BrightSpire Capital, Inc. Q1 FY2021 Earnings Call

Greetings. Welcome to the Colony Credit Real Estate Incorporated First Quarter 2021 Earnings 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 were provided. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Palamé, General Counsel. Thank you, David. You may begin.

Good afternoon, and welcome to Colony Credit Real Estate, Inc.'s first quarter and full year 2021 earnings conference call. We will refer to Colony Credit Real Estate, Inc. as CLNC, Colony Credit Real Estate, Colony Credit 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 potential adverse effect of and heightened risks 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, May 05, 2021, unless otherwise indicated 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 afternoon 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 would like to turn the call over to Mike Mazzei, President and Chief Executive Officer of Colony Credit Real Estate. Mike?

Thank you, David. Welcome to our first quarter earnings call. On behalf of the CLNC team, I would like to start by wishing everyone well and I thank you for joining us today. We are off to a very productive start in 2021 and we are incredibly excited about embarking on a new chapter for Colony Credit Real Estate. On April 5, we announced that CLNC had entered into an agreement with our external manager Colony Capital to terminate the management agreement and internalize the company's management and operating functions. This transaction was successfully completed on April 30. The CLNC team is appreciative of the support and recognition it has received from Colony Capital, who continues as our largest shareholder. By taking this step, Colony Capital has unlocked value for CLNC shareholders by allowing this management team to chart its own course in this next stage. We also thank our CLNC board members, who have invested tremendous time and focus as we worked through this process. Additionally, we are also very proud to announce today Independent Director, Cathy Rice, has assumed the position as the chairperson of our board of directors. We look forward to Ms. Rice's continued guidance and leadership. The internalization provides CLNC shareholders tremendous value enhancement. The self-managed structure will considerably reduce CLNC's expenses and be significantly accretive to earnings in 2021. This use of capital will provide a permanent return on equity in the mid-teens. This succeeds the equity returns we target on loan investments by at least several hundred basis points. Furthermore, this transaction provides CLNC with important governance benefits as well as increased certainty and control over the company's future strategic direction. CLNC is now positioned as one of the few internally managed public commercial mortgage REITs. We feel strongly that being internally managed is simply a better structure for public shareholders. The internalized structure results in a more transparent organizational model. It provides a dedicated employee base that will focus exclusively on CLNC and be fully aligned with the company and its shareholders. Our CFO, Frank Saracino, will provide additional details regarding the internalization in his remarks. During this last quarter, we have continued to steadily redeploy capital into floating rate first mortgage loans. Since commencing with new transactions in the fourth quarter of 2020, we have closed or committed on 31 loans for approximately $1 billion. As we emerged from the pandemic, the commercial real estate lending markets have begun to stabilize. And while lending has become a bit more competitive, we are concurrently seeing pricing improvements on the liability and financing side of the balance sheet resulting in lower cost of funds. Also given the improvements we are seeing from the reopening of the U.S. economy, we are expanding our lending focus beyond multifamily and suburban office. Turning now to some key financial headlines. For the first quarter, we had adjusted distributable earnings of $0.14 a share. Our current liquidity as of May 3 is $443 million. As we continue to work very closely with all borrowers who have been most impacted by COVID-19, we maintain what we believe to be sufficient liquidity to navigate through the lingering effects of the pandemic. With respect to our dividend, our board of directors has approved an increase in our second quarter dividend from $0.10 to $0.14 a share. This is the product of the cost savings achieved from the internalization as well as the continued successful execution of our business plan and resulting growth in earnings. We will continue to closely review our dividend policy as earnings increase. The CLNC team continues to make progress executing on the stated business plan. Now I would like to provide a recap of where we are and where we are planning to go in 2021. The management internalization is complete and we will now begin to transition operational functions to CLNC. Since returning to active lending in the fourth quarter, we have sourced approximately $1 billion of new loans. And as such, we have recently initiated the process for the issuance of our second CLO. Most importantly, as we have continued to deploy existing cash and grow earnings, we have thus reinstated and have now increased our dividend. For the remainder of 2021, we will look to put the pandemic further behind us and work to resolve any remaining underperforming or non-earning assets. This last step will also allow us to repatriate capital into the deployment for new loans. Our success around these 2021 initiatives will lead to further earnings growth and the expansion of our dividend. We believe these steps will lead to closing the gap between our current market share price and book value. In closing, I would again like to thank my CLNC partners for their many achievements of this past year. I also again thank Colony Capital and our CLNC board members for their commitment and support as evidenced by this transformative event. I would like to now turn the call over to our Chief Operating Officer, Andy Witt. Andy?

Thank you, Mike, and good afternoon everyone. The company remains focused on managing the balance sheet and continuing to build earnings and simplifying the business. Over the course of 2020 and through today, CLNC has meaningfully simplified the business. The first quarter results are consolidated as we are no longer reporting the legacy non-strategic assets as a separate segment. This portion of our portfolio is now insignificant relative to the overall portfolio. As such we've eliminated the segment from our reporting and realigned the reporting segments to reflect how we view and manage the business. The business is now presented as one portfolio comprised of the following segments. One, senior and mezzanine loans and preferred equity; two, net leased real estate and other real estate; three, CRE debt securities; and four, corporate. As of March 31, 2021, excluding cash and net assets on the balance sheet, senior and mezzanine loans and preferred equity is comprised of 64 investments in an aggregate at-share net book value of approximately $1 billion or 81% of the portfolio. This is the segment of the portfolio we anticipate allocating the majority of our capital towards as we continue to build company earnings. Net leased real estate and other real estate is comprised of 12 investments in an aggregate at-share net book value of approximately $162 million or 13% of the portfolio. The net lease assets remain core to our investment strategy due to the long-term stable cash flows they provide in addition to the potential for capital appreciation. The cash flows generated from this segment of our portfolio are often associated with mission critical infrastructure leased to credit tenants. CRE debt securities segment which includes one remaining private equity interest is comprised of 10 positions and an aggregate at-share net book value of $79 million or 6% of the portfolio. Subsequent to quarter end, the company sold four CMBS positions related to one B-piece transaction for a total of $29 million resulting in a gain of approximately $9 million, further reducing the company's exposure to this segment. We anticipate little activity in this part of our portfolio as the majority of the remaining value in this reporting segment is associated with bonds subject to risk retention provisions. Although the company holds real estate credit investments across a number of investment strategies, our primary strategy remains originating first mortgages as evidenced by recent investment activity. During the first quarter and through today, the team has originated 18 new senior loans with an aggregate commitment of $554 million; all of these investments are first mortgages, the majority of which are acquisition financing consistent with our stated strategy of reorienting the portfolio toward current and predictable cash flows. The blended unlevered yield on our loan book is approximately 5.3% with an average loan size of $43 million. Importantly, the loan portfolio remains diversified in terms of size, collateral type and geography with a focus on multifamily and office properties. It is important to note the portfolio contains certain non-accrual assets, which are not contributing to earnings. We anticipate restructuring or repatriating capital associated with five investments comprised of seven loans on non-accrual status, which accounts for an at-share carrying value of approximately $296 million. Of this amount $165 million is associated with the San Jose, California Hotels senior loan and preferred equity investment that was placed on non-accrual during the first quarter. During the first quarter, the borrower closed the hotel and filed Chapter 11 bankruptcy. We have entered into a restructuring support agreement with the borrower. Additional details will be included in the asset specific summary section of the company's Form 10-Q filing. Resolving these positions will allow the company to redeploy this capital into investments contributing to earnings. On the liability side of the balance sheet we amended our bank credit facility to permit the internalization. As part of the amendment we reduced the tangible net worth covenants, increased our ability to make restricted payments such as dividends and stock buybacks, removed material restrictions on new investments, increased the maximum amount available for borrowing to 100% of the borrowing base value and reduced the aggregate amount of lender commitments from $450 million to $300 million. In addition, the company amended six master repurchase facilities to permit the internalization and reduce the tangible net worth covenant, along with extending the maturity on four master repurchase facilities. Lastly, our $1 billion managed CLO executed in October 2019, continues to perform and benefit from LIBOR floors at the underlying loan level. We continue to monitor the performance of the CLO which includes managing ordinary course loan payoffs. While some of our newly originated loans will replace prepayments in our existing CLO we are planning to issue our second CLO in the relatively near term assuming suitable market conditions. In summary, the company continues to focus on the existing portfolio, while building and executing on a pipeline of new origination opportunities. For the remainder of the year, we anticipate deploying cash on the balance sheet and repatriating and redeploying capital associated with non-accrual assets in order to drive earnings growth, to support increasing dividend payments to shareholders. With that, I will turn the call over to our Chief Financial Officer, Frank Saracino to elaborate on the first quarter results.

Thank you, Andy, and good afternoon, everyone. Before discussing our first quarter results, I want to mention that we expect to file our 10-Q tomorrow. In addition, I would like to draw your attention to our supplemental financial report, which is available on our website. The supplement continues to provide asset-by-asset details as does our Form 10-Q. With that let's turn to our first quarter results. CLNC reported our first quarter 2021 total company GAAP net loss attributable to common shareholders of $92.3 million or $0.71 per share and distributable earnings of $13.8 million or $0.10 per share. Excluding realized gains and losses and fair value and other adjustments total company adjusted distributable earnings were $18 million or $0.14 per share. The GAAP net loss attributable to common shareholders of $92.3 million reflects our recording of $109.2 million in restructuring charges, and restructuring charges include a one-time cash payment of $102.3 million to terminate the management contract as well as transaction expense. During the first quarter, total GAAP net book value decreased from $12.96 to $11.98 per share and undepreciated book value decreased from $14.14 to $12.84 per share. This change is primarily due to the upfront cash investment made to terminate the contract with our external manager. As expected first quarter 2021 adjusted distributable earnings came in lower than our 4Q 2020 results, $26.1 million or $0.20 per share. The difference is primarily a result of our first quarter sale of our net lease industrial portfolio, fourth quarter resolution of legacy non-strategic assets, the timing or ramp of new loan originations and the placing on non-accrual of the San Jose, California hotel investment that Andy mentioned earlier. Looking ahead, we expect earnings growth from these levels as we recognize a full quarter of income from first quarter loan originations of $475 million, deploy idle cash and realize the cost benefits of the internalization. Which brings me to my next point; as Mike mentioned at the top of the call, perhaps our most significant achievement for CLNC so far this year is the completion of the transaction with our external manager to internalize the company's management and key operating functions. We believe this internalization will provide meaningful benefits and significantly enhance shareholder value in a number of ways. First, the transition to a self-managed structure is expected to be considerably accretive to earnings and reduce the company's general and administrative expenses. Excluding one-time termination charges payable to the manager totaling $102.3 million, we anticipate generating operating cost savings of approximately $14 million to $16 million per year, or approximately $0.10 to $0.12 per share. In addition to providing management continuity from CLNC's existing leadership team, the internalized structure also offers a more transparent organizational model as well as a dedicated employee base, which will focus exclusively on CLNC. All that said, we believe that the economics of this transaction along with the certainty and focus it creates for our newly dedicated team will lead to greater shareholder value. Another important highlight is on the dividend front. After reinitiating the dividend last quarter, I am pleased that our Board of Directors has authorized the substantial increase for the second quarter. Given our improved financial position, operating performance, business outlook, and cost savings from the internalization we declared a dividend of $0.14 per share for the second quarter of 2021. This represents an increase of 40% from last quarter's $0.10 per share. The second quarter dividend is payable on July 15th to shareholders of record as of June 30th. The expanding dividend provides further evidence of the Board's confidence in our ability to generate distributable earnings growth as we emerged from the pandemic and economic conditions continue to improve. As Mike mentioned, we will continue to evaluate our dividend quarterly. Moving to our balance sheet; our total at-share assets stood at approximately $4.1 billion as of March 31, 2021. Our debt-to-assets ratio was 55% and net debt-to-equity ratio was 1.1 times at the end of the first quarter. This is relatively unchanged compared to the fourth quarter. In addition, our liquidity stands at approximately $443 million between cash on hand and availability under our bank credit facility. Turning to risk ranking. Our overall risk ranking at the end of the first quarter improved slightly compared to the fourth quarter. Our first quarter risk ranking is 3.6 as compared to 3.7 at the end of the prior quarter. Finally, at the end of the first quarter, our CECL provision was $41.7 million and represents approximately 1.5% reserved against our loans. This is a slight increase of approximately $3.2 million as compared to the prior quarter. The difference is primarily driven by new originations. This concludes our prepared remarks. And with that, let's open the call up for questions. Operator?

Thank you. We will now be conducting a question-and-answer session. Operator instructions were provided. Thank you. Our first question comes from Matthew Howlett with B. Riley. Please proceed with your question.

Hi. Thanks everyone. Thanks for taking my question and congratulations. Mike, could you spend just a few more minutes now that you've sort of taken this company back, you're going to run the company, now you've taken it back. You talked about unlocking value. It's yours – it's the employees – you talk a little bit about the vision – your vision for the company going forward a little bit more and how you're going to create shareholder value. Just a little bit more – just a few minutes just talk about what the long-term plan is?

Thank you, Matt, and welcome – welcome to our coverage universe. I look forward to working with you. So the vision is — the vision can be a long answer. Let me start by kind of giving you a summary of where we are right now. So where we are, is in terms of earnings we're at the trough part of the earnings growth. Why are we at a trough? We're at a trough because we have peak liquidity, right? We've had more cash than we've ever had, and we're working it down. We're starting to originate loans. We've originated $1 billion and so that is going to pull us out of the trough as well. The internalization has provided, as Frank mentioned, the economics in terms of adding to earnings. And then we mentioned that we are starting a process for what will be our second CLO probably sometime in the early third quarter. And we've now identified assets and I spoke about this in my remarks, these underperforming assets or non-earning assets that we're going to be focusing on largely due to COVID-impacted assets. So that's where we are in terms of right now and why we feel like we're on the trough of earnings and coming out. In terms of the vision, I hate to disappoint you it's kind of simple. We want to transition this balance sheet and this company to becoming a peer and what we consider the best-in-class commercial mortgage REIT in our set. Now, I'm not going to tell you who I think the best-in-class is or don't want to insult anybody by leaving them out. We want to evolve this balance sheet into more of a pure-play commercial mortgage balance sheet with predictable earnings and predictable credit going forward. This management team has signed on for trying to accomplish this in 2021 fully and this is our eight month goal. How we do it — we have to obviously grow our earnings. We have to improve our ROA and this really also largely entails the rotation of the asset base and continuing to rotate the asset base as we've been doing mostly into first mortgage bridge loans. So now how — that's kind of the what? We want to be best among the best-in-class, pure-play commercial mortgage REIT and the how we get there. We continue to deploy cash into first mortgages and selective mezzanine and expand the property types that we're looking at. We've done $1 billion so far, and we continue to evolve the balance sheet into a pure-play commercial mortgage vehicle. I think 90% of what we've done out of the 30-plus loans has been multifamily acquisition loans, average loan size around $30-ish million. We mentioned again, we want to execute on our second CLO to move into non-recourse financing that will probably also boost earnings a few cents. We looked to tee that up now for the mid-summer and hopefully get another one done. Maybe late Q4 or very early in Q1 next year. And then the balance of that is really what I would call the game changer for CLNC in 2021. And the game changer is turning the current non-earning assets around. And we can do that in a couple of ways. One, we could simply get assets off the bench and on the field and producing revenue again, and financed again. Fairmont San Jose is a great example of that. It's an asset where the borrower is in bankruptcy, the loans are non-accrual, we're pulling it off of its financings. And so if we could turn that asset into an earning asset again and get it financed, that means a lot. We're working closely with that borrower. Another way is just simply repatriating capital on non-earning assets by monetizing them in some way. Then we invest the monetized proceeds into new loans. An example of that would be Century Plaza. They're in the process of trying to sell the hotel at Century Plaza right now and the condo towers are being completed. If that hotel is successfully sold, it'll pay down the debt substantially and may unlock value for us and the ability to monetize. So this last step of dealing with the non-earning assets is really the full game: you're turning assets into earning assets, or you're turning cash into new assets. And the result is on the cash balance side, it gives you more visibility into the cash that you no longer need to defend these assets. Once you're able to understand that, you then unlock that cash and invest it. We're no longer sitting on too much idle cash, and it gives us the confidence to get down to more of an operating level of cash. I'll close with the basic math around that. We want to operate the company, say with two, three CLOs outstanding, a couple of billion dollars. We probably need — call it a bucket per quarter of cash, $125 million of cash plus our undrawn revolver. Right now we're sitting on about $330 million in cash and so if you get that down and you've got $200 million cash to spend, as soon as you know that we're spending part of it now, and we'll spend the rest of it when we know that we've got these assets protected. For example, Century Plaza, which is $97 million in market value, and if you can unbridle that because good things happen at the asset over the course of the summer. Then you've got Fairmont San Jose which in and of itself is $180 million encumbered. If you can get that earning again and then maybe finance it at a 50% advance rate and produce another $90 million in liquidity, you're looking at $200 million plus $100 million plus $90 million — you're looking at close to $400 million in liquidity. And you put a 10.5% or 11% return on that, it's like $0.35 to $0.40 per share. To summarize, and I'm sorry for being long-winded, we want to transition the balance sheet; we are doing that into a pure-play. We want to be best-in-class among our pure peer set. This is the roadmap. We're doing most of it now. We just need to address these non-earning assets and monetize them or get them earning again. That will lock the last portion of our earnings.

I really appreciate it. And you're making great progress. And I don't want to get you to overextend yourself, but with the way the company is structured today — it'll be highly efficient. The shareholders own the management company, they own the origination platform, you mentioned some mid-teens returns, but is there any reason not to think that this company when it is fully ramped and you've turned the portfolio will not have one of the top highest ROIs in the sector?

We're shooting to be in our peer group with ROE. We're sitting on a lot of assets right now, including cash, which are earning nothing. When you look at the rest of our assets, our ROE falls within the peer group. We think the internalization is important for shareholders. Not only does it add to earnings, but it improves the governance, streamlines the governance, makes the company more transparent. We're generating a mid-teens return on that. And yes, our goal is to absolutely close the gap between market value and book value. We think these next quarters in 2021 are key. We've gone through a lot with COVID in terms of raising capital to defend the balance sheet and working on some of the difficult assets that we had. But now we're seeing a path toward higher earnings, getting the dividend up and closing that gap between market value and book value.

I really appreciate it. I'll end here, but I really appreciate and look forward to covering the story.

Thank you. Thank you for asking the question.

Thank you. Our next question comes from Tim Hayes with BTIG. Please proceed with your question.

Hey, good evening guys. Hope you're doing well. My first question focuses around the dividend, and I know it's a Board decision, Mike, but I just want to get a better feel for the decision to increase to $0.14 this quarter, and how to think about it in the next couple of quarters here. So I know that you guys reported adjusted distributable earnings of $0.14 per share, is that the best benchmark for the dividend going forward? Is that adjusted distributable earnings? And then second of all, is the move to the dividend there? I know you said you expect this quarter to be kind of trough earnings, but is the Board expecting adjusted distributable earnings to be covering this $0.14 dividend on a quarterly basis going forward, or is there some growing into that that you expect to kind of happen over the coming quarters?

Thank you, and hello, Tim. There's no growing into it. When you look at it on a cash basis we were able to pay that out of cash. And then again as I earmarked before, with the originations that are closing and coming online, and as we continue to deploy cash that will also increase earnings. Over the next coming quarters, not only deploying cash balances that we've already earmarked out of that $330 million, but really as I laid out earlier the math is we cover the $0.14 and we're looking to get these earnings up with this extra call it $340 million of capital, which could provide $0.35 to $0.40 per share in distributable earnings potential. So the math is pretty basic. We feel like we're in a trough quarter. But we think things are pointing up. We've got the CLO that we'd like to do. Hopefully that enhances the ROE on the assets that we have in place now. The internalization will get fully vetted and absorbed over the coming quarters. We have some upfront accruals that we had to take in this quarter as well for compensation to make that adjustment. So I think this is — I think this is a trough quarter covered out of cash, and I kind of gave you the roadmap for how we think we get it up. It's just a matter of executing on the cash and mainly on those non-earning assets.

Right. Okay. That makes sense. So yes, I guess just based on the trend we saw in the past couple of quarters, is it fair to expect that you will gradually increase the dividend as some of that capital is deployed over time versus like waiting and seeing kind of where stabilized earnings shake out as you make more progress with that initiative, and then kind of resetting the dividend? It's kind of a dumb question. We just saw you do this, but I just want to hear from you guys and make sure I'm thinking about it correctly.

Well, look, to be clear nobody wants to go backwards, so that's not our intention. So I think the steps that we took we feel confident that we're not going to go backwards. And I do think, as I've said, our job is to grow earnings. This is the path to grow earnings. And as we grow earnings, we're going to increase that dividend. We will be cautious in terms of making sure that we don't overstep. We don't want to do that, but I do think that the plan will be — I can't say it will be dollar for dollar, penny for penny, but it will be on that same path. So I do think this is a trough in earnings. And I do think my expectation is we will see dividend growth in the future. But again, when we assess that with the board, we want to make certain that we're not going backwards.

Yes, certainly can appreciate that. Thanks Mike. And then just based — another question on the comment you made earlier about the pipeline. In the past couple of quarters, you've been focusing on first mortgage loans and largely the multifamily space and you mentioned kind of suburban office as well. But it sounds like you're expanding outside of that, expanding that scope a little bit. So can you talk about in what sense you're expanding the scope? Is it asset type? Is it structure? Are you willing to do a little bit more mezzanine than you were a quarter or two ago? Is it leverage? Are you willing to do some construction lending and that kind of stuff? So any color on kind of this enhanced pipeline would be helpful?

I think that we want to do substantially first mortgages. Construction loans can be first mortgages, but we also want to execute, as I said, another CLO even after the one we do this summer. So I think the assets will substantially look like first mortgages. Secondly, we will expand in terms of other property types. We will expand into hotel and other office markets. We've been sticking to suburban office markets and what we thought were high growth areas of the country and we'll continue to do that. And yes, there will be a portion of the balance sheet where we use, call it, $100 million to $150 million of capital to do mezzanine transactions. Those could be mezz transactions where we do the senior and we lay off the senior, but it will be a senior that we can definitely defend in terms of size. We might do mezz loans between $10 million and $25 million. We've done some mezz behind multifamily construction before that is working out very well. Century Plaza is too big in terms of scope and size for certain structures. So yes, we are going to focus on some mezzanine and we are going to expand the property types. Is it possible we do construction? I would say very, very selectively. There are some developers that we've worked with in the past that are very good. If one of them came to us again today that would be something we would consider given the track record we've had with a handful of those developers we've worked with in the past.

Okay. Got it. And then just one more for me, you mentioned kind of your funding costs coming down a bit, and you obviously mentioned the CLO, like, I don't know if that was — what the basis for the comment was, or if it was more around kind of what you're seeing from your repo providers. If you could just provide a little bit more color around that comment and if you are seeing your repo costs come down and if there's been any movement on advance rates as well.

Yes. So the banks have been coming in lock step with the market and have been getting very aggressive. You do have to look beyond that. If you're executing on a CLO, you're on that bank line for 30 days, 90 days and you're on the CLO for a few years. So we are looking through to the CLO; that market has been stable. It really is a market that is focused on collateral and issuer. Certain issuers with certain collateral pools will definitely do better. We're targeting that probably sometime in July. Hopefully, there will be a few cents of upside per share in that execution, but market conditions between now and then can change. The banks have been tightening both in terms of interest rates; they've been lowering rates on warehouse facilities and they've been modestly increasing advance rates in some cases. In general, interest costs on warehouse facilities have come down more noticeably than advance rates have increased.

That's helpful color. Thanks Mike. I'm going to hop back in the queue.

Operator instructions were provided. Thank you. Our next question comes from Steve Delaney with JMP Securities. Please proceed with your question.

Yes, hello Mike and congrats to you and the team on the internalization. That's a huge step, so glad to have you in that position. So everything — a lot of stuff has been covered. I just had a question about the CLOs. On — I wouldn't be clear whether you had one or two existing CLOs? Is it two?

Yes, that's my fault because in my remarks, I referred to a second. But we have one outstanding that was done in 2019 for $1 billion. We are teeing up our second one.

You are teeing that up.

We are teeing that up right now with the process with the rating agencies and the banks, and that could be a July deal. And then hopefully we'll look at another one at the end of the year, given the trend rate that we're on. The one that's teed up for July is pretty substantially locked and loaded.

Great, great. Then the one — let's call it the old CLO, is there any replenishment in that or is that done? Is that static now?

So, we have the ability to replace collateral in CLO1 through October of 2019. So we are replacing collateral as loans pay off, and we are managing the collateral actively.

Good. Okay, thanks. And on the new one, I've seen a couple of deals recently where aggregation is used, right? I mean, you've got to work with the banks. You got to get to the size that the execution you want, whether that's $800 million, $1 billion or whatever. I've seen a couple of ramp-up periods. I know you probably have to pay for that because the collateral is not specified. But is that something that might work for you since you are sort of in this period of re-starting your lending activities?

I think that we would — we're looking to go more of a specified pool. And I think there might be some ramp up, but we'll keep that limited because we really want to get the best execution we can. So, we are taking a little bit of market risk when you're aggregating more, but we'd rather have a smaller ramp up and better execution.

Super. I appreciate the color and look forward to talking soon. Thank you.

Thank you, Steve.

Thank you. Our next question comes from Tim Hayes with BTIG. Please proceed with your question.

Hey, just another quick one here. Just on the CMBS securities that were sold in the second quarter, was there a material gain or loss associated with that transaction?

Frank, do you want to take that?

Yes, I can take that. Yes, there was a gain. There was a gain on one and a slight loss on the other. But I would not qualify either one as material.

Okay. Got it. And I know that you mentioned Mike, you highlighted some specific assets where it kind of makes sense to prune the core portfolio further, but just at a high level, you do have a few troubled assets that you've highlighted. I'm curious — you mentioned Century Plaza. Are there any others that you point to as liquidation candidates versus we want to try to work this out, we're in this one for the long haul? Broadly, how much more pruning of the core portfolio do you think there is left?

I'm not going to say that we're looking to liquidate an asset. But let me just identify what we have and what you'll see in our reporting as the assets that are mainly the non-earning assets. Those are the Dockland Dublin development deal, Century Plaza, and the Fairmont San Jose. Fairmont San Jose is an asset that needs to come out of bankruptcy. It may not be anything we do there, and we may actually just continue to hold that asset. So we need to get it back to earnings. That's an example of something that we're focused on; we're trying to convert it into earning. We're not trying to necessarily liquidate that asset. Those are the three biggest to keep an eye on.

Right. And then maybe Long Island City office asset and the Berkeley Hotel might have been the other ones that we have talked about in the past. Are any of those, I guess, Fairmont San Jose is the only one where there's maybe some more — there is action in the court right now. So there might be some more deadlines or timelines around clarity for that asset. Or do you expect any near-term resolution to any of the assets I just kind of mentioned?

On the Century Plaza deal, as I said in my remarks, the borrower right now has that hotel on the market. I can't speak for where they are in that. I don't want to speculate. But I do know the hotel is on the market. There have been some condos that have closed in the hotel condo portion that have paid down the loan modestly, roughly $20 million. There are outstanding commitments on the tower condos, but the towers aren't going to get completed until later in 2021. So there's activity at the property level at Century Plaza which we're watching. As that works its way through then we'll have an opportunity to potentially monetize. The Fairmont San Jose situation is a convention center hotel. Unlike a destination or resort hotel, it's mostly convention and group-oriented, which is why it's more impacted. That too will work its way through, and we think relatively quickly because we hope the bankruptcy process will facilitate getting the asset back to operation as soon as possible. The Dublin development deal is a little more uncertain. It's land; we're waiting for entitlements to come through to enhance the development prospects of the property, both on the residential and office side. The borrower is still working with us. COVID slowed things down, but workers are back on site in Ireland and the developer is working on securing an anchor tenant for the office development. So that one has a bit more uncertainty. The others we think have more of a short-term timeline.

Got it. That's helpful color. Thanks again for taking my questions.

Thank you.

No further questions at this time. I would like to turn the floor back over to management for any closing comments.

Well thank you for your support and for joining us on today's call. We look forward to updating you on our second quarter earnings call in early August. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.