Brightspire Capital Inc (BRSP) 2020 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Colony Credit Real Estate, Incorporated's Second Quarter 2020 Earnings Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, David Palame, General Counsel. Thank you. You may begin.

Good afternoon, and welcome to Colony Credit Real Estate, Inc's Second Quarter 2020 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, Neale Redington. Chief Accounting Officer, Frank Saracino is also on the line to answer questions.

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 the current pandemic of the novel coronavirus, or COVID-19. For a discussion of risks that could affect results, please see the risk factors section of our most recent 10-K and first quarter 2020 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 cautioning that an interpretation of many of the risks should be heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.

All information discussed on this call is as of today, August 6, 2020, 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 second quarter earnings call. This is also my second call since joining the company on April 1. On behalf of the CLNC team, we'd like to start by wishing everyone well in these uncertain times. The best possible outcomes will be achieved through hard work, focus and cooperation. Our CLNC employees are doing this every day. We continue to work safely from remote locations. Our operational systems, financial controls, technology and communication continue to work seamlessly. We are confident that we can continue to work productively until we can safely return to the workplace.

During our second quarter and through today, we have been extremely active. On the first quarter earnings call, we highlighted our key areas of focus, including asset and liability management with an emphasis on increased borrower and tenant interaction. We also maintained frequent communication with our banking counterparties. In addition, I stated that maintaining and enhancing liquidity will remain the top priority. Given the substantial unknown and persistence of COVID-19, we felt the need to act decisively by setting in motion multiple initiatives, which included the sales and financing of certain core assets. We put multiple irons in the fire because of the uncertainty in timing, sequencing and probability of success with any of these initiatives. We carefully weighed the value of retaining certain assets long term versus the benefits and costs associated with generating incremental liquidity to support the CLNC balance sheet during COVID-19.

To this end, we have completed a number of initiatives, the results of which have doubled all liquidity, which currently stands at $525 million. We have also reduced total borrowing since March 31 by over $600 million from $3.2 billion to $2.6 billion. These core asset sales included CMBS securities, hotel and preferred equity loans as well as owned real estate. This involved the sale of 3 core portfolio assets during the second quarter ended June 30 and subsequent to quarter end. In addition, we entered an agreement to sell an equity investment on an industrial portfolio and have separately agreed to sales terms on another equity investment. Both of these transactions are expected to close in the coming months. Also included in this liquidity initiative was the closing of a nonrecourse asset-level financing with Goldman Sachs. Andy will discuss this transaction in more detail.

While there has been a reduction in book value and earnings associated with these transactions, we are confident that we are taking the necessary steps to further protect the balance sheet given the persistence of COVID-19. The effort put forth by the CLNC team in the execution of these initiatives have provided meaningful results. In addition to generating substantial liquidity, we have also reduced our repo financing and other debt exposures. Since March 31, we have reduced our CMBS securities repo from $197 million to $38 million. We have substantially eliminated concerns over CMBS margin calls. Additionally, we have reduced our loan warehouse lines, and we have also paid down our bank revolver in full.

As I discussed on the last earnings call, we have been working very closely with our bank counterparties. Our decisive actions to monetize assets, increase liquidity and reduce debt have been well received by our lenders. Maintaining credibility with our bank counterparties is critical. We look forward to their continued support as we seek to do new business and rebuild earnings.

Now, I would like to turn to an overview of our portfolio. As I have said, we are working very closely with our borrowers and tenants. Every asset and sponsor situation is unique. There is no playbook for pandemic-related solutions. However, the key is to maintain frequent communication.

Allow me to provide some details on interest collections for our loan portfolio. On a total company basis, 99% of cash interest payments expected in July have been paid. Of this, there were some loans which required some form of partial modification of their existing loan reserves as well as some loans where borrowers have come out of pocket to support their equity. This is a cash collection figure and excludes PIK loans.

Turning now to our own real estate assets. Inclusive of legacy nonstrategic, we have experienced rent collections of 94% throughout the second quarter and July. We are pleased to note that since our last reporting, several of our tenants that were previously unable to pay rent have since come current. CLNC also remains current on all investment-level borrowings on our owned real estate.

Separately, I would like to highlight a loan that was placed on nonaccrual and has also incurred a write-down during this quarter. This is a mezzanine and preferred equity construction loan for a Los Angeles mixed-use development. CLNC's share of the combined unpaid principal balance totals $190 million. The write-down on the loan this quarter was $89 million. The development project has experienced overruns due to both construction costs and time delays. We have been working closely with the senior lender and the borrower to arrange outside capital in an effort to fund anticipated budget shortfalls. The situation remains very fluid. Therefore, our write-down considers various outcome scenarios, including a successful third-party capital raise as well as the possibility the senior lender could ultimately foreclose in the event outside capital is not sourced. For additional information, please refer to the details provided on this loan in both our first quarter and second quarter form 10-Q.

In closing, CLNC has made significant progress during the second quarter in fortifying its balance sheet. As previously stated, the commitment to generate liquidity was weighed against reductions in shareholder equity and near-term earnings. These initiatives, along with our dividend suspension in April, were necessary steps to protect the balance sheet and maintain flexibility. Once uncertainties associated with COVID-19 are behind us, we look forward to redeploying this capital to rebuild earnings. To this end, we have been engaged with the markets to stay apprised of new loan activities. At this time, transactions in both asset sales and lending continue to remain low and highly selective. Going forward, as we redeploy capital, our focus will be on senior mortgage.

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

Thank you, Mike, and good afternoon, everyone.

As previously highlighted, the focus of this past quarter and subsequently has been asset and liability management and continuing to build liquidity to address pressures related to COVID-19 and the eventual shift toward future opportunities. Highlights of these activities since last reporting are as follows: CLNC liquidity position, including cash on hand and availability under the corporate revolving line of credit, has increased from $255 million to $525 million as of today. Outstanding borrowings on our whole loan warehouse lines have been reduced from $723 million to $610 million. In addition, CMBS repo lines have been reduced from $197 million to $38 million. We accepted up to $229 million of nonrecourse preferred financing on a portfolio of 5 CLNC investment interests from investment vehicles managed by Goldman Sachs. And subsequent to quarter end, we fully repaid our corporate revolving line of credit.

During the second quarter, core portfolio asset sales included the sale of a preferred equity loan on an industrial portfolio, or $98 million of proceeds, which included a $10 million realized loss. Subsequent to quarter end, we sold one hotel loan for $105 million of gross proceeds and $48 million of net proceeds. The asset was impaired by $38 million and sold at 6/30 book value. Also, subsequent to quarter end, we executed a discounted payoff on a preferred equity position collateralized by a portfolio of office asset, generating net proceeds of $77 million, in line with 6/30 book value net of the existing CECL reserve. Additionally, we entered in agreement to sell an equity investment in an industrial portfolio and have separately agreed to terms on another industrial portfolio, both of which we expect to sell between now and year-end.

Within the core portfolio, CLNC has taken measured steps to reduce its exposure to CRE CMBS Securities through the sale of 27 selected investment and non-investment-grade bonds. As Mike previously stated, we have meaningfully reduced the company's remaining CMBS exposure through these sales, which resulted in a loss of approximately $57 million, noting $36 million of this was already recorded in Q1 as an unrealized loss. The CMBS sales generated net proceeds of approximately $24 million. At present, the company's CMBS portfolio consists of 24 CMBS positions and a carrying value of $142 million.

The underlying CMBS repo indebtedness has been rolled out to a December 2020 maturity date and has been meaningfully reduced throughout the course of 2020 from $197 million to $38 million. The advance rate on the collateral as of today was 49%, and our financial terms maintain buffers before any margin calls would apply. Our plan is to continue managing the remaining portfolio and opportunistically sell securities.

On the liability side of the core portfolio, we continue to work collaboratively with our warehouse lenders to further reduce margin risk. In the second quarter, under 2 master repurchase facilities, the company voluntarily reduced advances by $37 million, or approximately 10% of total financings under such facilities. As a result, the company and lender counterparties agreed to temporary modifications, providing for 6-month holidays or buffers before further margin calls are possible as well as providing additional protections before certain repurchase obligations may be triggered. These 6-month holiday periods cover $277 million, or 45% of the outstanding $610 million of senior loan master repurchase facility indebtedness as of today. In addition, the company has broader discretion to negotiate with its borrowers to implement certain modifications to the underlying loans during the covered period.

Lastly, as it relates to the core portfolio, the managed CLO continues to perform and is currently benefiting from LIBOR floors at the underlying loan level. We continue to monitor and manage the performance of the trust for COVID-19-related developments as well as ordinary course loan payoffs within the underlying portfolio of 22 senior loans. The managed aspect of the CLO provides for flexibility to introduce replacement collateral to address ordinary course payoffs and other collateral events.

Now, turning to the LNS portfolio. Resolving the remainders of focus of the company. To date, we have monetized $208 million, or 50% of the LNS portfolio. At present, the LNS portfolio accounts for only 5% of total GAAP net book value, or 9% of undepreciated value. During Q2 2020 and through today, the company sold a resolved 6 LNS assets for a $10 million premium of carrying value for total growth sales price of $51 million and net sales price of $34 million after transaction costs and debt repayment.

CLNC continues to pursue and execute sales in the LNS portfolio. As a result of portfolio deterioration primarily due to COVID-19, we recorded an impairment on held for sale operating real estate of $17 million. The revised valuations were the result of bids received and other third party data points.

To generate additional liquidity during the quarter, we accepted up to $229 million of nonrecourse preferred financing on a portfolio of 5 investment interests. The financing included $200 million of proceeds at closing, which represented a 52.5% advance rate against the first quarter 2020 carrying value. The unsecured financing provides our lender a 10% preferred return and a minority interest in future cash flows following a minimum return on the preferred financing. The transaction resulted in company net liquidity of approximately $170 million, net of approximately $30 million in paydowns under the company's corporate credit facility. The financing includes the ability to draw down up to $29 million of additional commitments from Goldman Sachs for future funding, if any, at the same advance rate.

The financing structure also resulted in a $70 million reduction of stockholders' equity. Neale will provide additional details on the accounting for this financing in his remarks. The portfolio financing is limited to the company's interest in 4 low-leverage coinvestments alongside investment funds managed by affiliates of the company's manager, each of which are financings on investment projects as well as CLNC's triple net industrial distribution investment leased to a national grocery chain. The company and its affiliates retain the discretion with respect to continuing investment and portfolio management of such investments.

With that, I will now turn the call over to our Chief Financial Officers, Neale Redington to elaborate on the second quarter results.

Thank you, Andy, and good afternoon, everyone.

Before discussing our second quarter results, I would like to underscore a few items that will be included in our form 10-Q filing tomorrow. Similar to last quarter, we will provide an update about where COVID-19 has most impacted our balance sheet and liquidity, and we will provide tables identifying our hotel property loans as well as mezzanine loans and preferred equity. There's also further information about July interest and rent receipts.

Furthermore, I would like to draw your attention to our supplemental financial report, which is available on our website. It includes additional information on each of our business segments in addition to a description of how we define core earnings. And finally, we continue to provide asset-by-asset details for our core portfolio in our supplemental financial report as well as all holdings in our form 10-Q.

With that, let's turn to our second quarter results. CLNC reported total company GAAP net loss of $227.1 million, or $1.77 per share; and core earnings loss of $230.5 million, or $1.75 per share. Excluding provisions for loan losses and fair value adjustments and realized losses, second quarter core earnings were $35 million, or $0.26 per share. The company reported a GAAP book value of $1.7 billion, or $13.06 per share, and an undepreciated book value of $1.9 billion, or $14.43 per share.

As previously disclosed, due to the volatility and unprecedented market conditions arising from the pandemic, we concluded that it is prudent and in the best interest of the company to conserve available liquidity. And on April 17, we suspended the company's monthly cash dividend beginning with the monthly period ending April 30, 2020. The board will evaluate dividends in future periods based on customary considerations. That being said, the company continues to monitor its taxable income to ensure the company meets the minimum distribution requirements to maintain its status as a REIT for year-end 2020.

In terms of deployments, the company has not completed any new investment so far in 2020 with one exception where the company provided a $19 million senior mortgage to support the acquisition by a new buyer of our nonperforming hotel asset in Minnesota. As Mike and Andy have already described, the detrimental impact of COVID-19 on certain assets resulted in incremental impairments, and asset sale losses are $185 million, or $1.41 per share, most substantially from the L.A. mixed use development.

Core portfolio on depreciated book value now stands at approximately $1.7 billion, or $13.13 per share. Our loan book continues to be the largest segment, with a carrying value of approximately $2.5 billion at quarter end. The blended unlevered yield on our loan book is approximately 6.3%, with an average loan size of $49 million. Furthermore, the loan portfolio remains well diversified in terms of size, collateral type and geography.

Moving to our balance sheet. Our total at share assets are still at approximately $4.7 billion as of June 30, 2020. Our debt to assets ratio was 60% at the end of the quarter, and our current liquidity stand at approximately $525 million between cash on hand and availability under our revolving credit facility. Use of our revolving credit facility will continue to be a source of liquidity for the foreseeable future.

During the second quarter, we renegotiated the terms of the revolver with our bank syndicate, and these terms included a reduction of facility size to $450 million from $560 million, reduction in tangible net worth requirements and certain restrictions on dividends, stock repurchases and the type of new investments we can make. We believe that this new arrangement will allow us the liquidity and flexibility we need to manage our business in the near term.

As Andy mentioned, during the quarter, we completed a nonrecourse financing arrangement with a noncontrolling interest and a portfolio of 5 underlying company investment interests. This transaction generated $170 million of net proceeds, adding approximately $30 million in paydowns under the company's corporate credit facility and resulted in a reallocation from shareholder equity to noncontrolling interest of $70 million.

Turning to risk ratings. We increased our risk ratings in Q1 for a number of assets because of COVID-19 concerns, and we are maintaining the same approach in Q2 given the current environment. As such, our overall risk rating at the end of the second quarter was 3.9, compared to 3.1 at the end of 2019, still reflecting the increased risk resulting from continuing uncertainty related to COVID-19.

That concludes our prepared remarks. And with that, let's open up the call for questions. Operator?

(Operator Instructions) Our first question is from Stephen Laws with Raymond James.

Mike, you guys accomplished a lot in 3 months. So I know it's a difficult time, and I think 4 months on the job, so accomplished a lot. Congratulations on that. Can you give me some color additionally on the legacy nonstrategic asset portfolio? Looks like from the last 2 supplements about $120 million decline in Q2 with $569 million, $570 million left. How do we think about that as from a timing? Is $100 million-ish a quarter a good run rate? Is it going to be loftier than that? I know you identified some things in Q3. Are there going to be some assets that may stick around on the LNS side for a while?

Stephen, thank you for joining the call and the question. Yes, we've been very active over these past 3 months with 5 or 6, 7 initiatives going on. With regard to LNS, that continues to remain a focus. It's getting smaller. We've made some headway resolving some assets this quarter, and we'll continue to do that. That's a focus of ours. It's not going to subside. We've shifted a lot of focus to the overall portfolio for liquidity purposes, but we have not taken off focus on LNS. And we'd like to reduce that LNS where one day we could just, if we have a tail left on it, we'll just consolidated back into the rest because from a reporting standpoint, it may become a nuisance at some point. But we are very focused on continuing to do that as the market permits. And evaluations change, and we see the ability to sell an LNS asset and in the context of the market it makes sense, we're not looking to hold and nurture that portfolio. We're looking to execute on it at reasonable prices. So we'll continue to do that. Go ahead.

Switching to the core portfolio, I think there were some asset sales there. Is that likely to continue? And then on the core side, I know Neale mentioned some things around the holiday, but also, it has some limitations with regards to dividends and new investments and other things. What metric should we be watching as far as getting the balance sheet on the core side positioned the way you'd like it? Is it the liquidity? Is it reducing certain concentrations? Is it a leverage metric? What do you think are the best metrics to watch as far as tracking the positioning of the core portfolio?

Very good question. It is somewhat dynamic, so let me just hit the asset sales first on the core side. We have nothing else that's active other than the 2 equity investments that are under contract for agreements to sell that we said would come in the coming months. We'll continue to work on the LNS, and we will continue to whittle down the CMBS transactions, or the CMBS securities, going forward on a selective basis.

The motivations have been different for each one. For the CMBS, the motivation was to -- wasn't really liquidity. It was really reducing exposure CMBS repo, which we took down from $197 million on March 31 to $38 million, and we extended that repo out. And the goal there -- and we also removed a hedge. And the losses there are somewhat of a realization of -- a big chunk of them were a realization of unrealized losses that we had, and we've marked the rest of the portfolio accordingly, and we removed the hedges. So that was less about liquidity and more about just reducing the CMBS exposure. And CMBS securities aren't really something that we'll be looking at as a product line for investments going forward.

The rest of the assets that we sold and targeted were accommodations of assets that were rated risk-5 rating. We had a hotel loan, and we had 2 preferred equity loans that closed one during the quarter, 2 subsequent to the quarter. One of the preferred equities was a reversal of the CECL. We basically transacted that where it was marked for CECL. With regard to the hotel, quite frankly, we had 3 large hotel loans in California. We wanted to reduce our exposure there, and we looked at the one that performed weakest pre-COVID and a number of things that also weighed in on it as to why we transacted there.

So there were a combination of things. And in some areas, we still have that -- with regard to some of the equity, there's lower internal leverage against that, albeit a bit of external leverage, but lower internal leverage. So we were able to get more bang for the buck, if you will, in terms of raising liquidity. So those were the things. The priority was to raise liquidity and stabilize the balance sheet.

So earnings, there's a cost, a cost associated with that. And this is where it gets a little bit dynamic. And you can go through the supplement and figure out which assets moved and how much CMBS has come down. But yes, the cost was -- there was some book value cost, and there was some earnings cost. And so we look to rebuild earnings. And so the reason why it's dynamic, and I'm being longwinded here, but, so, you'll be able to see the earnings will come down in the next quarter as these assets come off, and then the 2 equity sales in the third and fourth quarter. But also, we're sitting on a large amount of liquidity. And then, the question is when do we start redeploying that liquidity? And so you might start seeing us doing that later in the year as we get more visibility. And so then you'd have to put some form of rate of return on that liquidity that we have, which is circa $0.5 billion. And we'll know more about that as we progress through the third quarter to see how much of that liquidity, if any, we need to use to defend the balance sheet.

Great. Yes, you've predicted my next question as well, so I appreciate the color on the timing about potentially shifting to new investments and thoughts around that. Last question, really more, I guess, big picture. But I'd love for you to tie it down to your portfolio and the CLNC closure. You know the office market. Big discussion is in central businesses, should vertical office go under significant pressure, will you guys go the other way and see the need for more square foot per employee. Can you talk about your thoughts on the office market from a macro level? And then, from the CLNC portfolio, what is the exposure? Is it primarily central business district? Is it more satellite-type offices or less debt that might even be more attractive post-COVID? Can you give us your thoughts around that, please?

Okay, so let me first give you the CLNC answer. We do not come to work thinking about big MSA CBD issues. COVID knows no boundaries, and so we come to work thinking about our hotel assets and thinking about every asset at the asset level. But certainly, hotel exposure is one that we're watching very carefully, hence why we sold one of our hotel loans rated risk rating 5. You see us moving our risk ratings on our loans, and we think that this is reasonable and realistic because of an overriding effect of COVID-19 on underlying asset business plans, albeit whether they're transitional assets or hotels, where there was no transition or refurbishment or repositioning of the asset, but the RevPAR is at an all-time low.

So it's affected our risk rankings and our thinking around that, and we're looking at every asset regardless of where it sits. We don't really have any CBD MSA-type exposure that comes to mind. In New York City, we have some self-storage in multiple sites in the boroughs, and we moved the risk rating on that loan a little bit higher because while the NOI was up, it was a little bit behind budget. But quite frankly, an asset like that, given the trends, you may see a turnaround there where you have a lot of increased NOI because there is a trend of people leaving the city. When their leases are up on their resi apartments, they may not renew. They may move home, in some cases with family outside, and you may see some increased use of self-storage. We also have some suburban office exposure outside of New York City and Connecticut. Well, there's inquiry going on, nothing active yet, but that can benefit. So no real exposure that we're think of generally.

I do acknowledge the trend of folks that are leaving larger cities seeking -- the expression in New York was bridge and tunnel, and people were saying that, "That's fine. We want to be a bridge and tunnel. We want to get out of the city," and that's a trend we're seeing. And we saw the governor of New York make a plea yesterday for residents to come back, so we acknowledge that that trend overriding is there. But then, we would also say outside of the city, anywhere where there's student housing, for instance, in any state, what's going on at that college campus? So we think at the end of the day, what we need is we need -- we certainly need a vaccine for obvious reasons, to protect us. But we need a reopening plan, and I think a reopening plan, no matter where the jurisdiction, is going to help. And that's the thing we're focused on most. What are the governments going to do around regional and state and city reopenings?

Our next question is from Randy Binner with B. Riley.

I guess I'll start with CMBS. So the repo financing against it is down to $38 million. I'm sorry, there was a lot of detail in the call. But if I missed it, I apologize. Did you just say what the actual overall exposure for trip being below CMBS is down to? It was at $270 million at 1Q '20? What is that number now from an exposure perspective?

Neale, do you have that number? We'll get that for you. We'll give you the market value number. The goal there was we took it down by 27 line items to about 24 so it will become much more manageable for us. So it was a substantial reduction in that regard. We did 3 larger trades toward the end of May and the beginning of June, when we saw CMBS pricing was improving. We also removed the hedges on the -- the duration messages on the CMBS because quite frankly, they really weren't correlated anymore. All the CMBS were trading on a dollar price basis. Albeit while CMBS has improved in pricing, certainly at the higher AAA level down the stack, the mezzanine BBB, BB area has improved. But we're still trading almost on an appointment basis based on the underlying loan delinquencies and things like that. So we've gotten the position down to a much more manageable size, and we certainly, by taking that repo down from $197 million to $38 million, we were basically trying to take off the table any discussions or concerns about CMBS margin calls going forward.

Randy, just to describe some of the details for you, the principal values for the face on the CMBS is about $285 million, and we're carrying that at about half of that, $0.50 on the dollar. So our carrying value is $142 million gross. And as Mike mentioned, we've got the repo debt against it. So our net carrying value is $103 million.

Okay, so it's a $103 million net carrying value. And that was equivalent to the $270 million in the first quarter? We can take that offline, but I think I'm just interested in quantifying the (inaudible).

Yes. And I think what we need to help you with, Randy, is that we have unrealized loss that was converted to realized loss. And so we can go through that with you in more detail.

Great. And then, similar question just on the senior loan. So just on repo, your overall repo is down from $3.2 million to $2.6 million. I think that's what you said.

Our whole debt was reduced from $3.2 million down to $2.6 million, $600 million. And I think about $100 million of that, or $110 million of that was on the loan repo. I think about $160 million of that was CMBS, and the balance of that was the paydown on the line, the revolver.

$340 million, yes.

Okay, so the repo against loans, is that the $110 million number?

I think it's $110 million, yes. $112 million, to be exact.

Okay, got it. And then, on the --

The next thing is $331 million.

Got it. And then, on the -- yes, you're clearly making a lot of progress in cleaning up the balance sheet. But I guess on the risk rankings, just looking at the sub. And then, listening to your comments is the score lower or higher in the risk rankings? I haven't been able to put all these numbers in a spreadsheet yet, but is your average or median score higher now than it was the first quarter?

No. It's modestly higher by 1/10, I think. I just commented that generally, we moved from something that was in the lower 3 overall to the higher 3s. And that is largely just -- the backdrop of that is largely COVID-related. And you look at hotel assets and you say, "Oh, there are extremely low occupancies everywhere," and we're just trying to act reasonably and what we thought was accurate will in terms of a reflection of what we think the overall impact on COVID will be. It's certainly the persistence. Now, when will we change that? We want to see most of all, for everyone's welfare, a vaccine and more therapeutics. That's an obvious. But also, we want to see more economic reopening and plans on how to effectuate that while those other thing are in process. I think that that plan around economic reopening will have the biggest impact on asset performance.

Okay, and so yes, so that's a shifting -- oh, sorry. Go ahead, Neale.

Sorry, Randy. Just to expand on Mike's points. So it's $3.1 million as of the end of 2019. We then moved it to $3.8 million as of 3/31, and it's $3.9 million, as Mike mentioned, as it just ratcheted up a little bit. I will point out to you that 3 of those loans that were risk rank 5 were resolved subsequent to quarter end, subsequent to Q2. So that'll be bumping down just because those are going away. And then as Mike has mentioned, to the extent there are other improvements, that'll come along as well. But just even pro forma for the deals that we've done in the last few weeks, that'll be coming down.

Great. And then, I just have one more. Just on the $525 million liquidity. Can we just break that out into a couple buckets? One, how much is from the revolver? Two, how much, if I understood it correct, came from the preferred financing in the 5 properties? And then, if there's another main bucket, just so understand where that liquidity lies.

Randy, I'm not sure I can answer it that way. But just specifically, the revolver is close to $200 million of that. And then, the remainder is cash on hand. But if you're asking about all the other ins and outs, I'm not sure that would be terribly helpful to say one over the other because we had the preferred financing, we had sales. We then had paydowns on the boring base on the revolver, so there's a lot of different moving parts, as you might imagine. So I think it's better just more to focus on the components that are remaining.

But it's $325 million of cash on hand at the end of the quarter?

That's right.

Ladies and gentlemen, we have reached the end of the question-and-answer session and are out of time for today's call. I will now turn the call back to Mike Mazzei for closing remarks.

Thank you very much. Thank you for your support and for joining us on today's call. We look forward to updating you on our third quarter results in early November. Thank you, and stay safe.

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