- | :-------------- | | Total Stockholders' Equity | $1,048,218 | $1,034,924 | $994,355 | | Total Equity | $1,045,811 | $1,030,883 | $988,260 | | Accumulated Deficit | $(1,812,083) | $(1,827,543) | $(1,871,523) | - Total equity decreased from $1,045.8 million at December 31, 2024, to $988.3 million at June 30, 2025, primarily due to net loss and dividends declared, partially offset by equity-based compensation and other comprehensive income[27] - The company repurchased 757 thousand shares of common stock for $4.0 million during the three months ended June 30, 2025[27] Consolidated Statements of Cash Flows This section details the company's consolidated statements of cash flows, categorizing cash movements into operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in Thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $27,927 | $47,427 | | Net cash (used in) provided by investing activities | $(68,169) | $146,263 | | Net cash used in financing activities | $(158,592) | $(267,196) | | Net decrease in cash, cash equivalents and restricted cash | $(199,014) | $(73,359) | | Cash, cash equivalents and restricted cash - end of period | $251,682 | $288,730 | - Net cash provided by operating activities decreased by $19.5 million (YoY) for the six months ended June 30, 2025, primarily due to lower net interest income[31][434] - Investing activities shifted from providing $146.3 million in cash in 2024 to using $68.2 million in 2025, mainly due to higher loan originations and fundings in 2025[31][437][439] - Net cash used in financing activities decreased by $108.6 million (YoY) for the six months ended June 30, 2025, driven by lower repayments of credit facilities and securitization bonds[31][441][442] Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, explaining business operations, accounting policies, and financial instruments 1. Business and Organization This note describes BrightSpire Capital, Inc.'s business as a CRE credit REIT and its election to be taxed as a REIT - BrightSpire Capital, Inc. is a commercial real estate (CRE) credit REIT focused on originating, acquiring, financing, and managing a diversified portfolio primarily consisting of CRE debt investments and net leased properties, predominantly in the United States[36] - The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with the taxable year ended December 31, 2018[37] 2. Summary of Significant Accounting Policies This note outlines the company's significant accounting policies, including GAAP compliance, consolidation principles, and the CECL reserve methodology - The financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions, and reflect all normal and recurring adjustments for interim periods[39][40] - The Company consolidates entities where it has a controlling financial interest, either as a primary beneficiary of a Variable Interest Entity (VIE) or through majority voting interest[41][42] - The Company applies a Probability of Default (PD)/Loss Given Default (LGD) model for collectively assessed financial instruments to measure the Current Expected Credit Loss (CECL) reserve, utilizing historical loss rates and scenario-based statistical approaches[124] - Loans and preferred equity held for investment are risk-ranked on a five-point scale (1-Very Low Risk to 5-Impaired/Loss Likely) based on factors like real estate performance, asset value, and borrower financial strength, with initial rankings typically at '3' (Medium Risk)[127][133] 3. Loans and Preferred Equity Held for Investment, net This note provides details on the company's loans and preferred equity held for investment, including carrying values, CECL reserve, and risk rankings Loans and Preferred Equity Held for Investment, Net (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :-------------- | :------------------ | | Unpaid Principal Balance | $2,388,363 | $2,515,278 | | Carrying Value | $2,392,415 | $2,518,925 | | Current Expected Credit Loss (CECL) reserve | $(136,567) | $(165,932) | | Loans and preferred equity held for investment, net | $2,255,848 | $2,352,993 | | Weighted Average Contractual Coupon | 7.6% | 7.4% | | Weighted Average Maturity (in Years) | 1.5 | 1.6 | - The CECL reserve decreased by $29.4 million from December 31, 2024, to June 30, 2025, reflecting a reduction in expected credit losses[136] - The weighted average risk ranking for loans held for investment improved to 3.1 at June 30, 2025, from 3.2 at December 31, 2024, indicating a slight improvement in overall credit quality[156][159] - As of June 30, 2025, 90.0% of the portfolio (by carrying value) was ranked '3' (Medium Risk), with 8.4% at '4' (High Risk/Potential for Loss) and 1.6% at '5' (Impaired/Loss Likely)[328] 4. Real Estate, net and Real Estate Held for Sale This note details the company's real estate portfolio, including net lease and other properties, and assets held for sale, along with impairment events Real Estate Portfolio, Net (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :------------------ | | Net lease portfolio, net | $298,939 | $471,165 | | Other portfolio, net | $433,837 | $306,256 | | Total Real Estate, net | $732,776 | $777,421 | | Assets held for sale | $34,284 | $5,170 | - The net lease portfolio decreased by $172.2 million, while the other real estate portfolio increased by $127.6 million, reflecting shifts in property classifications and acquisitions/deconsolidations[164] - The Company recorded $51.1 million in impairment of operating real estate during the six months ended June 30, 2025, primarily due to the deconsolidation of a Norwegian net lease office campus ($49.3 million) and a Pennsylvania office property ($1.8 million)[178][179] - Property operating income increased by $12.2 million (24.3% YoY) for the six months ended June 30, 2025, mainly driven by 2024 and 2025 property acquisitions[168][373] 5. Deferred Leasing Costs and Other Intangibles This note presents the company's deferred leasing costs and other intangible assets, including in-place lease values and amortization expenses Deferred Leasing Costs and Intangible Assets, Net (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :-------------- | :------------------ | | In-place lease values, net | $22,651 | $33,035 | | Deferred leasing costs, net | $11,115 | $11,843 | | Above-market lease values, net | $1,688 | $2,294 | | Total Deferred Leasing Costs and Intangible Assets, net | $35,454 | $47,172 | | Below-market lease values, net (Intangible Liabilities) | $2,187 | $2,805 | - Net carrying amount of deferred leasing costs and intangible assets decreased by $11.7 million from December 31, 2024, to June 30, 2025, primarily due to amortization and deconsolidation events[186] Amortization of Deferred Leasing Costs and Intangible Assets (in Thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | | Amortization expense | $6,634 | $5,789 | 6. Restricted Cash, Other Assets and Accrued and Other Liabilities This note summarizes restricted cash, other assets, and accrued and other liabilities, highlighting changes and key components Restricted Cash Summary (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :------------------ | | Borrower escrow deposits | $74,748 | $80,132 | | Securitization trust unused proceeds | $0 | $50,087 | | Total Restricted Cash | $97,399 | $148,523 | - Restricted cash decreased by $51.1 million, primarily due to the full utilization of securitization trust unused proceeds[189] Accrued and Other Liabilities Summary (in Thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :------------------ | | Accounts payable, accrued expenses and other liabilities | $25,663 | $17,830 | | Operating lease liability | $22,433 | $24,119 | | Current and deferred tax liability | $0 | $21,147 | | Total Accrued and Other Liabilities | $68,453 | $82,625 | - Accrued and other liabilities decreased by $14.2 million, largely due to the reversal of a deferred tax liability associated with a European investment subsidiary[192][121] 7. Debt This note provides a detailed breakdown of the company's debt, including securitization bonds, mortgage notes, and credit facilities Debt Summary (in Thousands) | Debt Type | June 30, 2025 Principal Amount | June 30, 2025 Carrying Value | December 31, 2024 Principal Amount | December 31, 2024 Carrying Value | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------------------------------- | :--------------------------------- | | Securitization bonds payable, net | $988,407 | $982,198 | $1,094,372 | $1,087,074 | | Mortgage and other notes payable, net | $485,661 | $483,109 | $621,666 | $619,055 | | Credit facilities | $789,729 | $789,729 | $785,183 | $785,183 | | Total Debt | $2,263,797 | $2,255,036 | $2,501,221 | $2,491,312 | - Total debt decreased by approximately $237.4 million from December 31, 2024, to June 30, 2025, primarily due to repayments of securitization bonds and mortgage notes[196] - The Company's BRSP 2021-FL1 securitization had $534.5 million of unpaid principal balance of CRE debt investments at June 30, 2025, with an advance rate of 75.7% and a weighted average cost of funds of Term SOFR plus 1.71%[219] - The BRSP 2024-FL2 securitization, executed in August 2024, had $675.0 million of unpaid principal balance of CRE debt investments at June 30, 2025, with an advance rate of 86.5% and a weighted average cost of funds of Term SOFR plus 2.47%[222] 8. Related Party Arrangements This note confirms the absence of material related party transactions for the reported periods - The Company had no related party transactions as of and for the six months ended June 30, 2025 and 2024[229] 9. Equity-Based Compensation This note details the company's equity-based compensation expense and unrecognized compensation costs for unvested awards Equity-Based Compensation Expense (in Thousands) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Share-based compensation expense | $2,913 | $7,126 | $3,150 | $5,320 | - Share-based compensation expense increased by $1.8 million for the six months ended June 30, 2025, compared to the same period in 2024[237] - As of June 30, 2025, aggregate unrecognized compensation cost for all unvested equity awards was $21.3 million, expected to be recognized over a weighted-average period of 2.2 years[245] 10. Stockholders' Equity This note outlines changes in stockholders' equity, including dividends declared and common stock repurchases Dividends Declared on Common Stock | Declaration Date | Record Date | Payment Date | Per Share | | :--------------- | :---------- | :----------- | :-------- | | March 17, 2025 | March 31, 2025 | April 15, 2025 | $0.16 | | June 16, 2025 | June 30, 2025 | July 14, 2025 | $0.16 | | March 15, 2024 | March 29, 2024 | April 15, 2024 | $0.20 | | June 17, 2024 | June 28, 2024 | July 15, 2024 | $0.20 | - The Company declared quarterly cash dividends of $0.16 per share for Q1 and Q2 2025, a decrease from $0.20 per share in the same periods of 2024[247] - During the three months ended June 30, 2025, the Company repurchased 0.8 million shares of Class A common stock for an aggregate cost of $4.0 million under its Stock Repurchase Program[250] - As of June 30, 2025, $47.1 million remained available for repurchases under the Stock Repurchase Program, which authorizes up to $50.0 million until April 30, 2026[249][251] 11. Noncontrolling Interests This note reports the net loss attributable to noncontrolling interests in investment entities Net Loss Attributable to Noncontrolling Interests (in Thousands) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net loss attributable to noncontrolling interests: Investment entities | $2,054 | $3,688 | $823 | $827 | - Net loss attributable to noncontrolling interests in investment entities significantly increased for both the three-month and six-month periods ended June 30, 2025, compared to 2024[254] 12. Fair Value This note provides fair value measurements for financial instruments, categorizing them by valuation input levels Fair Value of Financial Instruments (in Thousands) | Financial Instrument | June 30, 2025 Carrying Value | June 30, 2025 Fair Value | December 31, 2024 Carrying Value | December 31, 2024 Fair Value | | :------------------------------------------ | :------------------------------- | :----------------------- | :------------------------------- | :----------------------- | | Loans and preferred equity held for investment, net | $2,392,415 | $2,251,796 | $2,518,925 | $2,349,346 | | Securitization bonds payable, net | $982,198 | $988,407 | $1,087,074 | $1,094,372 | | Mortgage and other notes payable, net | $483,109 | $460,808 | $619,055 | $587,349 | | Master repurchase facilities | $789,729 | $789,729 | $785,183 | $785,183 | - Fair value measurements for loans and preferred equity held for investment are generally classified as Level 3, relying on unobservable inputs like estimated yields and discounted cash flow projections[262] - Fair value measurements for securitization bonds payable, net, mortgage and other notes payable, net, and master repurchase facilities are classified as Level 2, based on observable inputs such as current market rates for similar terms[263][264][265] - The Company recorded $19.5 million in specific CECL reserves during Q2 2025 for two loans, based on collateral fair value using Level 3 inputs, which were subsequently charged off[268] 13. Commitments and Contingencies This note details the company's unfunded lending commitments and future minimum rental payments on noncancellable ground leases Total Unfunded Lending Commitments (in Thousands) | Loan Type | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :------------------ | | Senior loans | $103,400 | $105,200 | | Mezzanine loans | $2,100 | $1,100 | | Preferred equity | $6,000 | $0 | | Total | $111,500 | $106,300 | - Total unfunded lending commitments increased by $5.2 million from December 31, 2024, to June 30, 2025, primarily due to new preferred equity commitments[276] Future Minimum Rental Payments on Noncancellable Ground Leases (in Thousands) | Period | Amount | | :---------------- | :------- | | Remainder of 2025 | $1,593 | | 2026 | $3,186 | | 2027 | $2,868 | | 2028 | $2,839 | | 2029 | $1,896 | | 2030 and thereafter | $12,263 | | Total lease payments | $24,645 | 14. Segment Reporting This note presents financial information by the company's three reportable segments: loans, real estate, and corporate - The Company operates through three reportable segments: Senior and Mezzanine Loans and Preferred Equity, Net Leased and Other Real Estate, and Corporate and Other[287] Net Income (Loss) by Segment (in Thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Senior and Mezzanine Loans and Preferred Equity | $16,053 | $(14,716) | $31,901 | $(61,652) | | Net Leased and Other Real Estate | $(31,091) | $(43,657) | $(31,792) | $(44,417) | | Corporate and Other | $(10,134) | $(10,310) | $(21,574) | $(19,723) | | Total Net Income (Loss) | $(25,172) | $(68,683) | $(21,465) | $(125,792) | - The Senior and Mezzanine Loans and Preferred Equity segment significantly improved, moving from a net loss of $14.7 million in Q2 2024 to a net income of $16.1 million in Q2 2025[289] Total Assets by Segment (in Thousands) | Segment | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :-------------- | :------------------ | | Senior and Mezzanine Loans and Preferred Equity | $2,375,584 | $2,533,770 | | Net Leased and Other Real Estate | $877,402 | $888,029 | | Corporate and Other | $156,495 | $301,679 | | Total Assets | $3,409,481 | $3,723,478 | 15. Earnings Per Share This note provides the calculation of basic and diluted net loss per common share for the reported periods Earnings Per Share (in Thousands, Except Per Share Data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to BrightSpire Capital, Inc. common stockholders | $(23,118) | $(67,860) | $(17,777) | $(124,965) | | Net loss per common share - basic | $(0.19) | $(0.53) | $(0.15) | $(0.99) | | Net loss per common share - diluted | $(0.19) | $(0.53) | $(0.15) | $(0.99) | | Weighted average shares of common stock outstanding - basic | 127,247 | 127,986 | 127,165 | 127,656 | - Net loss per common share significantly improved for both the three-month and six-month periods ended June 30, 2025, compared to the same periods in 2024[298] 16. Subsequent Events This note discloses significant events that occurred after June 30, 2025, including dividend payments, loan originations, and property acquisitions - In July 2025, the Company paid a quarterly cash dividend of $0.16 per share for Q2 2025[300] - Subsequent to June 30, 2025, the Company originated one senior mortgage loan with a total commitment of $13.3 million[301] - On July 11, 2025, the Company acquired a multifamily construction/development project through a deed-in-lieu of foreclosure, removing the last risk ranked '5' loan from its balance sheet[302] - In July 2025, a Pennsylvania office property was deconsolidated from the Company's balance sheet following a maturity default and receiver appointment[303] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting significant developments, market trends, and factors impacting performance. It details the investment portfolio, risk management, and liquidity strategy, including a reconciliation of non-GAAP financial measures Introduction This introduction outlines BrightSpire Capital, Inc.'s core business as a CRE credit REIT and its primary investment strategy - BrightSpire Capital, Inc. is a CRE credit REIT focused on originating, acquiring, financing, and managing a diversified portfolio of CRE debt investments and net leased properties, primarily in the U.S[305] - The Company's primary investment strategy is first mortgage loans, with selective origination of mezzanine loans and preferred equity investments[305] Our Target Assets This section describes the company's target assets, including senior loans, mezzanine loans, preferred equity, and net leased real estate - Target assets include Senior Loans (primary focus), Mezzanine Loans, Preferred Equity, and Net Leased and Other Real Estate[309] - The Company's investment strategy is flexible, adapting to market conditions while maintaining REIT qualification and Investment Company Act exclusion[308] Our Business Segments This section identifies the company's three operational segments: loans, real estate, and corporate - The Company operates through three segments: Senior and Mezzanine Loans and Preferred Equity, Net Leased and Other Real Estate, and Corporate and Other[312] Significant Developments This section highlights key recent events, including dividend declarations, liquidity updates, share repurchases, and loan portfolio changes - Declared and paid a Q2 2025 dividend of $0.16 per share[312] - As of July 29, 2025, the Company had approximately $325.0 million of liquidity, including $106.0 million cash and $165.0 million available on its Bank Credit Facility[312] - Repurchased 0.8 million shares of Class A common stock for $4.0 million under the Stock Repurchase Program[312] - Originated two senior mortgage loans ($85.0 million commitment) and a cross-collateralized preferred equity investment ($13.1 million commitment) during Q2 2025[312] - Reduced watchlist loans (risk ranking 4 or 5) from seven to five, removing four loans with $250.5 million UPB and adding two with $74.6 million UPB[312] - Recorded $49.3 million GAAP impairment on the Norwegian net lease office campus and $1.6 million on a Pennsylvania office property, with no impact on Undepreciated Book Value[317] Financial Results This section summarizes the company's GAAP and non-GAAP financial results for Q2 2025, including net loss and distributable earnings Q2 2025 Financial Results (in Millions, Except Per Share Data) | Metric | Amount | | :------------------------------------------------ | :----- | | GAAP net loss | $(23.1) | | GAAP net loss per basic share | $(0.19) | | GAAP net loss per diluted share | $(0.19) | | Distributable Earnings (Non-GAAP) | $3.4 | | Distributable Earnings per share (Non-GAAP) | $0.03 | | Adjusted Distributable Earnings (Non-GAAP) | $22.9 | | Adjusted Distributable Earnings per share (Non-GAAP) | $0.18 | Trends Affecting Our Business This section discusses global market pressures, high interest rates, and office property market headwinds impacting the company's business - Global market pressures, including tariffs, inflation, and geopolitical unrest, contribute to market volatility and impact CRE valuations[314] - High interest rates negatively impact real estate transaction activity and loan financing/refinancing opportunities, potentially leading to financial dislocation for borrowers[314] - The office property market continues to face headwinds from work-from-home trends and elevated operating costs, posing risks of future valuation impairment[314] Factors Impacting Our Operating Results This section details how borrower debt service, tenant rent payments, asset values, and interest rate changes influence operating results - Operating results are primarily affected by borrowers' ability to service debt, tenants' ability to pay rent, effective management of sub-performing/non-performing loans, market value of assets, and net operating income (NOI)[316][318] - Increases in interest rates can decrease fixed-rate investment values, slow prepayments, increase floating-rate loan coupons, raise interest expense on borrowings, and potentially lead to borrower financial hardship and foreclosures[322] - Conversely, decreases in interest rates can increase fixed-rate asset values, accelerate prepayments, decrease floating-rate loan coupons, and reduce interest expense on borrowings[322] - Credit risk is managed through high-quality asset acquisition, comprehensive review, and ongoing monitoring, but unanticipated credit losses can still occur[320] Our Portfolio This section provides an overview of the company's investment portfolio, including the number of investments, carrying value, and property types - As of June 30, 2025, the portfolio consisted of 98 investments with approximately $3.2 billion in carrying value (at BRSP share)[323][324] - Senior and mezzanine loans and preferred equity comprised 81 investments with a weighted average cash coupon of 3.4% and an unlevered all-in yield of 7.8%[323][338] - Net leased and other real estate included 16 properties, totaling approximately 5.5 million square feet, generating $18.7 million in NOI for Q2 2025[323][342] Underwriting Process This section describes the rigorous evaluation process for new investments, covering macroeconomic, real estate, and financial analyses - The underwriting process involves a rigorous evaluation of macroeconomic conditions, fundamental real estate analysis, market factors, sponsor strength, cash flow projections, third-party valuations, and legal/tax implications[326] Loan Risk Rankings This section explains the five-point loan risk ranking system and reports on changes in the portfolio's weighted average risk ranking - Loans are assigned a risk ranking from 1 (Very Low Risk) to 5 (Impaired/Loss Likely) based on underlying real estate performance, asset value, borrower financial strength, and loan structure[327][333] - The weighted average risk ranking improved to 3.1 at June 30, 2025, from 3.2 at March 31, 2025[328] - During Q2 2025, two multifamily loans were upgraded to risk ranking 3, while one multifamily and one industrial loan were downgraded to risk ranking 4. One hotel loan (risk 5) was resolved via foreclosure, and one senior loan (risk 5) was reclassified to real estate in July 2025[333] Senior and Mezzanine Loans This section provides a detailed breakdown of the senior and mezzanine loan portfolio by risk ranking and collateral property type Senior and Mezzanine Loans by Risk Ranking (at BRSP share, in Thousands) | Risk Ranking | Count | Senior loans | Mezzanine loans | Preferred Equity | Total | % of Total | | :----------- | :---- | :----------- | :-------------- | :--------------- | :------ | :--------- | | 3 | 75 | $2,097,259 | $47,379 | $6,963 | $2,151,601 | 90.0% | | 4 | 5 | $201,564 | — | — | $201,564 | 8.4% | | 5 | 1 | $39,250 | — | — | $39,250 | 1.6% | | Total | 81 | $2,338,073 | $47,379 | $6,963 | $2,392,415 | 100.0% | Senior and Mezzanine Loans by Collateral Property Type (at BRSP share, in Thousands) | Collateral property type | Count | Senior loans | Mezzanine loans | Preferred Equity | Total | % of Total | | :----------------------- | :---- | :----------- | :-------------- | :--------------- | :------ | :--------- | | Multifamily | 52 | $1,338,623 | $32,687 | $6,963 | $1,378,273 | 57.6% | | Office | 21 | $700,557 | $14,692 | — | $715,249 | 29.9% | | Other (Mixed-use) | 5 | $190,826 | — | — | $190,826 | 8.0% | | Hotel | 1 | $72,183 | — | — | $72,183 | 3.0% | | Industrial | 2 | $35,884 | — | — | $35,884 | 1.5% | | Total | 81 | $2,338,073 | $47,379 | $6,963 | $2,392,415 | 100.0% | - The general CECL reserve for outstanding loans and future funding commitments was $137.2 million (5.49% of aggregate commitment) at June 30, 2025, a decrease of $18.9 million from March 31, 2025[340] Net Leased and Other Real Estate This section details the company's net leased and other real estate investments, including carrying value, occupancy, and NOI - As of June 30, 2025, $788.5 million (24.8% of total assets) was invested in net leased and other real estate properties, with an 82.2% occupancy rate[342] Net Leased and Other Real Estate Investments (at BRSP share, in Thousands) | Property Type | Count | Carrying Value | NOI for Q2 2025 | | :-------------------- | :---- | :------------- | :-------------- | | Net leased real estate | 7 | $323,016 | $12,460 | | Other real estate | 9 | $465,499 | $6,282 | | Total | 16 | $788,515 | $18,742 | Stavanger, Norway Office Net Lease This section discusses the maturity default and deconsolidation of the Norwegian net lease office campus, resulting in a GAAP impairment - In June 2025, the Company reached a maturity default on bond financing for its Norwegian net lease office campus, leading to lenders taking control and deconsolidation of assets/liabilities[351] - The deconsolidation resulted in a $49.3 million GAAP impairment of operating real estate, but had no impact on Undepreciated Book Value, which was previously written down to zero in Q2 2024[351][352] Results of Operations This section analyzes the company's operating results, comparing performance across different periods and highlighting key drivers of change Comparison of Three Months Ended June 30, 2025 and March 31, 2025 This section compares the company's operating results for Q2 2025 against Q1 2025, detailing changes in income, expenses, and net loss Q2 2025 vs Q1 2025 Operating Results (in Thousands) | Metric | Q2 2025 | Q1 2025 | Change (Amount) | Change (%) | | :------------------------------------------ | :------ | :------ | :-------------- | :--------- | | Net interest income | $16,728 | $15,875 | $853 | 5.4% | | Total property and other income | $37,261 | $29,476 | $7,785 | 26.4% | | Total expenses | $97,463 | $41,120 | $56,343 | 137.0% | | Net income (loss) | $(25,172) | $3,708 | $(28,880) | (778.9)% | - Net interest income increased by $0.9 million (5.4% QoQ), driven by loan originations partially offset by repayments and nonaccrual loans[353][354] - Total property and other income increased by $7.8 million (26.4% QoQ), primarily due to the acquisition of a hotel property through foreclosure[353][356] - Total expenses increased significantly by $56.3 million (137.0% QoQ), mainly due to $51.1 million in impairment of operating real estate[353][364] - The Company recorded a net increase in CECL reserves of $0.6 million in Q2 2025, compared to a net decrease of $0.2 million in Q1 2025, driven by specific reserves for two loans that were subsequently charged off[362][363] - Income tax benefit increased by $21.9 million QoQ, related to a deferred tax liability write-off following the maturity default of the Norwegian net lease office campus[368] Comparison of Six Months Ended June 30, 2025 and Six Months Ended June 30, 2024 This section compares the company's operating results for the first six months of 2025 against the same period in 2024, highlighting year-over-year changes YTD 2025 vs YTD 2024 Operating Results (in Thousands) | Metric | YTD 2025 | YTD 2024 | Change (Amount) | Change (%) | | :------------------------------------------ | :------- | :------- | :-------------- | :--------- | | Net interest income | $32,603 | $52,681 | $(20,078) | (38.1)% | | Total property and other income | $66,737 | $56,303 | $10,434 | 18.5% | | Total expenses | $138,584 | $234,519 | $(95,935) | (40.9)% | | Net loss | $(21,465) | $(125,792) | $104,327 | (82.9)% | - Net interest income decreased by $20.1 million (38.1% YoY), primarily due to loan repayments, loans placed on nonaccrual status, and lower interest rates, partially offset by new loan originations[370][371] - Total property operating income increased by $12.2 million (24.3% YoY), mainly from 2024 and 2025 property acquisitions[373] - Total expenses decreased by $95.9 million (40.9% YoY), largely due to a significant reduction in CECL reserves ($114.0 million decrease) compared to the prior year[369][378][379] - Income tax benefit increased by $21.8 million (YoY), related to a deferred tax liability write-off from the Norwegian net lease office campus deconsolidation[385] Non-GAAP Supplemental Financial Measures This section provides reconciliations and explanations for non-GAAP financial measures, including Distributable Earnings, Adjusted Distributable Earnings, and Undepreciated Book Value Distributable Earnings This section defines and presents Distributable Earnings and Adjusted Distributable Earnings, non-GAAP measures of operating performance - Distributable Earnings (DE) is a non-GAAP measure providing insight into operating performance and dividend-paying ability, excluding non-cash equity compensation, depreciation, impairment, and certain unrealized gains/losses[386][387] Distributable Earnings and Adjusted Distributable Earnings (in Thousands, Except Per Share Data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | | Net income (loss) attributable to BrightSpire Capital, Inc. common stockholders | $(23,118) | $(67,860) | | Distributable Earnings attributable to BrightSpire Capital, Inc. common stockholders | $3,394 | $16,971 | | Distributable Earnings per share | $0.03 | $0.13 | | Adjusted Distributable Earnings attributable to BrightSpire Capital, Inc. common stockholders | $22,876 | $28,775 | | Adjusted Distributable Earnings per share | $0.18 | $0.22 | - Adjusted Distributable Earnings (ADE) further excludes realized gains/losses on asset sales, fair value adjustments, unrealized gains/losses, and specific CECL reserves[388] Undepreciated Book Value Per Share This section defines and presents Undepreciated Book Value per share, a non-GAAP measure excluding real estate depreciation and impairment - Undepreciated Book Value (UBV) per share is a non-GAAP measure that excludes accumulated depreciation and amortization on real estate investments, and non-GAAP impairment of real estate and foreign currency translation[393] GAAP Book Value vs. Undepreciated Book Value Per Share (in Thousands, Except Per Share Data) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :-------------- | :------------------ | | Stockholders' equity excluding noncontrolling interests | $994,355 | $1,048,218 | | Undepreciated Book Value | $1,137,165 | $1,152,441 | | GAAP book value per share | $7.65 | $8.08 | | Undepreciated Book Value per share | $8.75 | $8.89 | - Undepreciated Book Value per share decreased from $8.89 at December 31, 2024, to $8.75 at June 30, 2025[394] NOI This section defines and presents Net Operating Income (NOI), a non-GAAP measure of property-level operating performance - Net Operating Income (NOI) is a non-GAAP measure of property-level operating performance, excluding depreciation, impairment, and corporate-level expenses[395] Total NOI, at share (in Thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Total NOI, at share | $18,742 | $17,088 | - Total NOI, at share, increased by $1.7 million (9.7% YoY) for the three months ended June 30, 2025, compared to the same period in 2024[397][398] Liquidity and Capital Resources This section discusses the company's cash commitments, liquidity sources, financing strategy, and debt-to-equity ratio Overview This overview outlines the company's material cash commitments and primary sources of liquidity for operations and investments - The Company's material cash commitments include repaying borrowings, financing assets and operations, meeting future funding obligations, making stockholder distributions, and funding general business needs[400] - Primary liquidity sources are cash on hand, operating cash flow, and cash from asset sales/investment maturities, supplemented by bank credit facilities, Master Repurchase Facilities, and securitizations[401] Financing Strategy This section details the company's multi-pronged financing strategy, including credit facilities, repurchase facilities, and securitizations - The Company employs a multi-pronged financing strategy including a $165.0 million secured revolving credit facility, up to $2.0 billion in secured revolving repurchase facilities, $1.0 billion in non-recourse securitization financing, and $451.3 million in commercial mortgages[402] Debt-to-Equity Ratio This section presents the company's debt-to-equity ratio and its stability over the reported periods Debt-to-Equity Ratio | Metric | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :------------------ | | Debt-to-equity ratio | 2.1x | 2.1x | - The debt-to-equity ratio remained stable at 2.1x from December 31, 2024, to June 30, 2025[404] Potential Sources of Liquidity This section identifies potential liquidity sources and discusses market factors that could impact funding costs - Primary liquidity sources include borrowings available under credit facilities, Master Repurchase Facilities, and monthly mortgage payments from borrowers[406] - Overall market uncertainty, rising inflation, and high interest rates temper loan financing markets, potentially increasing funding costs and margin calls[405] Bank Credit Facilities This section describes the company's revolving credit facility, including its size, maturity, interest rates, and covenant compliance - The Company has a revolving credit facility of up to $165.0 million, maturing January 31, 2026 (extendable to January 31, 2027), with interest accruing at adjusted SOFR plus 2.25% or a base rate plus 1.25%[408][410][411] - As of June 30, 2025, the Company was in compliance with all financial covenants under the Credit Agreement[414] Master Repurchase Facilities This section details the company's Master Repurchase Facilities, used to finance first mortgage loans and senior loan participations - The Company has Master Repurchase Facilities totaling up to $2.0 billion to finance first mortgage loans and senior loan participations[415] Master Repurchase Facilities Summary (in Thousands) | Bank | Maximum Facility Size | Current Borrowings | Weighted Average Interest Rate | | :----- | :-------------------- | :----------------- | :----------------------------- | | Bank 1 | $600,000 | $346,923 | SOFR + 2.43% | | Bank 2 | $600,000 | $159,128 | SOFR + 2.01% | | Bank 3 | $400,000 | $235,466 | SOFR + 1.71% | | Bank 4 | $400,000 | $48,212 | SOFR + 1.79% | | Total | $2,000,000 | $789,729 | | - Current borrowings under Master Repurchase Facilities increased from $733.5 million at March 31, 2025, to $789.7 million at June 30, 2025[417] Securitizations This section explains the company's use of non-recourse securitizations to finance mortgage loans and generate cash for new investments - The Company utilizes non-recourse long-term securitizations (e.g., BRSP 2021-FL1 and BRSP 2024-FL2) to finance mortgage loans and generate cash for new investments[418][419][422] - BRSP 2021-FL1 had $534.5 million UPB of CRE debt investments at June 30, 2025, with proceeds from repayments used to amortize securitization bonds[420] - BRSP 2024-FL2 had $675.0 million UPB of CRE debt investments at June 30, 2025, with unused proceeds fully utilized during the six-month ramp-up acquisition period[423] - The Company did not fail any note protection tests for BRSP 2021-FL1 or BRSP 2024-FL2 during the six months ended June 30, 2025[421][424] Other potential sources of financing This section lists additional potential future financing sources, including warehouse facilities and debt/equity issuances - Future financing sources may include additional warehouse facilities, public/private secured and unsecured debt issuances, equity/equity-related securities, and syndication of whole loan interests[425] Liquidity Needs This section outlines the company's contractual obligations and commitments, categorizing them by due date Contractual Obligations and Commitments (in Thousands) | Obligation Type | Total | Less than a Year | 1-3 Years | 3-5 Years | More than 5 Years | | :------------------------ | :-------- | :--------------- | :-------- | :-------- | :---------------- | | Bank credit facility | $1,238 | $413 | $825 | — | — | | Secured debt | $1,344,344 | $849,350 | $146,908 | $117,239 | $230,847 | | Securitization bonds payable | $1,035,435 | $849,469 | $151,894 | $34,072 | — | | Ground lease obligations | $24,645 | $3,185 | $5,881 | $4,231 | $11,348 | | Office leases | $5,047 | $1,316 | $2,677 | $1,054 | — | | Lending commitments | $111,502 | | | | | - Total contractual obligations and commitments amount to $2.52 billion, with $1.70 billion due within one year[426] Share Repurchases This section details the company's stock repurchase program, including authorized amounts and shares repurchased during the quarter - In April 2025, the board authorized a new Stock Repurchase Program for up to $50.0 million of Class A common stock until April 30, 2026[429] - During Q2 2025, the Company repurchased 0.8 million shares for $4.0 million, with $47.1 million remaining available under the program as of June 30, 2025[430] Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities for the reported periods Operating Activities This section details net cash provided by operating activities and the primary reasons for its change year-over-year - Net cash provided by operating activities decreased by $19.5 million (YoY) to $27.9 million for the six months ended June 30, 2025, primarily due to lower net interest income[432][434] Investing Activities This section analyzes net cash used in or provided by investing activities, highlighting the impact of loan originations and repayments - Investing activities used net cash of $68.2 million for the six months ended June 30, 2025, a significant shift from providing $146.3 million in the prior year[432][437][439] - This change was primarily driven by $210.7 million in loan originations and fundings, partially offset by $146.4 million in loan repayments[437] Financing Activities This section details net cash used in financing activities, including credit facility and securitization bond repayments, and common stock distributions - Financing activities used net cash of $158.6 million for the six months ended June 30, 2025, a decrease from $267.2 million in the prior year[432][441][442] - Key outflows included $111.7 million in credit facility repayments, $106.0 million in securitization bond repayments, and $41.6 million in common stock distributions, partially offset by $116.2 million in credit facility borrowings[441] Our Investment Strategy This section outlines the company's investment objective to generate risk-adjusted returns through cash distributions and capital preservation - The Company's objective is to generate consistent and attractive risk-adjusted returns through cash distributions and capital preservation, leveraging a flexible investment strategy that adapts to economic cycles[443][444] - The strategy focuses on originating and structuring CRE senior loans, selective mezzanine loans and preferred equity, and operating net leased real estate investments[446] Underwriting, Asset and Risk Management This section describes the company's rigorous underwriting, active asset management, and portfolio diversification strategies for risk mitigation - The Company employs a rigorous asset-level due diligence process and active asset management, including evaluating ESG standards, to monitor and manage risks[445][447] - Risk management includes portfolio diversification to avoid excessive concentration in any single borrower, sector, or region, and proactive credit quality reviews[447][449] Inflation This section discusses the company's sensitivity to interest rates over inflation and how multifamily leases mitigate inflation risks - The Company's performance is more sensitive to interest rates than inflation, with multifamily property leases often including monthly or annual rent increases to mitigate inflation risks[451] Critical Accounting Estimates This section confirms no material changes to the company's critical accounting estimates from its prior annual report - There have been no material changes to the Company's critical accounting estimates as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024[453] Recent Accounting Updates This section notes the company's evaluation of new accounting standards related to income taxes and business combinations - The Company is evaluating the impact of ASU No. 2023-09 (Income Taxes) and ASU No. 2025-03 (Business Combinations and Consolidation), effective for periods beginning after December 15, 2024, and May 2025, respectively[131][132] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to various market risks, including interest rate, prepayment, extension, credit, real estate market, capital market, and foreign currency risks, and outlines strategies for managing these exposures Interest Rate Risk Interest rate risk stems from fluctuations in market interest rates, affecting financial instrument cash flows and credit curve spreads - A hypothetical 100 basis point increase or decrease in the applicable interest rate benchmark on the loan portfolio would increase or decrease interest income by $5.4 million annually, net of interest expense[458] - The Company may use financial instruments like interest rate swaps, caps, and floors to limit interest rate fluctuation effects, though these carry risks[457] Prepayment risk Prepayment risk is the risk that principal will be repaid at a different rate than anticipated, impacting returns on investments - Increased prepayment rates accelerate amortization of purchase premiums (reducing interest income) and accretion of purchase discounts (increasing interest income)[459] Extension risk Extension risk arises if prepayment rates decrease or extension options are exercised, prolonging the life of fixed-rate assets beyond secured debt terms, potentially impacting liquidity and incurring losses - Extension risk arises if prepayment rates decrease or extension options are exercised, prolonging the life of fixed-rate assets beyond secured debt terms, potentially impacting liquidity and incurring losses[460] Credit risk Investment in loans carries high credit risk from defaults, influenced by borrower financial condition, property performance, and economic factors - Investment in loans carries high credit risk from defaults, influenced by borrower financial condition, property performance, and economic factors[461] - Credit risk is managed through rigorous underwriting, appropriate asset pricing, and continuous monitoring of loan and tenant performance[461][462][464] Real estate market risk The Company is exposed to volatility in commercial real estate market values due to national, regional, and local economic conditions, affecting occupancy, capitalization, and absorption rates - The Company is exposed to volatility in commercial real estate market values due to national, regional, and local economic conditions, affecting occupancy, capitalization, and absorption rates[466] Capital markets risk The Company faces risks related to debt capital markets, particularly the ability to finance through borrowings under secured facilities - The Company faces risks related to debt capital markets, particularly the ability to finance through borrowings under secured facilities[467] - Master Repurchase Facilities are partial recourse, with margin call provisions limited to collateral-specific credit marks; no margin calls were received during the six months ended June 30, 2025[468] Foreign Currency Risk The Company previously had foreign currency rate exposures from foreign currency-denominated investments, mitigated by currency hedging instruments like put options - The Company previously had foreign currency rate exposures from foreign currency-denominated investments, mitigated by currency hedging instruments like put options[470] - As of June 30, 2025, the Company had no foreign exchange contracts in place[471] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the most recent fiscal quarter Evaluation of Disclosure Controls and Procedures As of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective - As of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective[473] Changes in Internal Control over Financial Reporting There have been no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting - There have been no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[474] PART II—Other Information This section provides additional information including legal proceedings, risk factors, equity sales, defaults, and recent tax legislation Item 1. Legal Proceedings The Company is not currently involved in any material legal proceedings and does not anticipate any such actions to have a material adverse effect on its financial position, results of operations, or cash flow - The Company is not currently subject to any material legal proceedings[477] Item 1A. Risk Factors This section refers readers to the comprehensive risk factors detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, noting no material changes to these risks - There have been no material changes to the risk factors relating to the Company disclosed in its Form 10-K for the year ended December 31, 2024[478] Item 2. Unregistered Sales of Equity and Use of Proceeds This section reports no unregistered sales of equity securities and provides a summary of common stock repurchases made by the issuer during the quarter ended June 30, 2025 Purchases of Equity Securities by Issuer This section details the company's common stock repurchases during the quarter, including the number of shares and average price paid Common Stock Repurchases (in Thousands, Except Per Share Data) | Period | Total number of shares purchased | Average price paid per share | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs | | :----------------- | :------------------------------- | :--------------------------- | :------------------