On Friday, BTIG has resumed coverage on Bright Spire (NYSE:SR) Capital (NYSE:BRSP) stock with a Neutral rating, indicating a cautious stance on the company's stock.
Bright Spire Capital, an internally-managed commercial mortgage REIT, focuses on originating and acquiring senior and mezzanine commercial real estate loans, as well as triple-net lease assets. The firm, previously known as Colony Capital (NYSE:DBRG) and Colony NorthStar, was spun-off from Digital Bridge, which is not currently rated.
The analyst highlighted that Bright Spire Capital is facing similar challenges to other commercial mortgage REITs (cmREITs), including a pause in origination activity. The company's management is currently concentrated on addressing problematic loans and managing their real estate owned (REO) portfolio.
As of the first quarter, Bright Spire Capital reported the second-highest Current Expected Credit Loss (CECL) as a percentage of equity among its peers, as well as a significant 30% exposure to office properties, which presents challenges.
Despite these difficulties, the analyst noted the company's high CECL reserve could be interpreted as a sign of management's conservative approach, which is generally positive. However, the resolution of non-performing loans (NPLs) is expected to continue to weigh on earnings and hinder the company's ability to take on new initiatives in the near future.
The analyst also mentioned that following the sale of certain assets, Bright Spire Capital is anticipated to have no 5-rated loans, assuming there are no further negative changes in the second quarter.
For the time being, BTIG has decided to maintain a watchful eye on Bright Spire Capital as it navigates through the ongoing disruptions in its operations. The firm's current position and the steps it is taking to resolve its loan issues are key factors in BTIG's neutral outlook.
In other recent news, BrightSpire Capital reported mixed Q1 results in 2024, with a GAAP net loss of $57.1 million, yet positive distributable earnings of $22.5 million and adjusted DE of $29.7 million. The company's liquidity stands at $323 million, with $158 million in cash.
BrightSpire Capital also reported that two loans were downgraded and two new investments were added to the watch list. In the recent developments, the company anticipates slower repayment activity throughout the remaining year and has put new loan originations on hold to prioritize existing asset management.
According to analyst notes, BrightSpire Capital's focus remains on resolving watch list loans and REO assets to enhance earnings. However, two investments totaling $87 million have been added to the watch list, indicating potential risk. Despite this, the multifamily sector, making up 54% of the portfolio, remains the largest and a key focus for the company.
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