Broadmark Realty Capital (BRMK) 11 May 202020 Q1 Earnings call transcript

Thank you for standing-by, this is the conference operator. Welcome to Broadmark Realty Capital First Quarter 2020 Earnings Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Steven [Indiscernible], Investor Relations. Please go ahead sir.

afternoon. Good joining conference Broadmark call. for quarter Capital's today earnings XXXX us you Realty for first Thank

additional results In this Investor filed with afternoon, to section we on addition the at have a press on our supplemental www.broadmark.com. in is available which release website distributed detail the our package

and On remarks your may answers today's call, management's contain questions to prepared forward-looking statements.

results factors today. that and to from uncertainties cause cause actual Forward-looking A results risks that discussed those of to statements to are address differ from subject those could matters actual anticipated. number differ may materially

Forward-looking to and they to date statements as publicly in them update only are new us based as available the obligation on of are current any or of made speak expectations, information future of and events. as beliefs, light assumptions, and at management information time this no well undertakes

certain earnings will to and measures. call, our in financial discuss information this GAAP the with measures comparable non-GAAP During financial these reconciliations SEC. about release filings financial and contained non-GAAP are we More measures

hosted to call which David Jeff Officer, Officer, and This make Pyatt afternoon’s questions. the Executive Chief Financial by Management up call prepared open Broadmark's comments Chief we'll will some after your Schneider. conference is

to over I'll the turn Now, call Jeff.

is first positioned your Steve When to is questions. of begin to for additional loan financial over I'll Broadmark on calls. with up why in you, David market discuss quarter and an and provide portfolio open the finished, the environment. turn conditions welcome David Thank well to call the sheet. Then performance, results This and detail believe we'll call balance our our we overview earnings current XXXX afternoon I'll and then

of for the I also thoughts by by affected their the and saying parts efforts. all am one crisis. virus, and the proud country was team the team's first that be of perseverance. important commitment, It's Let our dedication COVID-XX with of to entire those are truly Broadmark the affected thank me Seattle begin our of to by

impacts of solid, Our XXXX were quarter pandemic. first COVID-XX results the the severe most largely preceding

Our from million, acceleration significant were $XXX quarter. fourth origination more than volumes a representing the

our which has of platform. this launched a our capital also new source growth and private to We unique quarter, REIT

country we're to I company, circumstances give our facing some on extraordinary a it. as Broadmark’s industry place a the and perspective as Given want in and

and fund the During has keep lack adequate the because evaporated. many they their many their to book Great commitments their Today capital then lenders unable Recession, their like lost because loan developers liquidity businesses the to their lenders outside on to commitments. are fund rely construction builders

their developers a through to fault As projects. funding no complete of result, obtain own to are unable their

other cash that many lenders, Broadmark’s complete get allow. our their to market circumstances borrowers projects ensure as reserves quickly Unlike and current as strong can it

our we satisfy projects asking competitors’ potentially commitments. we fact, ensure if hearing are would Needless add clients, because our and In lender forced potential we already are rates from peers would back. our been funding take attractive to pare at we prudent looking stalled standards. any loans proven we as reputation portfolios to of upholds as Furthermore, to opportunities have that loan actively its a over at can say, who acquire

not period we permanently conservatively business never of to We believe a be we a many away, of market our position wanted leaving where by better and position The market because construction go results Broadmark that the of struggled in of supported operated out go of business. in have always competitors a as of disruption of one a competitive impair have could reputation, even uncertainty will execution. this but turmoil may business our temporary lending

certain were including borrowers, there there through crisis strictly permitting has states. monitored halts across fault may COVID-XX impacted a are construction which the schedules The be. own say project to and country, in result tied be will activity not and that loans mandated unprecedented challenges, is have experienced pre-COVID-XX This again construction to won't The construction government default. our pre-approved of our established no their delays experience technical

work to home I or At easy them, because The loss type Remember the permanent what equity projects. not. defaults XX% that a familiar person not putting with time, by issues. top Defaults you personal it's the as a or and to value us above think any so so defaulting require that, not steep ratio not a the discuss lend on we of start cure a builder this it's substantial or is mean period, Broadmark with is up be the same to their they has guarantee, principle. I'll off, loan alignment of to to small to reselling capital. tend take to financial borrower bank amount a loan seizing with we loans write significant important lending an On if our misunderstand their has significant lend loss their what immediate for mortgage the and don't or of where car it construction incentives in asset. of are and to defaults builders we do. This the that have

resolved are I project. the to over want us emphasize take most ever without the to defaults having

more penalties just a captures horizon. exercise out three incidents foreclosure. illegally past longer collateral. its a claims the to it's only X% way resulted It's of against right as lender and the Well, over not, have default. to than in protect of our time years, default our interest principle, to us the for Broadmark going XX they And in default often experienced we Specifically, and come

maybe our satisfy would underwrote successful when a completion and it is with way a underwriting as on of project. So different proactively Broadmark for criteria, work to a timeline work And borrowers for with the engage long than continues slightly as our a the to we loan, borrower. default we

permitting Especially have been face eldest all and and just time. business, this top proven states good and blaze when protect offices to and capital, construction. halted obstacles of the our On inspection weeks closed municipalities have recent approach helping it's in

provide good still with borrowers, is relationships protect they our that and view future. our now, Our solutions we will both the if longer-term cap near in can maintaining while

they repeat which have of remember didn't business. be why of their two-thirds next This which the helped a historically on when continue going to lender funded being completion is build the for they our to levels their project their simply to see that rates a reputation when on the project, will call. ones tenure many punitive builders We lender commitments started we that so whether time approximately to or raised want are the Borrowers choice ones at get first been have construction. has or pause our not to customers them nearly

the they occur? can current project. we we've full we what refinance. in with sell foreclosure. to help a can to lieu options over We it toolbox would defer on in So all work a have We place. a project find bring a up state, We defaults can then resolve them do can time. would native a can back of to If to we And plan when and payments help of to We the solutions. other to a put ruled options, satisfy get set out in deed complete can them borrower obligations us. receiver foreclose We their

history. loans originated of billion in $X.X year the nearly XX of we our reference For

loans have losses on only and over our limited foreclosed than on XX only have XX of the those more we originated $XXX,XXX have XXXX those loans We principal to years.

For the recognized Broadmark a life of those excluded the during million nearly loans. these $X perspective, losses in income

a over take to need and to do resources the have we that. if it, on project Lastly, we finish execute

numerous relationships on will quickly defaults this our other liquidity, assets from We different demonstrates built not forced we've that means Over believe the at strong contractors how to we perspective years, lenders. with prices. and sale be sell providing fire are we

well defaults rate default our Broadmark a positioned time, ensure to address ability Our for in but is will success. is snapshot

of in cannot We advantage market position the past ultimately through withstand that period to do this of only we but higher have opportunities and defaults will continue our liquidity take so. we appropriate. stress, as us comfort periods Further of gives managed

the changed an weeks, on past we things to have much want operations how our Considering end. several update post quarter over give

have not and stopped originations. we First foremost,

collateral yields significant, Between within quality XX we we've million opportunities to so. March closed continue pipeline at of liquidity We importantly, do to have on remained high a lend X, the May attractive see $XXX our to and ample most and and million. four on range $XXX loans additional to

improvement. were there've Well, in is Our already of some loan April to end. news since incremental have good we begun slow quarter as defaults signs see payoffs been expected. The that

States markets and loans or mortgage The and get communication restarted appear that to their emerged have March in in to we be residential May with We've to anxious had went our also are. Some our continue and borrowers improving. the of payoffs to into and default we the as appear good strong. and be consistent stabilizing that be our as completed operate markets projects refinance in since

our expect projects although or some and just may it be sold to We refinanced, completed additional time. take

months completely six for will in from two depend COVID-XX the these is has past, openings of the country full takes. underway. been of months we the situation predict nearly one also world May, or getting to improvement sit signs able pandemic and unprecedented will of with on much like XX now. the course, Of what period down emerging months look Because shut here has just The COVID-XX created dislocation no

seen the our economy not turmoil in and business significant and have immune. been markets We has but resilient financial

plans, see April, While monthly uncertainties, a adjusted of the the certain this our future for respect certain how in these take. signs month holds reopening emerging reflect we significant to or To with States rate long what know dividend recovery for May. will we currently don't maintain Board our

as and of possible We this as to crisis. other we side broader well want our confident in be are positioned on the strategy

managed owns X% team a uniquely at is reminder, shares. management as you, the Finally, are the outstanding internally aligned and of management because Broadmark we with approximately

detail. who over to results our more I'll now turn will financial in review David, it

and Jeff, afternoon, good Thanks, everyone.

company. a comparable XXXX periods prior Realty for to funds was basis a the to of As first four XX, that financials results a are form pro on reminder, forma include the Broadmark the as combined quarter quarter Capital. public Financial presented full our first Broadmark lending and XXXX November any of

Slide presentation. our are which our on earnings of detailed with Starting X results, operating

basis, this are and in XXXX, non-cash quarter core quarter common per million diluted $XX.X $XX.X share. first total transaction a revenue for items, Interest share. earnings reflects loans and income net income fee $X.XX approximately million. other the for a first $XX.X our the per our costs quarter income On was impact first $X.X million of share $XX.X million and on the income per reported the $X.XX or net GAAP was non-recurring of common Adjusting For diluted of of million. of we

presentation. earnings of face the to volumes, we $XXX the for the origination for In presented on of regard Slide of billion. the With $XXX are million XXXX. value loans to quarter compares first total XX first which of quarter, X originations originated This

as originations were government have on as the whole, March strong for it ordered the took construction back. quarter a an heightened shutdowns COVID-XX impact While market and uncertainty originations did

from of to pipeline a have $XXX currently opportunities We ranging $XXX million. million

previously earnings originations over any had quarter of realized we benefit time. full be in mentioned, As will the given

life As the the over accounting that requires our treatment loan. origination be recognized fees of

been to XXXX. and Now aggregate defaults status of potential on in like XX, sheet, losses losses estimated briefly $X.X million, of has address recorded would have our we loans of accounting the evaluated perspective. turning an Every from balance to March loan as these topic I default for

than and five loans X% For our and less context, loans XXX relate portfolio current to specifically principal of of these losses estimated status out the outstanding of default loans. represent on

plan effectively. To outcomes recognized economic expect million more generally date, loans than supports on of currently the we Jeff's revenue upon comments have that default $XX operating in our our on model and business and exit. management defaults further and This positive underwriting status in we earlier are

as We our addition, detailed zero our earnings March through in on positions presentation, we Slide we sheet XX, as million the debt of our as well current liquidity X believe cash and XXXX. $XXX.X had pipeline. work balance In on of as

exceeds currently opportunities strategic has on are our sources presented to In us. capital execute looking and fact, we of to capital our continue to available opportunities of pipeline for be and that

the evaluate modestly For term which to may include facility. working appropriate a capital cash continue credit balance, longer efficiency and we management, sized capital most

pipeline great and from and unfunded watching operated of the historically spends debt past, our residential have to our payoffs. unfunded we a relative our time housing and funded our anticipated team While commitments commitments finance amount of markets loans analyzing without

a not significant We are would to market. plan efficiently conducive. market to our facility add available look but high did use appropriately to of the of credit at capital dislocations to opportunities want positioned end and our by business meet run an level the XXXX sized conditions we the we seeing in Again, remain be to leverage, assuming we

Broadmark vehicle was enhancing total March, one platform, capital REIT it the private participated in as the REIT. alternative launched seven for in $X.X Private that active This invest an first Private a In announced, to previously our we will diversifying in month quarter. way sources. Broadmark offer million and loans of participation the for The

expected raising, we capital the we recent we've pace the was in as April. As slow REIT weeks. in to stabilize long markets slowly the seen Private But as expect continue improve during to as

comments. a like Jeff I'd to turn to the few closing for Now, call back

year-to-date. Thanks, originated David. To recap, we $XXX of million loans have over

REIT growth and raising of have for opportunities March, our Broadmark plenty loans. and now we of Private in participating capital as We have

tools we and the this than ever. emerge will the we from handle to period expertise this believe challenging and We stronger have

remarks. This prepared completes our

We for line questions. Operator? open now up the will

Thank you.

will now Our session. begin Please with Riley question question-and-answer go sir. is Tim the first We Instructions] Hayes FBR. [Operator B. ahead, from

really of acquisitions of in we some these you and a the afternoon, thanks you like collateral strategic what Good some can little doing are on Jeff looks bit you whether that for here, portfolio come first of size of can Hope expand kind you how opportunities you're have evaluating seeing, the my well. initiatives face. way, and these both maybe questions. taking My potential one types at or these more David, given are type asset uncertainty still serious your

David, you take that, to please? want do

Nice to David. hear,

Hi, your Thanks questions. for Yes. Tim.

any of inbound So calls. be – we're a some of with. it to directly underwritten would transaction, know we of of been We're to not always a on at was But presence we've something going we’ve have now. that is we're to portfolios, or looking with. portfolio at that which lot servicing regions. Opportunities another with we're strategic to another take other clear, getting by not inbound be If we've It be going region would it right do to familiar that been loan likely lot to done. if you borrowers be into feel a historically to not loans other familiar something in expand firm, going going that be familiar it we folks that We're with, would to make with. getting how our make diligence diligence. collateral process we'd And going that a regions, were other sure And due and stay either due our lane. it's would we're our much most looking it that that at competitors’ we're competing experienced cleaner in look we're just comfortable. less potentially We're

opportunities. terms of portfolios, them we're In variety. size, to But it's whole going look of we've features at We're the been open seen to seen portfolios we've a and all.

if that they are presented these on I think us. a can we're where of white in are execute opportunities to position of actually we unique some strength ones

gears, then a that these all were the expecting of the to on all more guess takeout quarter, all there. sell talking where financing stages get Where these or of little from different first sudden in properties them away had development? these defaults in here – Okay. here. Thanks context And those or projects for options just the a drift that I bit with switching Understood. color borrowers more

to they to the the I'll overwhelming is take jump they of up a base were the get maturity a on feel exit developer, payoff meaning the the say execute kind end original to in. and of our majority a the loan. term up of and to coming or maturity date it the financing Jeff, were free were and and payoff at stab they of I expecting unable get that term, dried then the would

to you of all depleted were unable by where that So been in those financing impacted fully expecting directly get the interest maturity cases, they reserve much defaults to were payoff has pretty get COVID-XX. and them were

we're borrowers the our delays the them for with Jeff's to So outcome company comments But earlier, find timing. timing to keep the we're working to best overwhelming for remarks in the with room. is trying majority borrowers, in those economic yes and – his ways working in

Right.

of just you of out giving with then have accruing these these I start have or default? again? borrowers last some consider come kind the reason to themselves cash up many loans them that able – level there, keep part some why of I they your that of kind borrowers And And where did picking of Okay. comment of broadly would just, on guess guess like that requested forbearance? these how to And resolved is forbearance the of technically where

do David, to you fill or in? keep want Sure. going me to

Yes, can Yes, being want make the we Others, forbearance is did – again, outcome jump but think a bad you for hit I'll point is I the it opportunities. some for keep borrower. worst, here and not sense to going necessarily of I in not then. us didn't forbearance in. home get it do to it's depo any And them and Broadmark necessarily, status not for a that and the think,

Sometimes, incentivizes together and get to payment, equal make status out the it become a get them of and cured. cash

every with worked we individual yes, borrower. So

our Some up with work some best of to them continue come default we're sort did to with and in shareholders. to economic end status going the outcome up through

think that's policies of each take each supposed is really these In them basis kinds borrower those make a We around to that of a of on we banking loans the unique so. case-by-case and finance.

on And to forbearance the you've can maybe grant so measures far? used of touch you some

Well, to that line ratio. the bright in drive we remember a that, value so loan XX%

default loan everything that's our else. of over that whether believe a that And regardless so is we if then

in given loan there at to say the do default. if way is can we whole and project so down. loan environment project really the now value market except or down this if put this is a a XX% look municipality slowed ratio, And the has the project If the into were we to slowing much

We like We're forbearance, going that, we different that we will just are so look it when it are business. are lumped of I at that about forbearance worry and into mortgages into performing and term our loans that reading people's use a article. gets most the

All right.

Okay. that you Jeff. loans And some know themselves. Thanks said then have that I that you have resolved for guys

an get at Some we have you're quarter of the of fallen since default April? into end where today just of where Can end. update or as

numbers the been But And there's call. Yes. uptick. mean, to some We're the as rolled disclose – on going definitely mentioned, have I there's been not loans off. definitely an there's we've

I think to the doesn't important new us. going economic going the and into constantly a there's default capital the focus a mean for in for loans we're It that it's mean loss. on status most is is that that thing to not loans monitoring outcome default bad

already potential potential of on. definitely medicine So see probably sure we'll financial perspective, these important the estimated losses, not that taken in immune I'm from We've evaluating terms But we've up uptick. at later been may our a for is, of definitely, statements an We'll disclosing losses. a COVID-XX. that not not, ultimately kind losses more we're loans time. we'll to which think end have to I we

is default. And no were in think loans important out mentioned then I five of we think five the are thing loans out that the XX XXX – of more I

it pick the the state. could which with the no that's whole allowance, a XX, outcomes all and bucket up future potentially XXX, chunks other means But of by nice income of accounting. of expect we driven As that positive in the

and the him walk of other our going You're on losses the upfront us have these take see exit and loans. wait to

quarter? is, I a – one losses give here estimated bit in those loans, those wouldn't? what would already Have on in uptake work on already my $X of queue mentioned million out And – look you it take REO if you more and balance and to already you what little last this hop back far curious – an And you the over assumptions the you've so Can color just estimate? go a then seen I'll believe. of which defaulted that you into which if on decided you've just that yourself the ones five just and little on projects

We one we're so property. XXX, down to as REO actually of haven't,

wasn't properties. our big foreclosed closed. we new the is allowance because evaluate haven't of foreclosure. on dependent. in loans I uptick there activity We were our courts But any also lot of mean all way foreclosure a a The are everything not and collateral probably expecting

And be at. should feel comparing loan what our over loans that expect appraisals accounting, Most LTV. right? recorded where going goes underlying be estimated back comfortable, the we're of business then the of why the take take So in not we property. loan, reason or in exit then to significantly value And appraised which looking complete the going over collateral we're is at to going that lower, We're basically a to complete. in get we're to to that looking assuming the costs kind these of exit for whether – investment strategy basically that the investment were at is we're to at. take to we XX% assuming this it to is a we're the we purposes to going cases, – we and in certain as position our what lower the us It's it's for project

That's sense. well. hop It going and right. back in Thanks now. for I'm stay for All it to the queue. again makes me

Our is Stephen Laws next from ahead. go question James. Raymond Please with

new historical prior that do markets you of this not, plan right into was to intended about company's as attractive to – Jeff, afternoon. target intended Thanks do think and opposed evaluating you're local deal as a of now? and sticking got new market just Mid-Atlantic. a do track it's kind three expertise you increased for four you've good diversification – regions those relationships, are or what questions. record the where really lot your or my big core and investments, of to How I would more how taking a or better deal Southeast allocating think kind capital Hi, the by you

like markets Stephen, you, the know We know know the out, we that and by pointed four states. those you talking hi, nice sub-markets them way. we're the the we states, as in. to We within regions the

And we not anything, it. strays going be we're at far from are to look that business so doing, very very in as we the it probably if interested

ahead capital awful have us. an is that use and The opportunity to of we precious have we lot of and wisely. carefully want We it

so, going And – where initial to our is own think it. stay we we're our inclination know I to backyards just in

I mix on pipeline sense. mix on of rental borrowers your thought forward? makes duplexes as as or feedback bigger That would going your changing to same that wanting your recent this space. significant I to From touch opposed picture that far isolation seeing in with Are Yes. more, your How I with more new staying or what as the think or at a opportunities. concentrated originate type thoughts multifamily geographic and events. more do apartments, pipeline about things it your and has as whether Thinking same. how you're micro single-family loan the your and you seeing housing, changed we people the be look fuel revaluing the

question. is That a great

haven't wouldn't single our family family necessarily We continue we're be snapshot single and don't now right to I the reflected. projects. seeing But that borrowers have – think

and for family As the between single is a still housing demand supply you housing. know, imbalance of there great

real there's builders. family for so opportunity our single And

in, those builders of is shortage multifamily we there to continue that apartments. in see the a Our again see opportunities markets

knows the of goes. so, time, space plenty and right And as that unfolds apartment in But family real now, who market this where single the in space. all both as there's

average look the pretty borrower But Great. information. about of? have that size. or know loans any XXX there forward more loans? I get need be going to that five monitoring risk it's and the XX any are portfolio, borrower loan aware and a borrowers Thinking got appreciate we've concentration forward we concentration single to color we small as in comments or we seven Any I

high a largest borrower. I wrong, But our it's think our certainly if term those keep concentrations. of long me of about quality portfolio David we correct but track X% and I'm borrower,

with one little so loans just borrower X%, Two X%. about that’s X%, over

$XX market like appreciate launched that. I fundraising something do that. difficult stability do million some really in on a How how we we about know the $X or million market Is of more and there? we the get launch REIT, just mean, it hold Is I about private here? think about think helpful. it a month? until do I it conditions think month? That's on lastly Great. kind it to that And environment we

somewhere between is I on not put it It certainly hold. in there.

to raising We to are continuing continuing raise have money success money. and

You can for kind our March. invest look in for think are a we people high to returns. April do, bang top, I them. with more improved. comfortable quality, good people opportunity we whether either started May looking REIT is places a safe for think of get with continuing has good with I private to And COVID-XX, as those people for We imagine option, private get this was – or But all through it

still so And it. we're quite optimistic about

is recognize we and business? you're not management to fee recurring really of – model about look you or also it fees David lastly, Are that is is charging leads so, and then think you more when asset those if do guess and to how modification How do charge for maybe for extensions? I And amortized that's or modifications part on in Great. best. realize guys modifications whether – extend, you the a

Yes, yes.

it's When do So charge we fee. extension treated origination an an way you took same the extension as in fee.

be three terms. generally month, going same a not will over little way the treated a treating So the month for sometimes usually six it's Obviously be months. income deferred be extension, it accreted to into month XX we’re shorter origination accounting. over a they're to But life. and going It's one It's extension. in going as the fees to be

the all or in fee, taking Okay. not any You're And equity that is right? transaction. kind of cash pic

Correct.

questions. great. for David, Thanks Okay, Jeff, taking a I tonight. comments my appreciate the lot

Thanks, Stephen.

the This question-and-answer remarks. concludes like for to session. I would to over any turn back management conference closing the

this that to all of set we look to we you, investors. out that for doing want I'd company of are an Great XX we almost years And I us. all that are. just put I to forward I thank you wish to look we are to well when you the and importantly, together Thank was up to to weather I'm remind a the you. behind storm. would us talking good being quarter. and And have we of positioned ago, I health the this all you to Most all Recession it to in And you grateful having forward architecture allow and coming safety. like our way say want

This conference concludes today's call.

You may day. and a Thank your participating lines. have for disconnect you pleasant