Brightspire Capital Inc (BRSP) 2021 Q1 法說會逐字稿

Greetings, and welcome to the Colony Credit Real Estate, Inc. First Quarter 2021 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David Palame, General Counsel. Thank you, David. You may begin.

Good afternoon, and welcome to Colony Credit Real Estate, Inc.'s First Quarter and Full Year 2021 (sic) [First Quarter 2021] Earnings Conference Call. We will refer to Colony Credit Real Estate, Inc. as CLNC, Colony Credit Real Estate, Colony Credit or the company throughout this call. Speaking on the call today are the company's President and Chief Executive Officer, Mike Mazzei; Chief Operating Officer, Andy Witt; and Chief Financial Officer, Frank Saracino.

Before I hand the call over, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially including the potential adverse effect of and heightened risks associated with COVID-19. For a discussion of risks that could affect results, please see the Risk Factors section of our most recent 10-Q and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, May 5, 2021, unless otherwise indicated, and the company does not intend and undertakes no duty to update for future events or circumstances.

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

And now I'd like to turn the call over to Mike Mazzei, President and Chief Executive Officer of Colony Credit Real Estate. Mike?

Thank you, David. Welcome to our first quarter earnings call. On behalf of the CLNC team, I would like to start by wishing everyone well, and I thank you for joining us today.

We were off to a very productive start in 2021, and we are incredibly excited about embarking on a new chapter for Colony Credit Real Estate. On April 5, we announced that CLNC had entered into an agreement with our external manager, Colony Capital, to terminate the management agreement and internalize the company's management and operating functions. This transaction was successfully completed on April 30.

The CLNC team is appreciative of the support and recognition it has received from Colony Capital, who continues as our largest shareholder. In taking this step, Colony Capital has unlocked value for CLNC shareholders by allowing this management team to chart its own course in this next stage.

We also thank our CLNC Board members who have invested tremendous time and focus as we worked through this process. Additionally, we are also very proud to announce today, Independent Director, Caty Rice has assumed the position as the Chairperson of our Board of Directors. We look forward to Ms. Rice's continued guidance and leadership.

The internalization provides CLNC shareholders tremendous value enhancement. The self-managed structure will considerably reduce CLNC's expenses and be significantly accretive to earnings in 2021. This use of capital will provide a permanent return on equity in the mid-teens. This exceeds the equity returns we target on loan investments by at least several hundred basis points.

Furthermore, this transaction provides CLNC with important governance benefits as well as increased certainty and control over the company's future strategic direction. CLNC is now positioned as one of the few internally managed public commercial mortgage REITs. We feel strongly that being internally managed is simply a better structure for public shareholders.

The internalized structure results in a more transparent organizational model. It provides a dedicated employee base that will focus exclusively on CLNC and be fully aligned with the company and its shareholders. Our CFO, Frank Saracino, will provide additional details regarding the internalization in his remarks.

During this last quarter, we have continued to steadily redeploy capital into floating rate first mortgage loans. Since commencing with new transactions in the fourth quarter of 2020, we have closed or committed on 31 loans for approximately $1 billion.

As we emerge from the pandemic, the commercial real estate lending markets have begun to stabilize. And while lending has become a bit more competitive, we are concurrently seeing pricing improvements on the liability and financing side of the balance sheet resulting in lower cost of funds. Also, given the improvements we are seeing from the reopening of the U.S. economy, we are expanding our lending focus beyond multifamily and suburban office.

Turning now to some key financial headlines. For the first quarter, we had adjusted distributable earnings of $0.14 a share. Our current liquidity as of May 3 is $443 million. As we continue to work very closely with our borrowers, who have been most impacted by COVID-19, we maintain what we believe to be sufficient liquidity to navigate through the lingering effects of the pandemic.

With respect to our dividend, our Board of Directors has approved an increase in our second quarter dividend from $0.10 to $0.14 a share. This is the product of the cost savings achieved from the internalization as well as the continued successful execution of our business plan and resulted growth in earnings. We will continue to closely review our dividend policy as earnings increase. The CLNC team continues to make progress executing on the stated business plan.

Now I would like to provide a recap of where we are and where we are planning to go in 2021. The management internalization is complete, and we will now begin to transition operational functions to CLNC.

Since returning to active lending in the fourth quarter, we have sourced approximately $1 billion of new loans and as such, we have recently initiated the process for the issuance of our second CLO. Most importantly, as we have continued to deploy existing cash and grow earnings, we have thus reinstated and have now increased our dividend.

For the remainder of 2021, we will look to put the pandemic further behind us and work to resolve any remaining underperforming or nonearning assets. This last step will also allow us to repatriate capital into the deployment for new loans.

Our success around these 2021 initiatives will lead to further earnings growth and the expansion of our dividend. We believe these steps will lead to closing the gap between our current market share price and book value.

In closing, I would again like to thank my CLNC partners for their many achievements over this past year. I also, again, thank Colony Capital and our CLNC Board members for their commitment and support as evidenced by this transformative event.

I would like to now turn the call over to our Chief Operating Officer, Andy Witt. Andy?

Thank you, Mike, and good afternoon, everyone. The company remains focused on managing the balance sheet and continuing to build earnings and simplifying the business. Over the course of 2020 and through today, CLNC has meaningfully simplified the business.

The first quarter results are consolidated as we are no longer reporting the legacy nonstrategic assets as a separate segment. This portion of our portfolio is now insignificant relative to the overall portfolio. As such, we've eliminated this segment from our reporting and realigned the reporting segments to reflect how we view and manage the business.

The business is now presented as 1 portfolio comprised of the following segments. One, senior and mezzanine loans and preferred equity. Two, net lease real estate and other real estate. Three, CRE debt securities. And four, corporate.

As of March 31, 2021, excluding cash and net assets on the balance sheet, senior and mezzanine loans and preferred equity is comprised of 64 investments in an aggregate at-share net book value of approximately $1 billion or 81% of the portfolio. This is the segment of the portfolio we anticipate allocating the majority of our capital towards as we continue to build company earnings.

Net leased real estate and other real estate is comprised of 12 investments and an aggregate at-share net book value of approximately $162 million or 13% of the portfolio. The net lease assets remain core to our investment strategy due to the long-term stable cash flows they provide in addition to the potential for capital appreciation. The cash flows generated from this segment of our portfolio are often associated with mission-critical infrastructure lease to credit tenants.

CRE debt securities, a segment which includes 1 remaining private equity interest, is comprised of 10 positions and an aggregate at-share net book value of $79 million or 6% of the portfolio. Subsequent to quarter end, the company sold 4 CMBS positions related to 1 B-Piece transaction for a total of $29 million, resulting in a gain of approximately $9 million, further reducing the company's exposure to this segment. We anticipate little activity in this part of our portfolio as the majority of the remaining value in this reporting segment is associated with bonds, subject to risk retention provisions.

Although the company holds real estate credit investments across a number of investment strategies, our primary strategy remains originating first mortgages as evidenced by recent investment activity. During the first quarter and through today, the team has originated 18 new senior loans with an aggregate commitment of $554 million. All of these investments are first mortgages, the majority of which are acquisition financing consistent with our stated strategy of reorienting the portfolio toward current and predictable cash flows.

The blended unlevered yield on our loan book is approximately 5.3% with an average loan size of $43 million. Importantly, the loan portfolio remains diversified in terms of size, collateral type and geography with a focus on multifamily and office properties. It is important to note the portfolio contains certain nonaccrual assets, which are not contributing to earnings.

We anticipate restructuring or repatriating capital associated with 5 investments comprised of 7 loans on nonaccrual status, which accounts for an at-share carrying value of approximately $296 million. Of this amount, $165 million is associated with the San Jose, California hotel senior loan and preferred equity investment that was placed on nonaccrual during the first quarter.

During the first quarter, the borrower closed the hotel and filed Chapter 11 bankruptcy. We have entered into a restructuring support agreement with the borrower. Additional details will be included in the asset-specific summary section of the company's Form 10-Q filing. Resolving these positions will allow the company to redeploy this capital into investments, contributing to earnings.

On the liability side of the balance sheet, we amended our bank credit facility to permit the internalization. As part of the amendment, we reduced the tangible net worth covenants, increased our ability to make restricted payments such as dividends and stock buybacks, removed material restrictions on new investments, increased the maximum amount available for borrowing to 100% of the borrowing base value and reduced aggregate amount of lender commitments from $450 million to $300 million.

In addition, the company amended 6 master repurchase facilities to permit the internalization and reduce the tangible net worth covenant, along with extending the maturity date on 4 master repurchase facilities.

Lastly, our $1 billion managed CLO executed in October 2019 continues to perform and benefit from LIBOR floors at the underlying loan level. We continue to monitor the performance of the CLO, which includes managing ordinary course loan payoffs. While some of our newly originated loans will replace prepayments in our existing CLO, we are planning to issue our second CLO in the relatively near term, assuming suitable market conditions.

In summary, the company continues to focus on the existing portfolio, while building and executing on a pipeline of new originations opportunities. For the remainder of the year, we anticipate deploying cash on the balance sheet and repatriating and redeploying capital associated with nonaccrual assets in order to drive earnings growth to support increasing dividend payments to shareholders.

With that, I will turn the call over to our Chief Financial Officer, Frank Saracino, to elaborate on the first quarter results.

Thank you, Andy, and good afternoon, everyone. Before discussing our first quarter results, I want to mention that we expect to file our 10-Q tomorrow. In addition, I would like to draw your attention to our supplemental financial report, which is available on our website. The supplement continues to provide asset-by-asset details as does our Form 10-Q.

With that, let's turn to our first quarter results. CLNC reported first quarter 2021 total company GAAP net loss attributable to common shareholders of $92.3 million or $0.71 per share and distributable earnings of $13.8 million or $0.10 per share. Excluding realized gains and losses and fair value and other adjustments, total company adjusted distributable earnings were $18 million or $0.14 per share.

The GAAP net loss attributable to common shareholders of $92.3 million reflects our recording of $109.2 million in restructuring charges. The restructuring charges include a onetime cash payment of $102.3 million to terminate the management contract as well as transaction expense.

During the first quarter, total GAAP net book value decreased from $12.96 to $11.98 per share and undepreciated book value decreased from $14.14 to $12.84 per share. This change is primarily due to the upfront cash investment made to terminate the contract with our external manager.

As expected, first quarter 2021 adjustable distributable earnings came in lower than our 4Q 2020 results of $26.1 million or $0.20 per share. The difference is primarily a result of our first quarter sale of our net lease industrial portfolio, fourth quarter resolution of legacy nonstrategic assets, the timing or ramp of new loan originations and the placing on nonaccrual of the San Jose California hotel investment that Andy mentioned earlier.

Looking ahead, we expect earnings growth from these levels as we recognize a full quarter of income from first quarter loan originations of $475 million, deploy idle cash and realize the cost benefits of the internalization, which brings me to my next point.

As Mike mentioned at the top of the call, perhaps our most significant achievement for CLNC so far this year is the completion of the transaction with our external manager to internalize the company's management and key operating function.

We believe this internalization will provide meaningful benefits and significantly enhanced shareholder value in a number of ways. First, the transition to a self-managed structure is expected to be considerably accretive to earnings and reduce the company's general administrative expenses.

Excluding the onetime termination charges payable to the manager, totaling $102.3 million, we anticipate generating operating cost savings of approximately $14 million to $16 million per year or approximately $0.10 to $0.12 per share.

In addition to providing management continuity from CLNC's existing leadership team, the internalized structure also offers a more transparent organizational model as well as a dedicated employee base, which will focus exclusively on CLNC. All that said, we believe that the economics of this transaction along with the certainty and focus it creates for our newly dedicated team will lead to greater shareholder value.

Another important highlight is on the dividend front. After reinitiating the dividend last quarter, I am pleased that our Board of Directors has authorized a substantial increase to second quarter. Given our improved financial position, operating performance, business outlook and cost savings from the internalization, we declared a dividend of $0.14 cents share for the second quarter of 2021. This represents an increase of 40% from last quarter's $0.10 per share. And second quarter dividend is payable on July 15 to shareholders of record as of June 30.

The expanding dividend provides further evidence of the Board's confidence in our ability to generate distributable earnings growth as we emerge from the pandemic and economic conditions continue to improve. As Mike mentioned, we will continue to evaluate our dividend quarterly.

Moving to our balance sheet, our total at-share assets stood at approximately $4.1 billion as of March 31, 2021. Our debt-to-assets ratio was 55% and net debt-to-equity ratio was 1.1x at the end of the first quarter. This is relatively unchanged compared to the fourth quarter. In addition, our liquidity stands at approximately $443 million between cash on hand and availability under our bank credit facility.

Turning to risk rankings. Our overall risk ranking at the end of the first quarter improved slightly compared to the fourth quarter. Our first quarter risk ranking is 3.6 as compared to 3.7 at the end of the prior quarter.

Finally, at the end of the first quarter, our CECL provision was $41.7 million and represents approximately 1.5% reserved against our loans. This is a slight increase of approximately $3.2 million as compared to the prior quarter with differences primarily driven by new originations.

This concludes our prepared remarks. And with that, I'd like to open the call up for questions.

Operator?

(Operator Instructions) Our first question comes from Matthew Howlett with B. Riley.

Congratulations. Michael, could you spend just a few more minutes now that you've sort of taken this company back, you're going to run the company. You've taken it back. You're talking about unlocking value. It's yours. It's the employees. Can you talk a little bit about the vision -- your vision for the company going forward a little bit more on how you're going to create shareholder value. Just a little bit more. Just a few minutes to just talk about what the long-term plan is.

Thank you, Matt. And welcome to our coverage universe. Look forward to working with you. So the vision is -- the vision could be a long-winded answer. Let me start by kind of giving you a summary of where we are right now.

So where we are is -- in terms of earnings, we're in like the trough part of the earnings point in our growth. Why are we at trough? We're at trough because we have peak liquidity, right? We've had more cash than we've ever had, and we're working it down. We're starting to originate loans. We've originated $1 billion. And so that is going to pull us out of the trough as well.

The internalization is done. Frank mentioned the economics of that in terms of adding to earnings. And then we mentioned that we are starting a process for what will be our second CLO, probably some time in the early third quarter. And we've now identified assets. And I spoke about this in my remarks, these underperforming assets or nonearning assets that we're going to be focusing on largely due to COVID, COVID-impacted assets. So that's where we are in terms of right now and why we feel like we're in the trough of earnings and coming out.

In terms of the vision, I hate to disappoint you, it's kind of simple. We just -- we want to transition this balance sheet and this company to becoming a peer in what we consider the best-in-class commercial mortgage REITs in our set. Now I'm not going to tell you who I think the best in class are. I don't want to insult anybody by leaving them out. But we want to evolve this balance sheet into more of a pure-play commercial mortgage balance sheet with predictable earnings and predictable credit going forward.

This management team has signed on for trying to accomplish this in 2021 fully. And this is an 8-month goal. How we do it is, we're going to -- the things involved, we have to obviously grow earnings. We have to improve our ROE. And this is really also largely entails the rotation of the asset base and continuing to rotate the asset base as we've been doing mostly into first mortgage bridge loans.

So now how -- that's kind of a why. We want to be best in -- among the best in class, pure-play commercial mortgage REITs. And the how, we get there. And we alluded to some of this in the prepared remarks. We continue to deploy cash into first mortgages and now selective mezz and expand the property types that we're looking at. We've done $1 billion so far, and we continue to evolve the balance sheet into a pure-play commercial mortgage. I think 90% of what we've done out of the 30-plus loans has been multifamily acquisition loans, average loan size around $30-ish million.

We mentioned again, we want to execute on our second CLO to maneuver into nonrecourse financing. That will probably also boost earnings a few cents. We look to tee that up. Now for the, as I said, midsummer and hopefully get another one done maybe late Q4 or very, very early in Q1.

And then the balance of that is really -- what I would call really the game changer for CLNC in 2021. And the game changer is turning the current nonearning assets around. And we can do that in a couple of ways. One, we could simply get assets off the bench and on the field and producing revenue again and financed again. And Fairmont San Jose is a great example of that. It's an asset where the borrower's in bankruptcy. The loans are nonaccrual. We're pulling it off of its financings. And so if we could turn that asset into an earning asset again and get it financed, that means a lot. And we're looking to do that and we're working closely with that borrower.

And another way is just simply repatriating capital on nonearning assets by monetizing them in some way and then reinvesting those -- the monetization of those assets into new loans. An example of that would be, for instance, Century Plaza. They're in the process of trying to sell the hotel at Century Plaza right now, and the condo towers are being completed. And if that hotel is successfully sold, it'll pay down the debt substantially, and then may unlock value for us and the ability to monetize.

So this last step of dealing with the nonearning assets, that really counts as a full game. One, you're turning assets into earning assets or you're turning cash into new assets. And also what it does is, on the cash balance side is it gives you more visibility into the cash that you need or, I should say, that you don't need to defend these assets any longer. And then once you're able to understand what cash you no longer need to sit on, you then unlock that cash and you invest it.

And so we're no longer sitting on too much idle cash. And it gives us the confidence to get down to more of an operating level of cash. And so I'll close with, what's the math -- the basic math around that? We want to operate the company and say with 2, 3 CLOs outstanding, a couple of several billion dollars. We probably need, call it, a $1.25 of cash -- $125 million of cash, plus our undrawn revolver.

Right now, we're sitting on about $330 million in cash. And so if you get that down to where you got $200 million cash to spend, as soon as you know that we're spending part of it now, and we'll spend the rest of it when we know that we've got these assets protected. And then you've got something like Century Plaza, which is $97 million of market value. And let's say you can unbridle that because good things happen at the asset over the course of the summer.

And then you've got Fairmont San Jose, which in and of itself is $180 million that's going unencumbered. And if you can get that earning again and then maybe finance it at 50% advance rate and produce another $90 million in liquidity, you're looking at $200 million plus $100 million plus $90 million, you're looking at close to $400 million in liquidity. And you put 10.5 on that and it's -- or 11, it's like $0.35, $0.40. And so to summarize -- and I'm sorry for being long-winded, we want to transition the balance sheet, we're doing that into a pure play. We want to be best-in-class among what we think in our peer set. We -- this is the road map how to get there. We're doing most of it now. We just need to -- we turn these nonearning assets and monetize them. We'll get them earning again and unlock the last portion of our earnings.

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

We're shooting to be in our peer group with ROE. We're sitting on a lot of assets right now, including cash, which are earning nothing. When you look at the rest of our assets, our ROE falls within the peer group. We think the internalization is important for shareholders. Not only does it add to earnings, but it improves the governance and streamlines the governance, makes the company more transparent. We're getting a mid-teens return on that.

And yes, our goal is to absolutely close the gap between market value and book value. And we think these next quarters in 2021, we've gone through a lot with COVID, in terms of raising capital to defend the balance sheet and working on some of the difficult assets that we had, but now we're seeing a path toward higher earnings, getting the dividend up and closing that gap between market value and book value.

Our next question comes from Tim Hayes with BTIG.

My first question focuses around the dividend. And I know it's a Board decision, Mike, but I just want to get a better feel for the decision to increase it to $0.14 this quarter, and how to think about it in the next couple of quarters here? So I know that you guys reported adjusted distributable earnings of $0.14 per share. Is the move -- is that the best -- first of all, is that the best benchmark for the dividend going forward is that adjusted distributable number?

And then second of all, is it kind of -- the move to the dividend there, I know you said you expect this quarter to be kind of trough earnings, but is the Board expecting adjusted distributable earnings to be covering this $0.14 dividend on a quarterly basis going forward, or is there some growing into that, that you expect to kind of happen over the coming quarters?

Thank you. Tim, there's no growing into it. When you look at on a cash basis, we were able to pay that out of cash. And then again, as I earmarked before, with the originations that are closing and coming online and as we continue to deploy cash and with this -- that'll also increase earnings.

And then over the next coming quarters, not only deploying cash balances that we've already expected to out of that $330 million, but really, as I laid out earlier, the math is we cover the $0.14 and we're looking to get these earnings up with this extra, call it, $340 million of capital, which could provide $0.35, $0.40 in cash. So the math is pretty basic.

We feel like we're in a trough quarter, but we think things are pointing up. We've got the CLO that we'd like to do. Hopefully that enhances the ROE on the assets that we have in place now. The internalization will get fully vetted and absorbed over the coming quarters. We have some upfront accruals that we had to take in this quarter as well for compensation to make that adjustment.

So I think this is -- as I said, I think this is a trough quarter. It's covered out of cash. And I kind of gave you the road map for how we think we get it up. It's just a matter of executing on the cash and mainly on those nonearning assets.

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

Well -- look, to be clear, nobody wants to go backwards. So that's not our intention. So I think that the steps that we took, we feel confident that we're not going to go backwards. And I do think, as I've said, our job is to grow earnings. This is the path to grow earnings. And as we grow earnings, we're going to increase that dividend.

We will be cautious in terms of making sure that we don't overstep. We don't want to do that. But I do think that the plan will be -- I can't say it'll be dollar for dollar or penny for penny, but it'll be on that same path. So I do think this is a trough in earnings. I do think -- my expectation is we will see dividend growth in the future. But again, when we assess that with the Board, we want to make certain that we're not going backwards.

Yes. Certainly, can appreciate that. And then just another question on a comment you made earlier about the pipeline and -- in the past couple of quarters, you've been focusing on first mortgage loans and largely, the multifamily space. And you mentioned kind of suburban office as well. But it sounds like you're expanding outside of that, expanding that scope a little bit. So can you talk about in what sense you're expanding the scope? Is it asset type? Is it structure? Are you willing to do a little bit more mezz than you were a quarter or 2 ago? Is it level of transition? Are you willing to do some construction lending? That kind of stuff. So any color on kind of this enhanced pipeline would be helpful.

Well, I think that we want to do substantially first mortgages. Construction loans can be first. But we also want to execute, as I said, in another CLO, even after the one we do in the summer. So I think the assets will substantially look like that, first.

Secondly, we will expand in terms of other property types. We will expand into even hotel, other office markets. We've been sticking to suburban office markets and what we thought are high growth areas of the country. And we'll continue to do that.

And yes, there will be a portion of the balance sheet where we use, call it, $100 million, $150 million bucks of capital to do mezz transactions. And those could be mezz transactions where we do the senior and we lay off the senior, but it will be a senior that we can definitely defend in terms of size. And so we might -- we may do mezz loans between $10 million and $25 million. We've done some mezz behind multifamily construction before that is working out very well. There are some other mezz that we've done. For instance, Century Plaza, which was just too big in terms of scope and size, and we are where we are with that.

So yes, we are going to focus on some mezz, and we are going to expand the property types. Is it possible we do construction? I would say, very, very, very selectively. There are some developers that we've worked within the past that are very good. And if one of them came to us again today, that would be something we definitely would consider given the track record we've had with a handful of those developers we worked with in the past.

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

Yes. So the banks have been coming lockstep with the market and have been getting very aggressive. You do have to look beyond that. If you're executing on a CLO, you're on that bank line for 30 days, 90 days. And you're on the CLO for a few years. So we're all looking through to the CLO. That market has been stable. And it really is a market that is focused on collateral and issuer. And certain issuers with certain collateral pools will definitely do better. And so we're targeting that probably some time in July.

And so hopefully there will be a few cents of upside per share in that execution, but market conditions between now and then can change. But the banks have been absolutely tightening, both in advance rates -- they've been increasing advance rates slightly and they've been coming -- banks much prefer to drop the rate than increase the advance rate. They've been increasing the advance rate modestly, but they've been dropping the interest rates on warehouse facilities much further.

(Operator Instructions) Our next question comes from Steve Delaney with JMP Securities.

Congrats to you and the team on the internalization. That's a huge step, so glad to have you in that position. So everything -- a lot of stuff has been covered. I just had a question about the CLOs. On -- I wasn't clear whether you had 1 or 2 existing CLOs. Is it 2?

Yes. That's my fault because my -- in my remarks, I'm referring to a second. We have 1 outstanding. That was done in 2019 for $1 billion. And we are -- our second one, we are teeing...

You're teeing that up.

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

Great. Great. And the one -- let's call it, the old CLO. Is there any replenishment in that? Or is that done? Is that static now?

That's not static yet. Andy, do you want to -- and maybe Andy can cover some of that for us.

Yes. So we have the ability to replace collateral in CLO 1 through October of 2019. So we are replacing collateral as loans pay off and we're able to do so until then.

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

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

Our next question comes from Tim Hayes with BTIG.

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

Frank, do you want to take that?

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

Okay. Got it. And I know that you mentioned, Mike, just -- highlighted some specific assets where it kind of makes sense to prune the core portfolio further. But just from a high level, you do have a few kind of troubled assets that you've highlighted and talked about over the past few quarters. And curious if maybe -- you mentioned Century City. Are there any others that you'd point to as, these are liquidation candidates versus we want to try to work this out and we're in this one for the long haul. And maybe just broadly, how much more pruning of the core portfolio do you think there is left?

Let's -- I'm not going to say that we're looking to liquidate an asset, but let me just identify what we have and what you'll see in our reporting as the assets that are the -- that are mainly the nonearning assets. And that's the Dockland, Dublin development deal, Century Plaza, the Fairmont San Jose. Now Fairmont San Jose is just an asset that needs to come out of bankruptcy. There may not be anything we do there. And we may actually just continue to hold that asset, but we need to get it back to earnings.

So that's an example of something that we're focused on it, but we're just trying to convert it into earnings. We're not trying to necessarily liquidate that asset. Those are the 3 biggest to keep an eye on.

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

Well, on the Century City -- Century Plaza deal, as I said in my remarks, the borrower right now has that hotel on the market. I can't speak for where they are in that. I don't want to speculate. But that -- I do know the hotel is on the market. There have been some condos that have closed in the hotel condo portion of it that have paid down the loan modestly, $20 million.

And we've -- there are outstanding commitments on the tower condos, but that tower -- the towers aren't going to get completed until later in 2021. So there's something going on at the property level at Century Plaza, which we're just watching and observing. And as that works its way through, then we'll have an opportunity to potentially monetize and that's all being done at the property level.

And the Fairmont San Jose situation, that's a convention center hotel. And unlike the other hotel you mentioned, which has an enormous tennis facility and could be considered a destination hotel where people want to go to just to get out and like a resort. They are different hotel assets. And so that's why Fairmont San Jose is where it is because it is mostly a group type of -- convention type of asset.

But that too will work its way through, we think, relatively quickly. Because we hope that the bankruptcy judge understands that getting that asset turned on as quickly as possible is best for the equity and for the asset involved.

And then in terms of the Dublin asset, that's one that is a little bit more squishy, if you will. It's land. We're waiting for entitlements to come through to enhance the development prospects of the property, both on the residential and on the office side. And the borrower's still working with -- COVID has just kind of lightened up in Ireland. Workers are back at the site. And the developer is still working on securing an anchor tenant for the office development. So that one has got a little bit more uncertainty there. The others, we think, have more of a short-term time horizon.

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

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

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