Q2 2026 Brightspire Capital Inc Earnings Call

July 29, 2026

Operator: Good day, and welcome to the BrightSpire Capital Q2 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to David Palamé, General Counsel. Please go ahead.

Speaker #1: Good day, and welcome to the BrightSpire Capital second quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker #1: After today's presentation, there will be an opportunity to ask questions, to ask a question you may press star, then one on your touchstone phone.

Speaker #1: To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to David Palamay, General Counsel.

Speaker #1: Please go ahead.

Speaker #2: Good morning, and welcome to BrightSpire Capital's second quarter 2026 earnings conference call. We will refer to BrightSpire Capital as BrightSpire, BRSP, or the Company throughout this call.

David Palamé: Good morning, and welcome to BrightSpire Capital's Q2 2026 Earnings Conference Call. We will refer to BrightSpire Capital as BrightSpire, BRSP, or the company throughout this call. Speaking on the call today are the company's Chief Executive Officer, Mike Mazzei; President and 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, which are based on management's current expectations, are subject to risks, uncertainties, and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially. For a discussion of risks that could affect results, please see the Risk Factors section of our most recent 10-K and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time.

Speaker #2: Speaking on the call today are the companies' chief executive officer, Mike Mazzei; president and chief operating officer, Andy Witt; and chief financial officer, Frank Saracino.

Speaker #2: Before I hand the call over, please note that on this call, certain information presented contains forward-looking statements. These statements, which are based on management's current expectations, are subject to risks, uncertainties, and assumptions.

Speaker #2: Potential risks and uncertainties could cause the company's business and financial results to differ materially. For a discussion of risks that could affect results, please see the risk factors section of our most recent 10-K and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time.

Speaker #2: All information discussed on this call is as of today, July 29, 2026, and the company does not intend and undertakes no duty to update for future events or circumstances.

David Palamé: All information discussed on this call is as of today, 29 July 2026, and the company does not intend and undertakes no duty to update for future events or circumstances. Certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental presentation, which was released yesterday 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. Before I turn the call over to Mike, I will provide a brief recap on our results. The company reported Q2 GAAP net loss attributable to common stockholders of $18.3 million, or $0.15 per share. Distributable earnings of $15.8 million or $0.12 per share, and adjusted distributable earnings of $16.8 million or $0.13 per share.

Speaker #2: In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental presentation, which were released yesterday afternoon and are available on the company's website, present reconciliations to the appropriate GAAP measures and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

Speaker #2: Before I turn the call over to Mike, I will provide a brief recap on our results. The company reported second quarter GAAP net loss attributable to common stockholders of 18.3 million dollars or 15 cents per share.

Speaker #2: Distributable earnings of 15.8 million dollars or 12 cents per share and adjusted distributable earnings of 16.8 million or 13 cents per share. The company also reported GAAP net book value of 6 dollars and 81 cents per share and underappreciated book value of 8 dollars and 10 cents per share as of June 30, 2026.

David Palamé: The company also reported GAAP net book value of $6.81 per share and undepreciated book value of $8.10 per share as of 30 June 2026. Finally, during this call, management may refer to distributable earnings as DE. With that, I would now like to turn the call over to Mike.

Speaker #2: Finally, during this call, management may refer to distributable earnings as DE. With that, I would now like to turn the call over to Mike.

Speaker #3: Thanks, David. And welcome to our second quarter 2026 earnings call. We had a very active second quarter. Along with solid loan originations, we completed our largest quarterly share buyback while our asset management team continued to advance REO and watchlist resolutions.

Michael Mazzei: Thanks, David, welcome to our Q2 2026 earnings call. We had a very active Q2. Along with solid loan originations, we completed our largest quarterly share buyback while our asset management team continued to advance REO and watchlist resolutions. Further, we took another meaningful step in rotating out of real estate equity investments and into our core strategy of first mortgage loans. First, starting with loan originations, we closed 10 loans in Q2 for $319 million, subsequent to quarter end, we closed an additional three loans for $117 million. Further, we currently have four loans for $178 million in execution. Upon closing these loans, our loan book will be just over $3 billion. Our next milestone for the loan book is $3.5 billion, which we expect to achieve around year-end. Moving to capital deployment.

Mike Mazzei: Thanks, David, welcome to our Q2 2026 earnings call. We had a very active Q2. Along with solid loan originations, we completed our largest quarterly share buyback while our asset management team continued to advance REO and watchlist resolutions. Further, we took another meaningful step in rotating out of real estate equity investments and into our core strategy of first mortgage loans. First, starting with loan originations, we closed 10 loans in Q2 for $319 million, subsequent to quarter end, we closed an additional three loans for $117 million. Further, we currently have four loans for $178 million in execution. Upon closing these loans, our loan book will be just over $3 billion. Our next milestone for the loan book is $3.5 billion, which we expect to achieve around year-end. Moving to capital deployment.

Speaker #3: Further, we took another meaningful step in rotating out of real estate equity investments and into our core strategy of first mortgage loans. But first, starting with loan originations, we closed 10 loans in the second quarter for 319 million and subsequent to quarter end, we closed an additional 3 loans for 117 million.

Speaker #3: Further, we currently have 4 loans for $178 million in execution. Upon closing these loans, our loan book will be just over $3 billion. Our next milestone for the loan book is $3.5 billion, which we expect to achieve around year-end.

Speaker #3: Moving to capital deployment, during the quarter we bought back 3.8 million shares for $21 million. We took advantage of what we viewed as a compelling market opportunity, evidenced by extremely high daily trading volumes in our stock during this window.

Michael Mazzei: During the quarter, we bought back 3.8 million shares for $21 million. We took advantage of what we viewed as a compelling market opportunity, evidenced by extreme high daily trading volumes in our stock during this window. We will continue to look at buybacks as the circumstances present themselves. Frank will discuss the details and impact of the buyback. Turning to the sale of our Albertsons triple net equity position. Last month, we filed a Form 8-K disclosing the details of the sale, which is expected to close in Q3. As noted, the sale price was $300 million, inclusive of the assumption of $200 million of CMBS debt. This sale removes refinancing risk associated with the 2028 debt maturity. As a reminder, the current debt interest rate is 4.77%, which is nearly flat to the current 10-year treasury.

Mike Mazzei: During the quarter, we bought back 3.8 million shares for $21 million. We took advantage of what we viewed as a compelling market opportunity, evidenced by extreme high daily trading volumes in our stock during this window. We will continue to look at buybacks as the circumstances present themselves. Frank will discuss the details and impact of the buyback. Turning to the sale of our Albertsons triple net equity position. Last month, we filed a Form 8-K disclosing the details of the sale, which is expected to close in Q3. As noted, the sale price was $300 million, inclusive of the assumption of $200 million of CMBS debt. This sale removes refinancing risk associated with the 2028 debt maturity. As a reminder, the current debt interest rate is 4.77%, which is nearly flat to the current 10-year treasury.

Speaker #3: We will continue to look at buybacks as the circumstances present themselves. Frank will discuss the details and impact of the buyback. Turning to the sale of our Albertsons Triple Net Equity position, last month we filed a Form 8-K disclosing the details of the sale which is expected to close in the third quarter.

Speaker #3: As noted, the sale price was 300 million inclusive of the assumption of 200 million dollars of CMBS debt. This sale removes refinancing risk associated with the 2028 debt maturity.

Speaker #3: As a reminder, the current debt interest rate is 4.77%, which is nearly flat to the current 10-year Treasury. Among the factors we considered were a refinancing at a much higher rate along with the potential for a reduction in loan proceeds, thus requiring additional equity capital.

Michael Mazzei: Among the factors we considered were a refinancing at a much higher rate, along with the potential for reduction in loan proceeds, thus requiring additional equity capital. For these reasons, the impact of the refinancing would have resulted in a substantial ROE reduction associated with this investment. We also anticipate deploying the $100 million of freed-up capital at a higher ROE than we currently have. While this proactive sale slightly delays reaching full dividend coverage by year-end as previously anticipated, it reflects the correct course of action from a corporate finance, risk management, and strategic perspective. Once the sale of Albertsons closes, our remaining net lease portfolio will be concentrated in two investments. The first is the Aurora, Colorado office net lease, where we are currently in negotiations with the tenant regarding a lease extension.

Mike Mazzei: Among the factors we considered were a refinancing at a much higher rate, along with the potential for reduction in loan proceeds, thus requiring additional equity capital. For these reasons, the impact of the refinancing would have resulted in a substantial ROE reduction associated with this investment. We also anticipate deploying the $100 million of freed-up capital at a higher ROE than we currently have. While this proactive sale slightly delays reaching full dividend coverage by year-end as previously anticipated, it reflects the correct course of action from a corporate finance, risk management, and strategic perspective. Once the sale of Albertsons closes, our remaining net lease portfolio will be concentrated in two investments. The first is the Aurora, Colorado office net lease, where we are currently in negotiations with the tenant regarding a lease extension.

Speaker #3: For these reasons, the impact of the refinancing would have resulted in a substantial ROE reduction associated with this investment. We also anticipate deploying the $100 million of freed-up capital at a higher ROE than we currently have.

Speaker #3: While this proactive sale slightly delays reaching full dividend coverage by year-end as previously anticipated, it reflects the correct course of action from a corporate finance, risk management, and strategic perspective.

Speaker #3: Once the sale of Albertsons closes, our remaining net lease portfolio will be concentrated in two investments. The first is the Aurora Colorado Office Net Lease where we are currently in negotiations with the tenant regarding a lease extension.

Speaker #3: The tenant has indicated a desire to stay at the property with some anticipated TI contributions from BrightSpire. The debt on this asset matures this August, and we are currently working with the servicer on a maturity extension.

Michael Mazzei: The tenant has indicated a desire to stay at the property with some anticipated TI contributions from BrightSpire. The debt on this asset matures this August, we are currently working with the servicer on a maturity extension. The second is the Indianapolis office and lab space property. While there are 4.5 years remaining on this lease, the tenant has put us on notice they will not be planning to renew. We are exploring all options to maximize value and achieve the best outcome, which may include the as-is sale of the property with the current lease in place. The debt on this does not come due until October 2027. As always, please refer to our supplement, which contains more detailed information on all the net lease assets. Moving to the watchlist. During the quarter, we continued to make progress.

Mike Mazzei: The tenant has indicated a desire to stay at the property with some anticipated TI contributions from BrightSpire. The debt on this asset matures this August, we are currently working with the servicer on a maturity extension. The second is the Indianapolis office and lab space property. While there are 4.5 years remaining on this lease, the tenant has put us on notice they will not be planning to renew. We are exploring all options to maximize value and achieve the best outcome, which may include the as-is sale of the property with the current lease in place. The debt on this does not come due until October 2027. As always, please refer to our supplement, which contains more detailed information on all the net lease assets. Moving to the watchlist. During the quarter, we continued to make progress.

Speaker #3: The second is the Space property. While there are four and a half years remaining on this lease, the tenant has put us on notice they will not be planning to renew.

Speaker #3: We are exploring all options to maximize value and achieve the best outcome, which may include an as-is sale of the property with the current lease in place.

Speaker #3: The debt on this does not come due until October 2027. As always, please refer to our supplement which contains more detailed information on all the net lease assets.

Speaker #3: Moving to the watchlist, during the quarter, we continue to make progress. Three watchlist loans were resolved totaling 99 million and while two loans were added, there was a combined net reduction of 30 million.

Michael Mazzei: Three watch list loans were resolved, totaling $99 million. While two loans were added, there was a combined net reduction of $30 million. Importantly, we are scheduled to continue reducing exposure in H2 2026 given the occupancy improvements of each of the remaining underlying properties. On the REO side, we now have two multifamily properties under contract for sale. The remaining assets each have a timeline for resolution, some of which are planned for this year. Andy will provide more details in a moment. In closing, as we look at H2, we expect to continue to recycle capital and grow the loan book to approximately $3.5 billion circa year-end. At the same time, ongoing originations will continue to improve the portfolio composition with lower average loan sizes and reduced concentrations focused on more multifamily and less office.

Mike Mazzei: Three watch list loans were resolved, totaling $99 million. While two loans were added, there was a combined net reduction of $30 million. Importantly, we are scheduled to continue reducing exposure in H2 2026 given the occupancy improvements of each of the remaining underlying properties. On the REO side, we now have two multifamily properties under contract for sale. The remaining assets each have a timeline for resolution, some of which are planned for this year. Andy will provide more details in a moment. In closing, as we look at H2, we expect to continue to recycle capital and grow the loan book to approximately $3.5 billion circa year-end. At the same time, ongoing originations will continue to improve the portfolio composition with lower average loan sizes and reduced concentrations focused on more multifamily and less office.

Speaker #3: Importantly, we are scheduled to continue reducing exposure in the back half of 2026, given the occupancy improvements of each of the remaining underlying properties.

Speaker #3: On the REO side, we now have two multifamily properties under contract for sale. The remaining assets, each have a timeline for resolution. Some of which are planned for this year.

Speaker #3: Andy will provide more details in a moment. In closing, as we look at the second half of the year, we expect to continue to recycle capital and grow the loan book to approximately $3.5 billion, circa year-end.

Speaker #3: At the same time, ongoing originations will continue to improve the portfolio composition with lower average loan sizes and reduced concentrations, focusing more on multifamily and less on office.

Speaker #3: I will also note the composition of the portfolio is on the verge of being predominantly post-rate hike originations. Given this progress, along with the continued tailwinds in the CRE debt capital markets, we also expect to issue our second CLO this year.

Michael Mazzei: I will also note the composition of the portfolio is on the verge of predominantly post-rate hike originations. Given this progress, along with the continued tailwinds in the CRE debt capital markets, we also expect to issue our second CLO this year. This will mark the first time we issued two CLOs in the same year. We are encouraged by the continued progress we are making with each passing quarter. We are optimistic about our ability to grow earnings and reestablish positive dividend coverage. With that, I will turn the call over to our President, Andy Witt. Andy?

Mike Mazzei: I will also note the composition of the portfolio is on the verge of predominantly post-rate hike originations. Given this progress, along with the continued tailwinds in the CRE debt capital markets, we also expect to issue our second CLO this year. This will mark the first time we issued two CLOs in the same year. We are encouraged by the continued progress we are making with each passing quarter. We are optimistic about our ability to grow earnings and reestablish positive dividend coverage. With that, I will turn the call over to our President, Andy Witt. Andy?

Speaker #3: This will mark the first time we issued two CLOs in the same year. We are encouraged by the continued progress we are making with each passing quarter.

Speaker #3: And we are optimistic about our ability to grow earnings and reestablish positive dividend coverage. With that, I will turn the call over to our president, Andy Witt.

Speaker #3: Andy?

Speaker #2: Thank you, Mike. During the second quarter, we continued to make solid progress across all areas of the business. The focus remains on growing the underlying loan portfolio through new originations, fueled by capital primarily generated from the resolution of watchlist loans and REO assets.

Andrew Witt: Thank you, Mike. During Q2, we continued to make solid progress across all areas of the business. The focus remains on growing the underlying loan portfolio through new originations fueled by capital primarily generated from the resolution of watch list loans and REO assets. As Mike highlighted, BrightSpire's originations activity has been healthy. We continue to see ample deal flow with our year-to-date pipeline volume trending well ahead of 2025. The market continues to be primarily driven by an abundance of multifamily and refinancings. Whole loan spreads for multifamily continue to center around 250 basis points over SOFR. Warehouse lenders remain active and constructive. The 2026 CRE CLO market issuance stands at approximately $29 billion across 28 deals, just shy of issuance for the full year 2025.

Andy Witt: Thank you, Mike. During Q2, we continued to make solid progress across all areas of the business. The focus remains on growing the underlying loan portfolio through new originations fueled by capital primarily generated from the resolution of watch list loans and REO assets. As Mike highlighted, BrightSpire's originations activity has been healthy. We continue to see ample deal flow with our year-to-date pipeline volume trending well ahead of 2025. The market continues to be primarily driven by an abundance of multifamily and refinancings. Whole loan spreads for multifamily continue to center around 250 basis points over SOFR. Warehouse lenders remain active and constructive. The 2026 CRE CLO market issuance stands at approximately $29 billion across 28 deals, just shy of issuance for the full year 2025.

Speaker #2: As Mike highlighted, BrightSpire's originations activity has been healthy. We continue to see ample deal flow with our year-to-date pipeline volume trending well ahead of 2025.

Speaker #2: The market continues to be primarily driven by an abundance of multifamily and refinancings. Whole loan spreads for multifamily continue to center around 250 basis points over SOFR.

Speaker #2: Warehouse lenders remain active and constructive in 2026. CRE CLO market issuance stands at approximately $29 billion across 28 deals, just shy of issuance for the full year 2025.

Speaker #2: Year-to-date, BrightSpire has committed 892 million of capital across 24 loans with an average loan balance of 37 million. Loan originations activity for the second quarter consisted of 10 loans with an aggregate commitment of 319 million.

Andrew Witt: Year-to-date, BrightSpire has committed $892 million of capital across 24 loans with an average loan balance of $37 million. Loan originations activity for Q2 consisted of 10 loans with an aggregate commitment of $319 million. Repayments during the quarter consisted of $123 million across seven positions, including three watch list loans. As of quarter end, the loan portfolio is comprised of 106 loans and an aggregate loan balance of approximately $2.9 billion, a net increase of nearly $200 million quarter-over-quarter. The weighted average loan balance across the entire portfolio is $27 million and has a weighted average risk ranking of 3.0. As it relates to portfolio management, during Q2, exposure to watch list loans continues to be directionally positive despite two additions to the loan list.

Andy Witt: Year-to-date, BrightSpire has committed $892 million of capital across 24 loans with an average loan balance of $37 million. Loan originations activity for Q2 consisted of 10 loans with an aggregate commitment of $319 million. Repayments during the quarter consisted of $123 million across seven positions, including three watch list loans. As of quarter end, the loan portfolio is comprised of 106 loans and an aggregate loan balance of approximately $2.9 billion, a net increase of nearly $200 million quarter-over-quarter. The weighted average loan balance across the entire portfolio is $27 million and has a weighted average risk ranking of 3.0. As it relates to portfolio management, during Q2, exposure to watch list loans continues to be directionally positive despite two additions to the loan list.

Speaker #2: Repayments during the quarter consisted of $123 million across 7 positions, including 3 watchlist loans. As of quarter end, the loan portfolio is comprised of 106 loans and an aggregate loan balance of approximately $2.9 billion, a net increase of nearly $200 million quarter over quarter.

Speaker #2: The weighted average loan balance across the entire portfolio is 27 million and has a weighted average risk ranking of 3.0. As it relates to portfolio management, during the second quarter, exposure to watchless loans continues to be directionally positive despite two additions to the loan list.

Speaker #2: The $11 million Denver office loan added to the watchlist during the quarter is expected to be sold in the near term. During the quarter, we also added a $57 million Las Vegas multifamily loan to the watchlist.

Andrew Witt: The $11 million Denver office loan added to the watch list during the quarter is expected to be sold in the near term. During the quarter, we also added a $57 million Las Vegas multifamily loan to the watch list. In terms of watch list updates, the Austin, Texas multifamily loan has experienced positive recent leasing momentum, marking a significant turnaround in performance at the asset level. The property is currently operating near stabilized occupancy levels. The Dallas office loan, our most tenured watch list loan, is approaching 70% occupancy and is expected to improve. We are encouraged by the positive progress at both properties, this may lead to resolutions in the short term. Watch list resolutions during the quarter consisted of three repayments for a total of $99 million, resulting in $30 million net reduction in watch list loan exposure.

Andy Witt: The $11 million Denver office loan added to the watch list during the quarter is expected to be sold in the near term. During the quarter, we also added a $57 million Las Vegas multifamily loan to the watch list. In terms of watch list updates, the Austin, Texas multifamily loan has experienced positive recent leasing momentum, marking a significant turnaround in performance at the asset level. The property is currently operating near stabilized occupancy levels. The Dallas office loan, our most tenured watch list loan, is approaching 70% occupancy and is expected to improve. We are encouraged by the positive progress at both properties, this may lead to resolutions in the short term. Watch list resolutions during the quarter consisted of three repayments for a total of $99 million, resulting in $30 million net reduction in watch list loan exposure.

Speaker #2: In terms of watchlist updates, the Austin, Texas multifamily loan has experienced positive recent leasing momentum, marking a significant turnaround in performance at the asset level.

Speaker #2: The property is currently operating near stabilized occupancy levels. The Dallas office loan, our most tenured watchless loan, is approaching 70% occupancy and is expected to improve.

Speaker #2: We are encouraged by the positive progress at both properties, and this may lead to resolutions in the short term. Watchlist resolutions during the quarter consisted of three repayments for a total of $99 million, resulting in a $30 million net reduction in watchlist loan exposure. Currently, the watchlist is comprised of four loans with an aggregate loan balance of $136 million.

Andrew Witt: Currently, the watch list is comprised of four loans with an aggregate loan balance of $136 million. Turning to the REO front, there are six properties with a gross book value of $330 million, of which two multifamily assets with a combined NAV of $62 million are under contract for sale. The remaining two multifamily assets with a combined net asset value of $84 million are expected to be in the market over the next few quarters. We continue to make progress on the execution of the value add programs at both the Arlington, Texas and Dallas, Texas multifamily properties. Under BrightSpire's ownership, our in-house asset management team is making progress at these assets, bringing their resolutions closer. The final two REO properties consist of the San Jose Hotel and the Santa Clara multifamily pre-development property.

Andy Witt: Currently, the watch list is comprised of four loans with an aggregate loan balance of $136 million. Turning to the REO front, there are six properties with a gross book value of $330 million, of which two multifamily assets with a combined NAV of $62 million are under contract for sale. The remaining two multifamily assets with a combined net asset value of $84 million are expected to be in the market over the next few quarters. We continue to make progress on the execution of the value add programs at both the Arlington, Texas and Dallas, Texas multifamily properties. Under BrightSpire's ownership, our in-house asset management team is making progress at these assets, bringing their resolutions closer. The final two REO properties consist of the San Jose Hotel and the Santa Clara multifamily pre-development property.

Speaker #2: Turning to the REO front, there are six properties with a gross book value of $330 million, of which two multifamily assets with a combined NAV of $62 million are under contract for sale.

Speaker #2: The remaining two multifamily assets, with a combined net asset value of $84 million, are expected to be in the market over the next few quarters.

Speaker #2: We continue to make progress on the execution of the value-add programs at both the Arlington, Texas, and Dallas, Texas multifamily properties. Under BrightSpire's ownership, our in-house asset management team is making progress at these assets, bringing their resolutions closer.

Speaker #2: The final two REO properties consist of the San Jose Hotel and the Santa Clara multifamily pre-development property. As for the Santa Clara pre-development property, we continue to remain patient as the market recovery currently underway continues to gain momentum.

Andrew Witt: As for the Santa Clara pre-development property, we continue to remain patient as the market recovery currently underway continues to gain momentum. Of note, the Bay Area is experiencing the largest rent increases in the country, the Santa Clara property is benefiting from these improvements. Lastly, with regard to the San Jose hotel loan, we are making substantial progress addressing deferred maintenance, including elevator retrofits. The hotel has seamlessly hosted the major recent sporting events, we continue to target a resolution in 2027. In summary, we made meaningful progress during the quarter in all phases of the business, the results were in line with expectations. Looking ahead, our focus remains on executing our business objectives, which will result in portfolio and earnings growth. With that, I will turn the call over to Frank Saracino, our Chief Financial Officer. Frank?

Andy Witt: As for the Santa Clara pre-development property, we continue to remain patient as the market recovery currently underway continues to gain momentum. Of note, the Bay Area is experiencing the largest rent increases in the country, the Santa Clara property is benefiting from these improvements. Lastly, with regard to the San Jose hotel loan, we are making substantial progress addressing deferred maintenance, including elevator retrofits. The hotel has seamlessly hosted the major recent sporting events, we continue to target a resolution in 2027. In summary, we made meaningful progress during the quarter in all phases of the business, the results were in line with expectations. Looking ahead, our focus remains on executing our business objectives, which will result in portfolio and earnings growth. With that, I will turn the call over to Frank Saracino, our Chief Financial Officer. Frank?

Speaker #2: Of note, the Bay Area is experiencing the largest rent increases in the country and the Santa Clara property is benefiting from these improvements. Lastly, with regard to the San Jose Hotel loan, we are making substantial progress addressing deferred maintenance including elevator retrofits.

Speaker #2: The hotel has seamlessly hosted the major recent sporting events, and we continue to target a resolution in 2027. In summary, we made meaningful progress during the quarter in all phases of the business.

Speaker #2: And the results were in line with expectations. Looking ahead, our focus remains on executing our business objectives which will result in portfolio and earnings growth.

Speaker #2: With that, I will turn the call over to Frank Saracino, our Chief Financial Officer. Frank?

Speaker #3: Thank you, Andy, and good morning, everyone. For the second quarter, we generated adjusted DE of 16.8 million dollars or 13 cents per share. Second quarter DE was 15.8 million dollars or 12 cents per share which includes specific reserves of approximately 1 million dollars.

Frank Saracino: Thank you, Andy, good morning, everyone. For the Q2, we generated adjusted DE of $16.8 million, or $0.13 per share. Q2 DE was $15.8 million or $0.12 per share, which includes specific reserves of approximately $1 million. Additionally, we reported total company GAAP net loss of $18.3 million or $0.15 per share, which also includes approximately $9 million of operating real estate impairment related to two legacy retail triple net assets and an REO multifamily property. First, the two legacy retail triple net assets. Earlier this year, we received notice of default on mortgage notes payable cross-collateralized by five retail triple net properties. In April 2026, a receiver was appointed and took possession and full control of one triple net lease Indiana retail property, requiring deconsolidation of the related assets and liabilities from the company's consolidated balance sheet.

Speaker #3: Additionally, we reported total company gap net loss of 18.3 million or 15 cents per share which also includes approximately 9 million dollars of operating real estate impairment related to two legacy retail triple net assets and an REO multifamily property.

Speaker #3: First, the two legacy retail triple net assets. Earlier this year, we received notice of default on mortgage notes payable, cross-collateralized by five retail triple net properties.

Speaker #3: In April 2026, a receiver was appointed and took possession and full control of one triple net lease Indiana retail property, requiring deconsolidation of the related assets and liabilities from the company's consolidated balance sheet.

Speaker #3: This resulted in our recording a 2.4 million dollar operating real estate impairment charge in the second quarter of 2026. In July, a second receiver was appointed and took possession in full control of one triple net lease asset Illinois retail property.

Frank Saracino: This resulted in our recording a $2.4 million operating real estate impairment charges in the second quarter of 2026. In July, a second receiver was appointed and took possession and full control of one triple net lease asset Illinois retail property. As a result, we will deconsolidate the related assets and liabilities from the company's consolidated balance sheet in Q3. Accordingly, we also recorded an impairment charge of $3.1 million during Q2. Importantly, these GAAP impairment charges had an immaterial impact on our undepreciated book value as we had written down both investments two years ago. Next, as Mike Mazzei mentioned earlier, during Q2, we agreed to sell a previously REO multifamily property located in Mesa, Arizona. Based on expected net sales proceeds, we recorded a GAAP impairment charge of approximately $3.8 million and an approximate $6.5 million reduction to undepreciated book value.

Speaker #3: As a result, we will deconsolidate the related assets and liabilities from the company's consolidated balance sheet in the third quarter. Accordingly, we also recorded an impairment charge of $3.1 million during the second quarter.

Speaker #3: Importantly, these gap impairment charge. Had an immaterial impact on our underappreciated book value as we had written down both investments two years ago. Next is Mike mentioned earlier during the second quarter, we agreed to sell our previously REO'd multifamily property located in Mesa, Arizona.

Speaker #3: Based on expected net sales proceeds, we recorded a GAAP impairment charge of approximately $3.8 million and an approximate $6.5 million reduction to undepreciated book value.

Speaker #3: We expect the sale of this property to close during the third quarter. Quarter over quarter, total company GAAP net book value decreased to $6.81 per share from $7.05 in the first quarter.

Frank Saracino: We expect the sale of this property to close during Q3. Quarter over quarter, total company GAAP net book value decreased to $6.81 per share from $7.05 in Q1. Undepreciated book value decreased to $8.10 per share from $8.24. The change is mainly attributable to an increase in our CECL reserves and the real estate impairments discussed earlier, offset by share repurchases. Looking at CECL reserves, during Q2, we recorded and charged off specific CECL reserves of approximately $1 million, resulting from the resolution of our 3 risk-ranked 5 loans. Our general CECL provision increased to $100 million or 327 basis points on total loan commitments, compared to $87 million or 306 basis points reported in Q1. The increase was driven by macroeconomic conditions as well as specific inputs on certain loans.

Speaker #3: Underappreciated book value decreased to $8.10 per share from $8.24. The change is mainly attributable to an increase in our CISO reserves and the real estate impairments discussed earlier, offset by share repurchases.

Speaker #3: Looking at CISO reserves, during the second quarter, we recorded and charged our specific CISO reserves of approximately $1 million, resulting from the resolution of our three risk rank five loans.

Speaker #3: Our general CISO provision increased to $100 million, or 327 basis points, on total loan commitments, compared to $87 million, or 306 basis points, reported in the first quarter.

Speaker #3: The increase was driven by macroeconomic conditions as well as specific inputs on certain loans. As Mike highlighted earlier, during the second quarter we repurchased a little over 3.8 million shares for approximately $21 million at an average share price of $5.46.

Frank Saracino: As Mike Mazzei highlighted earlier, during Q2, we repurchased a little over 3.8 million shares for approximately $21 million at an average share price of $5.46. This resulted in an $0.08 increase to the company's undepreciated book value per share. Following this activity, we have approximately $29 million remaining under our stock repurchase program. Our debt-to-assets ratio is 70% and our debt-to-equity ratio is 2.7 times. Finally, our liquidity as of today stands at approximately $131 million. This includes $45 million of cash, $30 million available under our credit facility, and approximately $56 million of approved but undrawn borrowings available on our warehouse lines. This concludes our prepared remarks. With that, let's open it up for questions. Operator?

Speaker #3: This resulted in an 8 cents increase to the company's underappreciated book value per share. Following this activity, we have approximately 29 million dollars remaining under our stock repurchase program.

Speaker #3: Our debt to assets ratio is 70 percent and our debt to equity ratio is 2.7 times. And finally, our liquidity as of today stands at approximately $131 million dollars this includes $45 million of cash, $30 million available under our credit facility, and approximately $56 million of approved but undrawn borrowings available on our warehouse lines.

Speaker #3: This concludes our prepared remarks and with that, let's open it up for questions. Operator?

Speaker #1: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchstone phone.

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. We ask that you please limit yourself to 1 question and 1 follow-up question. If you have additional questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. The first question will come from Gabriel Poggi from BTIG. Please go ahead.

Speaker #1: To withdraw your question, please press star, then two. We ask that you please limit yourself to one question and one follow-up question. If you have additional questions, you may re-enter the question queue.

Speaker #1: At this time, we will pause momentarily to assemble our roster. And the first question will come from Gabe Poggi from BTIG. Please go ahead.

Speaker #4: Hey guys, it's Gabe at Raymond James. Can you guys talk about DE as we go forward in conjunction with loan portfolio growth, right? I mean, talking about three and a half billion by the end of the year, approaching through and outperforming the loan subsequent to.

Gabriel Poggi: Hey, guys, it's Gabe at Raymond James. Can you guys talk about as we go forward in conjunction with loan portfolio growth, right? Talking like $3.5 million by end of the year, you're pushing through for the loan. How should we think about kind of the top line growth?

Gabe Poggi: Hey, guys, it's Gabe at Raymond James. Can you guys talk about as we go forward in conjunction with loan portfolio growth, right? Talking like $3.5 million by end of the year, you're pushing through for the loan. How should we think about kind of the top line growth?

Speaker #4: And just how should we think about kind of the top line growth.

Michael Mazzei: Gabe?

Mike Mazzei: Gabe?

Michael Mazzei: Gabe, you're breaking up. We can't hear you.

Mike Mazzei: Gabe, you're breaking up. We can't hear you.

Speaker #2: You're breaking up. We can't hear you.

Speaker #4: You're breaking up, Gabe. Can you guys hear me?

Michael Mazzei: Gabe.

Michael Mazzei: You're breaking up, Gabe. Can you guys hear me?

Gabe Poggi: Can you guys hear me?

Speaker #2: Now we can.

Frank Saracino: Now we can.

Matt Heslin: Now we can.

Speaker #4: Sorry, I'll try that one again. It's Gabe at Raymond James. Can you talk about how to think about the run rate for DE on a go-forward basis in conjunction with the significant loan portfolio growth that you guys have achieved, right?

Gabriel Poggi: Sorry. I'll try that one again. It's Gabe at Raymond James. Can you talk about how to think about the run rate for DE on a go-forward basis in conjunction with the significant loan portfolio growth that you guys have achieved, right? You're almost at $3 billion now, getting to $3.5 billion by the end of the year. How should we think about that kind of waterfall down to the bottom line while you're also working with watchlist REO?

Gabe Poggi: Sorry. I'll try that one again. It's Gabe at Raymond James. Can you talk about how to think about the run rate for DE on a go-forward basis in conjunction with the significant loan portfolio growth that you guys have achieved, right? You're almost at $3 billion now, getting to $3.5 billion by the end of the year. How should we think about that kind of waterfall down to the bottom line while you're also working with watchlist REO?

Speaker #4: You're almost at 3 billion now, getting to 3 and a half billion by the end of the year. How should we think about that kind of waterfall down to the bottom line while you're also working with watchlist REO?

Speaker #2: Right. So they go hand in hand, as we've emphasized before. A lot of this capital for redeployment to the loan book is coming from the REO.

Frank Saracino: Right. They go hand in hand. As we've emphasized before, a lot of this capital for redeployment into the loan book is coming from the REO, some of which is completely unlevered and some which is very low levered. All of which is pretty much a drag on earnings right now because the REO yield is low. Some of the multifamily assets are still, they're covering OpEx, but they're in lease-up. As we pull that forward and we liquidate that portfolio, that'll get funneled into the loan book. As we said, we expect the loan book to get to $3.5 billion. At the $3.5 billion, we thought, I guess indirectly I'm giving you forward guidance, but we thought by $3.5 billion we would be covering the dividend.

Speaker #2: Some of which is completely unlevered, and some of which is very low levered. All of it is pretty much a drag on earnings right now because the REO yield is low.

Speaker #2: Some of the multifamily assets are still—they're covering opex, but they're in LISO. So as we pull that forward and we liquidate that portfolio, that'll get funneled into the loan book.

Speaker #2: As we said, we expect the loan book to get to 3 and a half billion. And after 3 and a half billion, we thought I guess indirectly I'm giving you forward guidance but I mean we thought by 3 and a half billion we would be covering the dividend.

Speaker #2: But for the fact, as we settled the call, we elected to hit an unsolicited bid on Albertsons, which we thought was an extraordinary bid.

Frank Saracino: For the fact is we said on the call, we elected to hit an unsolicited bid on Albertsons, which we thought was an extraordinary bid. We did that. That's going to put us back a little bit. As we move into 2027, the goal is to get the loan book closer to $4 billion by mid-year. I think that as you get into Q2, Q3 2027, that's where we probably see more positive dividend coverage as we get to beyond $3.5 and we redeploy the capital from Albertsons at what could be about 150 basis point higher ROE than we're getting today.

Speaker #2: So we did that. That’s going to put us back a little bit. As we move into 2027, the goal is to get the loan book closer to $4 billion by mid-year.

Speaker #2: And I think that as you get into Q2, Q3 2007, that’s where we probably see more positive dividend coverage as we get to beyond three and a half, and we redeploy the capital from Albertsons at what could be about 150 basis points higher ROE than we’re getting today.

Speaker #2: So it puts. The sale of the Albertsons put out covering the dividend by maybe two quarters. But we'll be I still think but I still think we'll get much closer to that than where we are today.

Gabriel Poggi: That's helpful.

Gabe Poggi: That's helpful.

Frank Saracino: The sale of the Albertsons put out covering the dividend by maybe two quarters.

Gabriel Poggi: All good. That's helpful.

Gabe Poggi: All good. That's helpful.

Frank Saracino: I still think we'll get much closer to that than where we are today.

Speaker #4: Got it. A quick follow-up on Texas and Arizona—Mike, you had been kind of clairvoyant in talking about pending issues in Texas and Arizona.

Gabriel Poggi: Got it. A quick follow-up on Texas and Arizona. Mike, you had been kind of clairvoyant in talking about pending issues in Texas and Arizona, kind of over the course of heading into 2026. It was interesting to see you guys go back into Texas with three new loans, Arizona with two loans. Can you just talk about the landscape there, the opportunity set to kind of clean up some other folks' problems? Thank you.

Gabe Poggi: Got it. A quick follow-up on Texas and Arizona. Mike, you had been kind of clairvoyant in talking about pending issues in Texas and Arizona, kind of over the course of heading into 2026. It was interesting to see you guys go back into Texas with three new loans, Arizona with two loans. Can you just talk about the landscape there, the opportunity set to kind of clean up some other folks' problems? Thank you.

Speaker #4: Kind of over the course of heading into 2026, it was interesting to see you guys go back into Texas with three new loans and Arizona with two loans.

Speaker #4: Can you just talk about the landscape there, the opportunity set to kind of clean up some other folks' problems? Thank you.

Speaker #2: Well, we're cleaning up other folks' problems, and it goes both ways, right? We're selling things, in some cases, yes, below where our loan amount was.

Michael Mazzei: Well, we're cleaning up other folks' problems. It goes both ways, right? We're selling things at, in some cases, yes, below where our loan amount was. There's been a reset in that market. That is fueling a lot of asset sales right now. We've spoken about this before.

Mike Mazzei: Well, we're cleaning up other folks' problems. It goes both ways, right? We're selling things at, in some cases, yes, below where our loan amount was. There's been a reset in that market. That is fueling a lot of asset sales right now. We've spoken about this before.

Speaker #2: So there's been a reset in that market and that is fueling a lot of asset sales right now. We've spoken about this before where lenders are really pushing borrowers to either execute themselves which could amount to a short sale and we've done some of the refinancing ourselves of our own short sales on market terms or just straight foreclosures of which we've done as well.

Michael Mazzei: Where lenders are really pushing borrowers to either execute themselves, which could amount to a short sale. We've done some of the refinancing ourselves of our own short sales on market terms, or just straight foreclosures, of which we've done as well. We think a lot of that product that was done in 2021, 2022 is refueling the pipeline for transaction sales, all at a reset basis. We're glad to go into that market again at much higher debt yields than we were in during the interest rate bubble. Andy, you have anything you would add to that?

Mike Mazzei: Where lenders are really pushing borrowers to either execute themselves, which could amount to a short sale. We've done some of the refinancing ourselves of our own short sales on market terms, or just straight foreclosures, of which we've done as well. We think a lot of that product that was done in 2021, 2022 is refueling the pipeline for transaction sales, all at a reset basis. We're glad to go into that market again at much higher debt yields than we were in during the interest rate bubble. Andy, you have anything you would add to that?

Speaker #2: So we think a lot of that product that was done in '21, '22 is refueling the pipeline for transaction sales all at a reset basis.

Speaker #2: And we're glad to go into that market again at much higher debt yields than we were in during the interest rate bubble.

Speaker #4: And do you have anything you would like to add to that?

Speaker #3: No. I think I mean the markets generally you're starting to see supply tail off in terms of new construction and you're continuing to see job growth and positive dynamics from an in-migration perspective.

Andrew Witt: No. The markets generally, you're starting to see supply tail off in terms of new construction. You're continuing to see job growth and positive dynamics from an in-migration perspective. Our general view is positive, and we think the setup is rather good for rent increases as we move into 2027 and beyond, given the lack of new supply coming in behind it.

Andy Witt: No. The markets generally, you're starting to see supply tail off in terms of new construction. You're continuing to see job growth and positive dynamics from an in-migration perspective. Our general view is positive, and we think the setup is rather good for rent increases as we move into 2027 and beyond, given the lack of new supply coming in behind it.

Speaker #3: So our general view is positive and we think the setup is rather good for rent increases as we move into 2027 and beyond given the lack of new supply coming in behind it.

Speaker #4: Thank you guys.

Gabriel Poggi: Thank you, guys.

Gabe Poggi: Thank you, guys.

Speaker #2: Thanks, Gabe.

Michael Mazzei: Thanks, Gabe.

Mike Mazzei: Thanks, Gabe.

Speaker #1: And the next question comes from Tom Catherwood from BTIG. Please go ahead.

Operator: The next question comes from Thomas Catherwood from BTIG. Please go ahead.

Speaker #5: Thanks. And good morning, everybody. Maybe Mike just sticking with that 3.5 billion dollar portfolio goal by year end. In the past, you'd always talked about one of the keys to achieving that was selling down some of the REO, repatriating that capital.

Operator 2: Thanks. Good morning, everybody. Maybe Mike, just sticking with that, the $3.5 billion portfolio goal by year-end. In the past, you'd always talked about one of the keys to achieving that was selling down some of the REO, repatriating that capital. With the 10-year remaining four, six, and above, does that slow the pace, especially for multifamily assets, slow the pace of selling those and potentially push $3.5 billion out? Are you willing to run leverage a little bit higher into the end of the year just to meet that target goal?

Tom Catherwood: Thanks. Good morning, everybody. Maybe Mike, just sticking with that, the $3.5 billion portfolio goal by year-end. In the past, you'd always talked about one of the keys to achieving that was selling down some of the REO, repatriating that capital. With the 10-year remaining four, six, and above, does that slow the pace, especially for multifamily assets, slow the pace of selling those and potentially push $3.5 billion out? Are you willing to run leverage a little bit higher into the end of the year just to meet that target goal?

Speaker #5: With the 10-year remaining four, six and above, does that slow the pace especially for multifamily assets? Slow the pace of selling those? And potentially push 3.5 billion out?

Speaker #5: Or are you willing to run leverage a little bit higher into the end of the year just to meet that target goal?

Speaker #2: I think, by definition, as we get there, we're going to be running the leverage a little bit higher in the loan book. We're going to do with CLO in the fourth quarter.

Michael Mazzei: I think by definition, as we get there, we're going to be running the leverage a little bit higher in the loan book. We're going to do a CLO Q4. I won't say much more about it, but that leverage is 8% higher than what you get in the loan book. The leverage will tick up a little bit more. Yeah, interest rates being where they are are no one's friend. It's hurting everyone. It is what it is. We're seeing a lot of buyers actually move into the floating rate part of the market, away from the five-year, where they're getting more done. From what we understand, there are plenty of applications sitting at Fannie and Freddie for five-year deals waiting for the five-year to tick down. We don't know if that's going to happen. In the meantime, the bridge market is open.

Mike Mazzei: I think by definition, as we get there, we're going to be running the leverage a little bit higher in the loan book. We're going to do a CLO Q4. I won't say much more about it, but that leverage is 8% higher than what you get in the loan book. The leverage will tick up a little bit more. Yeah, interest rates being where they are are no one's friend. It's hurting everyone. It is what it is. We're seeing a lot of buyers actually move into the floating rate part of the market, away from the five-year, where they're getting more done. From what we understand, there are plenty of applications sitting at Fannie and Freddie for five-year deals waiting for the five-year to tick down. We don't know if that's going to happen. In the meantime, the bridge market is open.

Speaker #2: I won't say much more about it but that leverage is 8% higher than what you get in the loan book. So the leverage will tick up a little bit more.

Speaker #2: But yeah, interest rates being where they are, Tom, are no one's friend. It's hurting everyone, but it is what it is. We're seeing a lot of buyers actually move into the floating rate part of the market, away from the five-year, where they're getting more done.

Speaker #2: From what we understand, there are plenty of applications sitting at Fannie and Freddie for five-year deals waiting for the five-year to tick down. We don't know if that's going to happen.

Speaker #2: In the meantime, the bridge market is open. The CLO market is very liquid with the amount of deals done already this year, surpassing that of last year.

Michael Mazzei: The CLO market is very liquid, with the amount of deals done already this year surpassing that of last year. No, we're pretty much full speed ahead. We may pause if we see bids come in on an asset that we really don't think reflect the value. We're always looking at the opportunity cost of capital as well, sitting on REO versus reinvesting at a much higher ROE. We plan on forging ahead despite where rates are. I think it would probably take another 25 basis points up from here, where the 10-year gets closer to 5%, where you see the market have a big impact. We're still seeing buyers active in the market at cap rates at around where Treasuries are, which shows their expression of optimism around what Andy alluded to earlier. No supply coming in 2027 and rent increases from that point on.

Mike Mazzei: The CLO market is very liquid, with the amount of deals done already this year surpassing that of last year. No, we're pretty much full speed ahead. We may pause if we see bids come in on an asset that we really don't think reflect the value. We're always looking at the opportunity cost of capital as well, sitting on REO versus reinvesting at a much higher ROE. We plan on forging ahead despite where rates are. I think it would probably take another 25 basis points up from here, where the 10-year gets closer to 5%, where you see the market have a big impact. We're still seeing buyers active in the market at cap rates at around where Treasuries are, which shows their expression of optimism around what Andy alluded to earlier. No supply coming in 2027 and rent increases from that point on.

Speaker #2: So no, we're pretty much full speed ahead. We may pause if we see bids come in on an asset that we really don't think we flect the value.

Speaker #2: We're always looking at the opportunity cost of capital as well, sitting on REO versus reinvesting at a much higher ROE. But we plan on forging ahead.

Speaker #2: Despite where rates are. I think it would probably take another 25 basis points up from here where the 10-year gets closer to 5% where you see the market have a big impact.

Speaker #2: We're still seeing buyers active in the market at cap rates at around where treasuries are, which shows their expression of optimism around what Andy alluded to earlier.

Speaker #2: No supply is coming in 2027, and rent increases from that point on. So the market is still bidding things pretty aggressively in anticipation of rent growth.

Michael Mazzei: The market is still bidding things pretty aggressively in anticipation of rent growth.

Mike Mazzei: The market is still bidding things pretty aggressively in anticipation of rent growth.

Speaker #5: Got it, appreciate that, Mike. And then last one for me—maybe unpacking the CECL uptick a bit more. Obviously, you talked about working through a number of the watchlist loans.

Operator 2: Got it. Appreciate that, Mike. Then last one for me, maybe unpacking the CECL uptick a bit more. Obviously, you talked about working through a number of the watchlist loans. There's no more five rated ones there. You had the two migrations. It was a pretty substantial uptick on a percentage basis of the overall portfolio in CECL. Frank, I know you mentioned some was more on the specific side, some was more on the portfolio side. I guess, what had the bigger contribution to that increase? Was it on specific assets, like maybe the Las Vegas multifamily that was added to the watchlist? Or is this just portfolio-wide, you are more concerned about economic conditions?

Tom Catherwood: Got it. Appreciate that, Mike. Then last one for me, maybe unpacking the CECL uptick a bit more. Obviously, you talked about working through a number of the watchlist loans. There's no more five rated ones there. You had the two migrations. It was a pretty substantial uptick on a percentage basis of the overall portfolio in CECL. Frank, I know you mentioned some was more on the specific side, some was more on the portfolio side. I guess, what had the bigger contribution to that increase? Was it on specific assets, like maybe the Las Vegas multifamily that was added to the watchlist? Or is this just portfolio-wide, you are more concerned about economic conditions?

Speaker #5: There's no more five rated ones there. You had the two migrations but it was a pretty substantial uptick on a percentage basis of the overall portfolio in Cecil.

Speaker #5: And Frank, I know you mentioned some was more on the specific side, some was more on the portfolio side. But I guess, what had the bigger contribution to that increase?

Speaker #5: Was it on specific assets like maybe the Las Vegas multifamily that was out of the watchlist? Or is this just portfolio-wide you are more concerned about economic conditions?

Speaker #6: So I think that we don't give a lot of insight, but there's probably a 50/50 split between specific and economic conditions. We still have a fair number of office loans, and we take a hard look at those loans every quarter. But also remember, we generated a bunch of new loans during the quarter, and that obviously adds CECL as well.

Frank Saracino: I think that we don't give a lot of insight, but it's probably 50/50 between specific and economic conditions. Look, we still have a fair number of office loans, and we take a hard look at those loans every quarter. Also remember, we generated a bunch of new loans during the quarter, and that obviously adds CECL as well.

Speaker #5: Got it. Thanks, everyone.

Operator 2: Got it. Thanks, everyone.

Tom Catherwood: Got it. Thanks, everyone.

Speaker #1: Thank you. And the next question will come from Timothy Diagnostino with B. Reilly Securities. Please go ahead.

Operator: Thank you. The next question will come from Timothy D'Agnostino with B. Riley Securities. Please go ahead.

Speaker #4: Good morning and thank you for taking the questions. During the prepared remarks, I believe it was mentioned that multifamily is being written at about so for plus 250.

Timothy D'Agnostino: Good morning, and thank you for taking the questions. During the prepared remarks, I believe it was mentioned that multifamily is being written at about SOFR plus 250. I was wondering if you could provide maybe a little color about where you're writing industrial. It seems that through the H1 2026, that's a little bit of a bigger chunk of the origination than compared to 2025. Thank you.

Timothy D'Agostino: Good morning, and thank you for taking the questions. During the prepared remarks, I believe it was mentioned that multifamily is being written at about SOFR plus 250. I was wondering if you could provide maybe a little color about where you're writing industrial. It seems that through the H1 2026, that's a little bit of a bigger chunk of the origination than compared to 2025. Thank you.

Speaker #4: And I was wondering if you could provide maybe a little color about where you're writing industrial? It seems that through the first half of '26, that's a little bit of a bigger chunk of the origination compared to 2025.

Speaker #4: Thank you.

Speaker #2: Well, there's a lot of industrial sale activity going on. We have not done a ton of industrial at all. And part of that is because we really favor properties where there's more granularity in the rent role.

Michael Mazzei: Well, there's a lot of industrial sale activity going on. We have not done a ton of industrial at all, and part of that is because we really favor properties where there's more granularity in the rent roll, and we steer away from assets that have a lot of binary lease-up risk. One, from a credit standpoint. Two, from an execution standpoint. It's something that line lenders don't like, and it's something that execute less efficiently in a CLO format. We've been really focused on multi. Industrial has gotten tighter, I'd say much more inside of 300 than it was last year, where it was posting around 325. You're seeing the market is getting very aggressive, and my guess is industrial's probably 25, 30 basis points wider than multifamily.

Mike Mazzei: Well, there's a lot of industrial sale activity going on. We have not done a ton of industrial at all, and part of that is because we really favor properties where there's more granularity in the rent roll, and we steer away from assets that have a lot of binary lease-up risk. One, from a credit standpoint. Two, from an execution standpoint. It's something that line lenders don't like, and it's something that execute less efficiently in a CLO format. We've been really focused on multi. Industrial has gotten tighter, I'd say much more inside of 300 than it was last year, where it was posting around 325. You're seeing the market is getting very aggressive, and my guess is industrial's probably 25, 30 basis points wider than multifamily.

Speaker #2: And we steer away from assets that have a lot of binary lease-up risk. One, from a credit standpoint. Two, from an execution standpoint, it's something that line lenders don't like and it's something that execute less efficiently in a CLO format.

Speaker #2: So, we've been really focused on multi-industrial. It's gotten tighter. I'd say much more inside of 300 than it was last year, where it was posting around 325.

Speaker #2: So you're seeing the market is getting very aggressive and my guess is industrial is probably 25, 30 basis points wider than multifamily. But we're seeing, as we alluded to earlier with the reset that's going on in multifamily, we're seeing a lot of opportunities there.

Michael Mazzei: We're seeing, as we alluded to earlier, with the reset that's going on in multifamily, we're seeing a lot of opportunities there. Enough to fill the book, and we're seeing an opportunity to rotate the book toward more average loan size, $30 million multifamily loans, which is clearly what we favor at this point. We're open for industrial business, but like I said, what we've been seeing has been too much with binary rent roll risk.

Mike Mazzei: We're seeing, as we alluded to earlier, with the reset that's going on in multifamily, we're seeing a lot of opportunities there. Enough to fill the book, and we're seeing an opportunity to rotate the book toward more average loan size, $30 million multifamily loans, which is clearly what we favor at this point. We're open for industrial business, but like I said, what we've been seeing has been too much with binary rent roll risk.

Speaker #2: Enough to fill the book and we're seeing an opportunity to rotate the book toward more average loan size, 30 million multifamily loans, which is clearly what we favor at this point.

Speaker #2: We're open for industrial business, but like I said, what we've been seeing has been too much with binary rent roll risk.

Speaker #4: Okay, great. Thanks for the color. And if I could just ask a follow-up—just generally speaking on the loan originations, it seems year-to-date '26 the average loan size is about $37 million.

Timothy D'Agnostino: Okay, great. Thanks for the color. If I could just ask a follow-up. Just generally speaking on the loan originations, it seems year to date 2026, the average loan size is about $37 million compared to about $29 million in 2025. Are deals just generally a little bit bigger out in the market, or do you see yourself going a little bit up market? I know it's only an $8 million increase, but just kind of any color there would be great. Thank you.

Timothy D'Agostino: Okay, great. Thanks for the color. If I could just ask a follow-up. Just generally speaking on the loan originations, it seems year to date 2026, the average loan size is about $37 million compared to about $29 million in 2025. Are deals just generally a little bit bigger out in the market, or do you see yourself going a little bit up market? I know it's only an $8 million increase, but just kind of any color there would be great. Thank you.

Speaker #4: Compared to about $29 million in '25. Are deals just generally a little bit bigger out in the market, or do you see yourself going a little bit upmarket?

Speaker #4: And I know it's only an $8 million increase but just kind of any color there would be great. Thank you.

Speaker #2: Andy?

Michael Mazzei: Andy?

Mike Mazzei: Andy?

Speaker #3: Yeah. I wouldn't read too much into the average loan size. We are targeting we are trying to stay away from rather small loans. So sub-20 million dollar loans.

Andrew Witt: Yeah. I wouldn't read too much into the average loan size. We are trying to stay away from rather small loans, so call it sub $20 million loans. Again, I wouldn't read too much into it. It's really a function of what's been available, what we've been successful on. I think you can underwrite going forward that our average loan balance will be somewhere in that $30 to $35 million range.

Andy Witt: Yeah. I wouldn't read too much into the average loan size. We are trying to stay away from rather small loans, so call it sub $20 million loans. Again, I wouldn't read too much into it. It's really a function of what's been available, what we've been successful on. I think you can underwrite going forward that our average loan balance will be somewhere in that $30 to $35 million range.

Speaker #3: But again, I wouldn't read too much into it. It's really a function of what's been available, what we've been successful on, and I think you can underwrite going forward that our average loan balance will be somewhere in that 30 to 35 million dollar range.

Speaker #4: Okay, great. Thanks for taking the questions today.

Timothy D'Agnostino: Okay, great. Thanks for taking the questions today.

Timothy D'Agostino: Okay, great. Thanks for taking the questions today.

Speaker #1: Thank you. The next question will be from Jason Weaver from Jones Trading.

Operator: Thank you. The next question will be from Jason Weaver from JonesTrading.

Speaker #7: Hey, good morning, guys. Thanks for taking the question. In conjunction with your prepared remarks, it looks like three Qs off to a really strong start with July almost as high as the second quarter total.

Jason Weaver: Hey, good morning, guys. Thanks for taking the question. In conjunction with your prepared remarks, it looks like Q3's off to a really strong start with July almost as high as the Q2 total. Can you talk about, a bit, how the pipeline is shaping up here and how we should think about cadence through the end of September?

Speaker #7: Can you talk a bit about how the pipeline is shaping up here and how we should think about cadence through the end of September?

Speaker #2: Andy?

Michael Mazzei: Andy?

Mike Mazzei: Andy?

Speaker #3: Yeah. So this year, we had a strong start to the year in terms of volume at the top end of the funnel. That's continued into the second quarter.

Andrew Witt: Yeah. This year, we had a strong start to the year in terms of volume at the top end of the funnel. That's continued into the Q2. To date, we've seen about $57 billion worth of product. Again, it's important to highlight that we are targeting the middle market, that's over a substantial number of opportunities. In terms of what we're seeing going forward, we expect the trend to continue into the back half of the year. As we look at kind of expectations in terms of top end of the funnel, that could be somewhere in the $110, $120 billion range by year-end, given what we're seeing at this point. Dan, I don't know if you have anything you'd like to add.

Andy Witt: Yeah. This year, we had a strong start to the year in terms of volume at the top end of the funnel. That's continued into the Q2. To date, we've seen about $57 billion worth of product. Again, it's important to highlight that we are targeting the middle market, that's over a substantial number of opportunities. In terms of what we're seeing going forward, we expect the trend to continue into the back half of the year. As we look at kind of expectations in terms of top end of the funnel, that could be somewhere in the $110, $120 billion range by year-end, given what we're seeing at this point. Dan, I don't know if you have anything you'd like to add.

Speaker #3: To date, we've seen about $57 billion worth of product. And again, it's important to highlight that we are targeting the middle market. So that's over a substantial number of opportunities.

Speaker #3: And in terms of what we're seeing going forward, we expect the trend to continue into the back half of the year. So, as we look at expectations in terms of top end of the funnel, that could be somewhere in the $110 to $120 billion range by year-end.

Speaker #3: Given what we're seeing at this point. I don't know if you have anything you'd like to add.

Speaker #7: No. I would just add that if the trend continues and we hit the numbers that Andy just said, that the total top of the funnel would eclipse the very robust years of '21 and '22 where we were over 100 billion.

Dan Furman: No. I would just add that if the trend continues and we hit the numbers that Andy just said, that the total top of the funnel would eclipse the very robust years of 2021 and 2022 where we were over $100 billion but under $110 billion. Yeah, the pipeline's continuing to grow. It's been more refi than acquisition to date, but that is also starting to move a little bit. With an expectation that more acquisitions might show up in the H2.

Dan Katz: No. I would just add that if the trend continues and we hit the numbers that Andy just said, that the total top of the funnel would eclipse the very robust years of 2021 and 2022 where we were over $100 billion but under $110 billion. Yeah, the pipeline's continuing to grow. It's been more refi than acquisition to date, but that is also starting to move a little bit. With an expectation that more acquisitions might show up in the H2.

Speaker #7: But under $110 billion. So the pipelines continue to grow. It's been more refi than acquisition to date, but that is also starting to move a little bit.

Speaker #7: So, with an expectation that more acquisitions might show up in the second half. Got it, thanks for that. And then secondly, it looks like, as it pertains to your REO, the second quarter NOI on the San Jose Hotel property was down about $1 million from last quarter.

Jason Weaver: Got it. Thanks for that. Secondly, it looks like, as it pertains to your REO, the Q2 NOI on the San Jose hotel property was down about $1 million from last quarter. Can you talk about the drivers there and how we should think about the run rate for valuation purposes going forward?

Speaker #7: Can you talk about the drivers there, and how we should think about the run rate for valuation purposes going forward?

Speaker #3: Yeah. Hi, this is Matt Hessen. There's a fair amount of seasonality at that hotel, so it's not unexpected from what we've seen in the past. We do see a drop-off a little bit in the summer, and then the spring and winter months tend to be a little bit stronger.

Matt Heslin: Yeah. Hi, this is Matt Heslin. There's a fair amount of seasonality at that hotel, it's not unexpected for what we've seen in the past. We do see a drop off a little bit in the summer, and then, the spring and winter months tend to be a little bit stronger. Not unexpected, not different than what we've seen in past years.

Speaker #3: So, not unexpected; not different than what we've seen in past years.

Speaker #7: Got it. Thank you for the color.

Jason Weaver: Got it. Thank you for the color.

Speaker #1: And again, if you would like to ask a question, please press star, then one. The next question comes from Gurav Mehta from Alliance Global Partners.

Operator: Again, if you would like to ask a question, please press star then one. The next question comes from Gaurav Mehta from Alliance Global Partners. Please go ahead.

Speaker #1: Please go ahead.

Speaker #2: Thank you. Thank you. Good morning. Following up on property NOI, what's the impact of the expected REO sales and triple N sales on the run rate NOI going forward?

Gaurav Mehta: Thank you. Thank you. Good morning. Following up on property NOI, what's the impact of the expected REO sales and triple net sales on the run rate NOI going forward?

Speaker #7: Just one property. It's not significant. The property REO property that are going to be sold, it's not significant.

Michael Mazzei: Just one property. It's not significant. The REO property that are going to be sold, it's not significant.

Mike Mazzei: Just one property. It's not significant. The REO property that are going to be sold, it's not significant.

Speaker #2: Okay. On the balance sheet, you talked about $29 million remaining under the stock repurchase plan. Should we expect more share repurchases going forward?

Gaurav Mehta: Okay. On the balance sheet, you talked about $29 million remaining under the stock repurchase plan. Should we expect more share repurchases going forward?

Michael Mazzei: We'll always balance the origination pipeline versus cash on hand. There is always a preference or bias toward organic growth of the loan book. Having said that, we indicated that our buybacks last Q were at $5.46 a share. We note where the stock is trading today. It's attractive, but, like I said, that doesn't necessarily mean we absolutely will go into the market. We'll balance, as I said, cash on hand versus our pipeline. Yes, we bought at $5.46 and we're trading at $5.07 right now.

Mike Mazzei: We'll always balance the origination pipeline versus cash on hand. There is always a preference or bias toward organic growth of the loan book. Having said that, we indicated that our buybacks last Q were at $5.46 a share. We note where the stock is trading today. It's attractive, but, like I said, that doesn't necessarily mean we absolutely will go into the market. We'll balance, as I said, cash on hand versus our pipeline. Yes, we bought at $5.46 and we're trading at $5.07 right now.

Speaker #7: We'll always balance the origination pipeline versus cash on hand. There is always a preference or bias toward organic growth of the loan book. Having said that, we indicated that our buybacks last quarter were at $5.46 a share.

Speaker #7: We note where the stock is trading today. It's attractive, but like I said, that doesn't necessarily mean we absolutely will go into the market.

Speaker #7: We'll balance, as I said, cash on hand versus our pipeline. But yes, we bought at $5.46, and we're trading at $5.07 right now.

Speaker #2: All right. Thank you. That's all I had.

Gaurav Mehta: All right. Thank you. That's all I had.

Speaker #1: And, ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back to Mike Mazzei for any closing remarks.

Operator: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back to Michael Mazzei for any closing remarks.

Speaker #2: Well, thank you for joining us today. As always, we are available for one-on-one meetings, so reach out if you'd like to coordinate that. Otherwise, we look forward to seeing you at the end of Q3.

Michael Mazzei: Well, thank you for joining us today. As always, we are available for one-on-one, reach out if you'd like to coordinate that. Otherwise, we look forward to seeing you at the end of Q3. Thank you.

Mike Mazzei: Well, thank you for joining us today. As always, we are available for one-on-one, reach out if you'd like to coordinate that. Otherwise, we look forward to seeing you at the end of Q3. Thank you.

Speaker #2: Thank you.

Operator: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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