brsp-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38377

BRIGHTSPIRE CAPITAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

38-4046290

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

590 Madison Avenue, 33rd Floor

New York, NY 10022

(Address of Principal Executive Offices, Including Zip Code)

(212) 547-2631

(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.01 per share

BRSP

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

As of November 2, 2021, BrightSpire Capital, Inc. had 129,764,822 shares of Class A common stock, par value $0.01 per share, outstanding

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BRIGHTSPIRE CAPITAL, INC.

FORM 10-Q

TABLE OF CONTENTS


Index		Page

Part I.		4
Item 1.	Financial Information	4
	Financial Statements	4
	Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020	4
	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2021 and 2020	6
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2021 and 2020	7
	Consolidated Statements of Equity (unaudited) for the three and nine months ended September 30, 2021 and 2020	8
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2021 and 2020	10
	Notes to Consolidated Financial Statements (unaudited)	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	69
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	101
Item 4.	Controls and Procedures	103
Part II.	Other Information	105
Item 1.	Legal Proceedings	105
Item 1A.	Risk Factors	105
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	105
Item 3.	Defaults Upon Senior Securities	105
Item 4.	Mine Safety Disclosures	105
Item 5.	Other Information	105
Item 6.	Exhibits	106
Signatures

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies, many of which are beyond our control, and may cause actual results to differ significantly from those expressed in any forward-looking statement.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company, its borrowers and tenants, the real estate market and the global economy and financial markets. The extent to which the COVID-19 pandemic impacts us, our borrowers and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the availability and acceptance of effective vaccines, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Among others, the following uncertainties and other factors could cause actual results to differ from those set forth in the forward-looking statements:

•operating costs and business disruption may be greater than expected;

•the novel coronavirus pandemic, measures intended to prevent its spread and government actions to mitigate its economic impact have had and may continue to have a material adverse effect on our business, results of operations and financial condition;

•we depend on borrowers and tenants for a substantial portion of our revenue and, accordingly, our revenue and our ability to make distributions to stockholders will be dependent upon the success and economic viability of such borrowers and tenants;

•deterioration in the performance of the properties securing our investments (including depletion of interest and other reserves or payment-in-kind concessions in lieu of current interest payment obligations) that may cause deterioration in the performance of our investments and, potentially, principal losses to us (including, but not limited to, the Los Angeles mixed-use development loan, other hospitality loans and Dublin development financings);

•the fair value of our investments may be subject to uncertainties or decrease;

•our ability to realize the anticipated benefits from the internalization of management following the termination of our relationship with our former external manager;

•the ability to realize substantial efficiencies as well as anticipated strategic and financial benefits, including, but not limited to expected returns on equity and/or yields on investments;

•adverse impacts on our corporate revolver, including covenant compliance and borrowing base capacity;

•adverse impacts on our liquidity, including margin calls on master repurchase facilities, debt service or lease payment defaults or deferrals, demands for protective advances and capital expenditures;

•our real estate investments are relatively illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions, which may result in losses to us;

•the timing of and ability to deploy available capital;

•we have not established a minimum distribution payment level, and we cannot assure you of our ability to pay distributions in the future;

•the timing of and ability to complete repurchases of our stock;

•we are subject to risks associated with obtaining mortgage financing on our real estate, which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to stockholders;

•the impact of legislative, regulatory, tax and competitive changes and the actions of governmental authorities, and in particular those affecting the commercial real estate finance and mortgage industry or our business.

The foregoing list of factors is not exhaustive. We urge you to carefully review the disclosures we make concerning risks in the sections entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, the section entitled “Risk Factors” in our Form 10-Q for the quarter ended September 30, 2021 herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

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We caution investors not to unduly rely on any forward-looking statements. The forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. The Company is under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q, nor to conform prior statements to actual results or revised expectations, and the Company does not intend to do so.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(in Thousands, Except Share and Per Share Data)


	September 30, 2021 (Unaudited)		December 31, 2020
Assets
Cash and cash equivalents	$	208,711	$	474,817
Restricted cash	70,304		65,213
Loans and preferred equity held for investment	3,166,236		2,220,688
Allowance for loan losses	(42,730)		(37,191)
Loans and preferred equity held for investment, net	3,123,506		2,183,497
Real estate securities, available for sale, at fair value	3,945		10,389
Real estate, net	791,946		839,257
Investments in unconsolidated ventures ($4,848 and $6,883 at fair value, respectively)	204,428		373,364
Receivables, net	57,789		37,375
Deferred leasing costs and intangible assets, net	67,316		75,700
Assets held for sale	44,218		323,356
Other assets	66,051		60,900
Mortgage loans held in securitization trusts, at fair value	840,341		1,768,069
Total assets	$	5,478,555	$	6,211,937
Liabilities
Securitization bonds payable, net	$	1,500,223	$	835,153
Mortgage and other notes payable, net	764,731		1,022,757
Credit facilities	558,462		535,224
Due to related party (Note 10)	—		10,060
Accrued and other liabilities	92,341		96,578
Intangible liabilities, net	6,574		7,657
Liabilities related to assets held for sale	—		323
Escrow deposits payable	54,866		36,973
Dividends payable	21,234		—
Mortgage obligations issued by securitization trusts, at fair value	800,831		1,708,534
Total liabilities	3,799,262		4,253,259
Commitments and contingencies (Note 16)
Equity
Stockholders’ equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively	—		—
Common stock, $0.01 par value per share
Class A, 950,000,000 shares authorized, 129,759,132 and 128,564,930 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively	1,298		1,286
Additional paid-in capital	2,854,626		2,844,023
Accumulated deficit	(1,468,231)		(1,234,224)
Accumulated other comprehensive income	44,886		54,588
Total stockholders’ equity	1,432,579		1,665,673
Noncontrolling interests in investment entities	213,243		253,225
Noncontrolling interests in the Operating Partnership	33,471		39,780
Total equity	1,679,293		1,958,678
Total liabilities and equity	$	5,478,555	$	6,211,937

The accompanying notes are an integral part of these consolidated financial statements (unaudited).

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED BALANCE SHEETS

(in Thousands)

The following table presents assets and liabilities of securitization trusts and certain real estate properties that have noncontrolling interests as variable interest entities for which the Company is determined to be the primary beneficiary.


	September 30, 2021 (Unaudited)		December 31, 2020
Assets
Cash and cash equivalents	$	10,983	$	19,248
Restricted cash	13,456		15,397
Loans and preferred equity held for investment, net	1,729,782		919,681
Real estate, net	405,108		413,057
Investments in unconsolidated ventures	199,279		252,384
Receivables, net	42,905		25,127
Deferred leasing costs and intangible assets, net	46,302		52,240

Other assets	22,697		21,984
Mortgage loans held in securitization trusts, at fair value	840,341		1,768,069
Total assets	$	3,310,853	$	3,487,187
Liabilities
Securitization bonds payable, net	$	1,500,223	$	835,153
Mortgage and other notes payable, net	377,138		399,337

Accrued and other liabilities	72,869		98,576
Intangible liabilities, net	6,574		7,657

Escrow deposits payable	5,258		3,591
Mortgage obligations issued by securitization trusts, at fair value	800,831		1,708,534
Total liabilities	$	2,762,893	$	3,052,848

The accompanying notes are an integral part of these consolidated financial statements (unaudited).

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net interest income
Interest income	$	47,082	$	36,391	$	119,377	$	122,003
Interest expense	(14,962)		(13,426)		(40,450)		(50,915)
Interest income on mortgage loans held in securitization trusts	10,806		20,462		41,885		61,556
Interest expense on mortgage obligations issued by securitization trusts	(9,508)		(18,204)		(36,955)		(54,627)
Net interest income	33,418		25,223		83,857		78,017

Property and other income
Property operating income	26,376		41,678		76,897		137,913
Other income	946		30		2,101		1,079
Total property and other income	27,322		41,708		78,998		138,992

Expenses
Management fee expense	—		7,083		9,596		22,235
Property operating expense	7,266		15,277		22,135		54,119
Transaction, investment and servicing expense	1,086		1,627		4,018		7,668
Interest expense on real estate	7,968		12,205		24,378		37,101
Depreciation and amortization	8,850		14,770		28,383		46,766
Provision for loan losses	769		10,404		5,194		80,285
Impairment of operating real estate	—		3,451		—		33,512
Administrative expense (including $2,695, $1,376, $12,379 and $3,268 of equity-based compensation expense, respectively)	11,812		5,780		38,460		19,569
Restructuring charges	—		—		109,321		—
Total expenses	37,751		70,597		241,485		301,255

Other income (loss)
Unrealized gain (loss) on mortgage loans and obligations held in securitization trusts, net	3,867		(13,162)		32,021		(41,589)
Realized loss on mortgage loans and obligations held in securitization trusts, net	(3,867)		—		(23,383)		—
Other gain (loss), net	3,309		9,680		12,512		(130,115)
Income (loss) before equity in earnings of unconsolidated ventures and income taxes	26,298		(7,148)		(57,480)		(255,950)
Equity in earnings (loss) of unconsolidated ventures	(95,977)		(1,779)		(132,243)		(69,889)
Income tax benefit (expense)	(2,065)		15,357		(130)		11,544
Net income (loss)	(71,744)		6,430		(189,853)		(314,295)
Net (income) loss attributable to noncontrolling interests:
Investment entities	61		(1,222)		3,746		6,362
Operating Partnership	1,626		(201)		4,016		7,109
Net income (loss) attributable to BrightSpire Capital, Inc. common stockholders	$	(70,057)	$	5,007	$	(182,091)	$	(300,824)

Net income (loss) per common share - basic and diluted (Note 18)	$	(0.54)	$	0.04	$	(1.42)	$	(2.34)

Weighted average shares of common stock outstanding - basic and diluted (Note 18)	128,693		128,583		128,430		128,537

The accompanying notes are an integral part of these consolidated financial statements (unaudited).

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in Thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income (loss)	$	(71,744)	$	6,430	$	(189,853)	$	(314,295)
Other comprehensive income (loss)
Unrealized gain (loss) on real estate securities, available for sale	—		4,291		(200)		(12,228)
Change in fair value of net investment hedges	—		—		—		21,764
Foreign currency translation gain (loss)	(3,900)		12,656		(10,219)		4,315
Total other comprehensive income (loss)	(3,900)		16,947		(10,419)		13,851
Comprehensive income (loss)	(75,644)		23,377		(200,272)		(300,444)
Comprehensive (income) loss attributable to noncontrolling interests:
Investment entities	(58)		(2,138)		4,067		5,189
Operating Partnership	1,719		(519)		4,413		7,091
Comprehensive income (loss) attributable to common stockholders	$	(73,983)	$	20,720	$	(191,792)	$	(288,164)

The accompanying notes are an integral part of these consolidated financial statements (unaudited).

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BRIGHTSPIRE CAPITAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(in Thousands)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income		Total Stockholders’ Equity		Noncontrolling Interests in Investment Entities		Noncontrolling Interests in the Operating Partnership		Total Equity
	Class A
	Shares	Amount






























Balance as of December 31, 2019	128,539	$	1,285	$	2,909,181	$	(819,738)	$	28,294	$	2,119,022	$	31,631	$	50,697	$	2,201,350

Distributions	—	—		—		—		—		—		(11,013)		—		(11,013)
Issuance and amortization of equity-based compensation	—	—		342		—		—		342		—		—		342
Other comprehensive income	—	—		—		—		(70,999)		(70,999)		—		(1,702)		(72,701)
Dividends and distributions declared ($0.30 per share)	—	—		—		(38,541)		—		(38,541)		—		(922)		(39,463)
Shares canceled for tax withholding on vested stock awards	(173)	(1)		(1,686)		—		—		(1,687)		—		—		(1,687)
Reallocation of equity	—	—		(41)		—		—		(41)		—		41		—
Costs of noncontrolling equity	—	—		—		—		—		—		—		—		—
Investment by JV partner in consolidated JV and equity reallocation related to that partner's return (see Note 2)	—	—		—		—		—		—		—		—		—
Effect of CECL Adoption (see Note 2)	—	—		—		(22,644)		—		(22,644)		—		(542)		(23,186)
Net income (loss)	—	—		—		(78,772)		—		(78,772)		523		(1,892)		(80,141)
Balance as of March 31, 2020	128,366	$	1,284	$	2,907,796	$	(959,695)	$	(42,705)	$	1,906,680	$	21,141	$	45,680	$	1,973,501

Contributions	—	—		—		—		—		—		200,467		—		200,467
Distributions	—	—		—		—		—		—		(3,156)		—		(3,156)
Issuance and amortization of equity-based compensation	237	2		1,547		—		—		1,549		—		—		1,549
Other comprehensive income	—	—		—		—		67,946		67,946		257		1,404		69,607
Dividends and distributions declared ($0.10 per share)	—	—		—		—		—		—		—		—		—
Shares canceled for tax withholding on vested stock awards	(20)	—		(81)		—		—		(81)		—		—		(81)
Reallocation of equity	—	—		1,777		—		—		1,777		—		(1,777)		—
Costs of noncontrolling equity	—	—		(466)		—		—		(466)		—		—		(466)
Investments by JV partner in consolidated JV and equity reallocation to that partner's return (see Note 2)	—	—		(70,439)		—		—		(70,439)		70,439		—		—
Net income (loss)	—	—		—		(227,059)		—		(227,059)		(8,107)		(5,418)		(240,584)
Balance as of June 30, 2020	128,583	$	1,286	$	2,840,134	$	(1,186,754)	$	25,241	$	1,679,907