BRMK Broadmark Realty Capital Inc

Broadmark Realty Capital Inc. (NYSE: BRMK) (the “Company”), an internally managed secured real estate finance company, today announced operating results for the quarter and year ended December 31, 2022.

Fourth Quarter 2022 Financial Highlights

• Loan portfolio of $1.4 billion, including $49.9 million of new originations and amendments in the quarter, with a weighted average loan to value of 63.0% at origination and weighted average yield of 11.6%.
• Payoff pace remained stable, with an average monthly run-rate of $39.3 million.
• Total revenue of $21.1 million for the quarter.
• GAAP net loss of $153.0 million, or ($1.15) per diluted common share, inclusive of goodwill impairment of $137.0 million or ($1.03) per diluted common share and an increased provision for credit losses of $21.5 million or ($0.16) per diluted common share. The change in the allowance for credit losses was primarily due to heightened market volatility and an increase in loans that are expected to foreclose.
• Distributable earnings prior to realized loss on investments, of $12.3 million, or $0.09 per diluted common share. Distributable earnings were impacted by increased interest receivable reserves of $3.3 million, or ($0.02) per diluted common share, resulting from interest receivable related to non-accrual loans being deemed not collectible.
• Repurchased approximately $5.0 million of common stock at an average price of $3.86.

Full Year 2022 Financial and Loan Portfolio Highlights

• Total revenue of $108.9 million for the full year 2022.
• Net loss of $116.4 million, or ($0.88) per diluted common share.
• Distributable earnings prior to realized loss on investments of $68.7 million, or $0.55 per diluted common share.

• New originations and amendments of $551.1 million.
• Interest income of $83.4 million and fee income of $22.7 million.

Loan Default and REO Updates

• Total principal outstanding for loans in default was $250.4 million on 40 loans as of December 31, 2022, with $22.8 million of construction holdbacks remaining for estimated costs to complete assets in default.
• $30.6 million in payoffs related to loans in default during the fourth quarter and $57.0 million of loans went into default status in the fourth quarter.
• The Company owned $87.9 million of foreclosed properties as of December 31, 2022 and realized $7.6 million of impairments for the year.
• In the first quarter of 2023, the Company acquired four properties via foreclosure or deeds in lieu of foreclosure with a carrying value of $66.4 million, net of current expected credit losses (“CECL”) reserves of $3.8 million as of December 31, 2022.
• The four properties consisted of residential lots, townhomes, and luxury apartment collateral.
  • The luxury apartments had an occupancy of 78% as of December 31, 2022.

Balance Sheet Activity and Liquidity

At December 31, 2022, the Company had cash and cash equivalents of $55.0 million and a $135.0 million undrawn credit facility, or $190.0 million in total liquidity, with $452.7 million of unfunded loan commitments on balance sheet, of which $22.8 million relate to capital expenditures on loans in default which the Company is not contractually obligated to fund.

Dividend

On January 15, 2023, the Company’s Board of Directors declared a cash dividend of $0.035 per common share payable on February 15, 2023 to stockholders of record as of January 31, 2023, and on February 15, 2023, the Board of Directors declared a cash dividend of $0.035 per common share payable on March 15, 2023 to stockholders of record as of February 28, 2023.

Additional Information

The Company has posted supplemental financial information to provide additional disclosure on its website at www.broadmark.com. These materials can be found on the Investors section of the website under the “Financials” tab.

Conference Call and Webcast Information

The Company will not host a conference call or webcast due to today’s announcement regarding the pending merger with Ready Capital (NYSE: RC).

Forward Looking Statements

This press release contains certain “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Forward-looking statements reflect the Company’s current views with respect to, among other things, capital resources, portfolio performance and projected results of operations. In some cases, you can identify these forward-looking statements by the use of terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words or phrases. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates.

These forward-looking statements are based largely on the Company’s current beliefs, assumptions and expectations concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that it has anticipated. Factors that may cause actual results to vary from the Company’s forward-looking statements include, but are not limited to:

• mitigation of loan default rates and ability to timely resolve loans in contractual default status with positive economic outcomes;
• the adequacy of collateral securing the Company's loans and declines in the value of real estate property securing the Company's loans;
• the current and future health and stability of the economy and residential housing market;
• availability of origination and acquisition opportunities acceptable to us;
• increased competition from entities engaged in construction lending activities;
• potential mismatches in the timing of asset repayments and the maturity of the associated financing agreements;
• general economic uncertainty and the effect of general economic conditions on the real estate and real estate capital markets in particular;
• general and local commercial and residential real estate property conditions;
• changes in U.S. federal government policies;
• changes in U.S. federal, state and local governmental laws and regulations that impact the Company's business, assets or classification as a real estate investment trust;
• the Company's ability to pay, maintain or grow the dividend in the future;
• changes in interest rates;
• the availability of, and costs associated with, sources of liquidity;
• compliance with covenants contained in the Company's debt documents;
• the adequacy of the Company's policies, procedures and systems for managing risk effectively;
• the ability to manage future growth;
• changes in personnel and availability of qualified personnel; and
• other factors set forth in the Company's periodic filings with the Securities and Exchange Commission.

Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

The Company uses its website and social media channels as channels of distribution of Company information. The information that the Company posts through these channels may be deemed material. Accordingly, the Company encourages investors and others interested in the Company to routinely monitor these channels, in addition to following the Company’s press releases, Securities and Exchange Commission filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section of the Company’s website at https://ir.broadmark.com/investor-resources/investor-email-alerts/default.aspx. The contents of the Company’s website and social media channels are not, however, incorporated by reference into this press release.

About Broadmark Realty Capital

Broadmark is a specialty real estate finance company, providing financing solutions generally in the $2 to $75 million range per transaction. The Company provides smart, reliable, rapid solutions across the entire debt capital stack, including senior, subordinate, and participation investments with fixed and floating rate structures available. Broadmark invests in a variety of new construction and existing properties across all asset classes throughout the United States, including hotel, industrial, medical, mixed-use, office, retail, self-storage, warehouse, multifamily, senior living, student housing, condos, larger scaled single-family, townhome, and multiplex. It has the competitive advantage of being an internally managed balance sheet lender, and the Company’s proactive approach delivers dedicated in-house underwriting, asset management, loan servicing, and draw administration.

BROADMARK REALTY CAPITAL INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

December 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,964

 

 

$

132,889

 

Mortgage notes receivable, net

 

 

881,950

 

 

 

901,350

 

Interest and fees receivable, net

 

 

14,775

 

 

 

17,526

 

Investment in real property held for sale, net

 

 

24,516

 

 

 

52,531

 

Investment in real property held for use, net

 

 

63,382

 

 

 

15,536

 

Right-of-use assets

 

 

5,609

 

 

 

6,016

 

Goodwill

 

 

—

 

 

 

136,965

 

Other assets

 

 

6,311

 

 

 

8,342

 

Total assets

 

$

1,051,507

 

 

$

1,271,155

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Senior unsecured notes, net

 

$

97,789

 

 

$

97,223

 

Dividends payable

 

 

4,654

 

 

 

9,291

 

Accounts payable and accrued liabilities

 

 

13,489

 

 

 

8,180

 

Lease liabilities

 

 

7,522

 

 

 

7,993

 

Total liabilities

 

 

123,454

 

 

 

122,687

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding at December 31, 2022 and December 31, 2021

 

 

—

 

 

 

—

 

Common stock, $0.001 par value, 500,000,000 shares authorized, 131,645,145 and 132,716,338 issued and outstanding at December 31, 2022 and December 31, 2021, respectively

 

 

131

 

 

 

132

 

Additional paid in capital

 

 

1,215,229

 

 

 

1,216,957

 

Accumulated deficit

 

 

(287,307

)

 

 

(68,621

)

Total stockholders' equity

 

 

928,053

 

 

 

1,148,468

 

Total liabilities and stockholders' equity

 

$

1,051,507

 

 

$

1,271,155

 

BROADMARK REALTY CAPITAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

December 31, 2022

 

 

December 31, 2021

 

 

December 31, 2022

 

 

December 31, 2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

16,483

 

 

$

23,476

 

 

$

83,410

 

 

$

89,957

 

Fee income

 

 

4,078

 

 

 

7,823

 

 

 

22,668

 

 

 

30,587

 

Total interest and fee income

 

 

20,561

 

 

 

31,299

 

 

 

106,078

 

 

 

120,544

 

Real property revenue from operations

 

 

510

 

 

 

—

 

 

 

2,799

 

 

 

—

 

Total revenues

 

 

21,071

 

 

 

31,299

 

 

 

108,877

 

 

$

120,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

 

3,965

 

 

 

4,177

 

 

 

16,935

 

 

 

15,093

 

General and administrative

 

 

3,468

 

 

 

3,197

 

 

 

13,300

 

 

 

11,518

 

Real property operating expenses and depreciation

 

 

1,451

 

 

 

—

 

 

 

6,365

 

 

 

108

 

Interest expense

 

 

2,161

 

 

 

1,601

 

 

 

8,638

 

 

 

3,320

 

Total expenses

 

 

11,045

 

 

 

8,975

 

 

 

45,238

 

 

$

30,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment:

 

 

 

 

 

 

 

 

 

 

 

 

Provision for credit losses, net

 

 

21,537

 

 

 

806

 

 

 

38,266

 

 

 

6,179

 

Goodwill impairment

 

 

136,965

 

 

 

—

 

 

 

136,965

 

 

 

—

 

Total impairment

 

 

158,502

 

 

 

806

 

 

 

175,231

 

 

$

6,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liabilities

 

 

1,220

 

 

 

652

 

 

 

1,813

 

 

 

(1,838

)

Gain on sale of real property

 

 

—

 

 

 

—

 

 

 

984

 

 

 

—

 

Impairment on real property

 

 

(5,765

)

 

 

—

 

 

 

(7,596

)

 

 

—

 

Total other (expense) income

 

 

(4,545

)

 

 

652

 

 

 

(4,799

)

 

$

(1,838

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before provision for income taxes

 

 

(153,021

)

 

 

22,170

 

 

 

(116,391

)

 

 

82,488

 

Income tax provision

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net income (loss)

 

$

(153,021

)

 

$

22,170

 

 

$

(116,391

)

 

$

82,488

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.15

)

 

$

0.17

 

 

$

(0.88

)

 

$

0.62

 

Diluted

 

$

(1.15

)

 

$

0.17

 

 

$

(0.88

)

 

$

0.62

 

Weighted-average shares of common stock outstanding, basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

132,625,008

 

 

 

132,698,177

 

 

 

132,841,196

 

 

 

132,579,289

 

Diluted

 

 

132,625,008

 

 

 

132,784,274

 

 

 

132,841,196

 

 

 

132,666,502

 

BROADMARK REALTY CAPITAL INC.

RECONCILIATION OF NET INCOME TO DISTRIBUTABLE EARNINGS

(in thousands, except for per share amounts)

Definition of Distributable Earnings

The Company has elected to present “distributable earnings” and “distributable earnings prior to realized loss on investments”, supplemental non-GAAP financial measures used by management to evaluate the Company’s operating performance. The Company defines distributable earnings as net income attributable to common stockholders adjusted for: (i) impairment recorded on the Company’s loans, investments in real property and goodwill; (ii) unrealized gains or losses on the Company’s investments (including provision for credit losses) and warrant liabilities; (iii) new public company transition expenses; (iv) non-capitalized transaction-related and other one-time expenses; (v) non-cash stock-based compensation; (vi) depreciation and amortization including amortization of the Company’s intangible assets; and (vii) deferred taxes, which are subject to variability and generally not indicative of future economic performance or representative of current operations.

During the years ended December 31, 2022 and 2021, provision for credit losses, net was $38.3 and $6.2 million, respectively, which has been excluded from distributable earnings consistent with other unrealized gains (losses) pursuant to the Company’s policy for reporting distributable earnings. The Company expects to recognize such potential credit losses in distributable earnings if and when such amounts are deemed nonrecoverable upon a realization event. This is generally upon charge-off of principal at the time of loan repayment or upon sale of real property owned by the Company and the amount of proceeds is less than the principal outstanding at the time of foreclosure.

Management believes that the adjustments to compute “distributable earnings” specified above allow investors and analysts to readily identify and track the operating performance of the Company’s assets, assist in comparing the operating results between periods, and enable investors to evaluate the Company’s current performance using the same measure that management uses to operate the business. Distributable earnings excludes certain recurring items, such as unrealized gains and losses (including provision for credit losses) and non-capitalized transaction-related expenses, because they are not considered by management to be part of the Company’s primary operations for the reasons described herein. However, management has elected to also present distributable earnings prior to realized loss on investments because it believes the Company’s investors use such measure to evaluate and compare the performance of the Company and its peers. As such, distributable earnings and distributable earnings prior to realized loss on investments are not intended to reflect all of the Company’s activity and should be considered as only one of the factors used by management in assessing the Company’s performance, along with GAAP net income which is inclusive of all of the Company’s activities.

As a REIT, the Company is required to distribute annually to its stockholders at least 90% of its "REIT taxable income" (determined without regard to the dividends-paid deduction and excluding net capital gains) and to pay tax at regular corporate rates to the extent that it annually distributes less than 100% of such taxable income. Given these requirements and its belief that dividends are generally one of the principal reasons that stockholders invest in its common stock, the Company generally intends to attempt to pay dividends to its stockholders in an amount equal to its net taxable income, if and to the extent authorized by the Company’s board of directors. Distributable earnings and distributable earnings prior to realized loss on investments are one of many factors considered by the Company’s board of directors in declaring dividends and, while not direct measures of taxable income, over time, the measures can be considered useful indicators of the Company’s dividends.

Distributable earnings and distributable earnings prior to realized loss on investments do not represent, and should not be considered as a substitute for, or superior to, net income or as a substitute for, or superior to, cash flows from operating activities, each as determined in accordance with GAAP, and the Company’s calculation of these measures may not be comparable to similarly entitled measures reported by other companies.

The table below is a reconciliation of distributable earnings to the most directly comparable GAAP financial measure:

 

 

Three Months Ended

 

 

Year Ended

 

(dollars in thousands, except share and per share data)

 

December 31, 2022

 

 

December 31, 2021

 

 

December 31, 2022

 

 

December 31, 2021

 

Net (loss) income attributable to common stockholders

 

$

(153,021

)

 

$

22,170

 

 

$

(116,391

)

 

$

82,488

 

Adjustments for non-distributable earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

516

 

 

 

903

 

 

 

3,779

 

 

 

3,455

 

New public company expenses(1)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

953

 

Non-capitalized transaction and other transition expenses(2)

 

 

1,163

 

 

 

498

 

 

 

3,229

 

 

 

987

 

Change in fair value of warrant liabilities

 

 

(1,220

)

 

 

(652

)

 

 

(1,813

)

 

 

1,838

 

Depreciation and amortization

 

 

562

 

 

 

164

 

 

 

1,314

 

 

 

741

 

Impairment on real property

 

 

5,765

 

 

 

—

 

 

 

7,596

 

 

 

—

 

Provision for credit losses, net

 

 

21,537

 

 

 

806

 

 

 

38,266

 

 

 

6,179

 

Goodwill impairment

 

 

136,965

 

 

 

—

 

 

 

136,965

 

 

 

—

 

Distributable earnings prior to realized loss on investments:

 

$

12,267

 

 

$

23,889

 

 

$

72,945

 

 

$

96,641

 

Realized credit losses(3)

 

 

—

 

 

 

(576

)

 

 

(4,207

)

 

 

(2,672

)

Distributable earnings:

 

$

12,267

 

 

$

23,313

 

 

$

68,738

 

 

$

93,969

 

Distributable earnings per diluted share of common stock prior to realized loss on investments

 

$

0.09

 

 

$

0.18

 

 

$

0.55

 

 

$

0.73

 

Distributable earnings per diluted share of common stock

 

$

0.09

 

 

$

0.18

 

 

$

0.52

 

 

$

0.71

 

Weighted-average number of shares of common stock outstanding, basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

132,625,008

 

 

 

132,698,177

 

 

 

132,841,196

 

 

 

132,579,289

 

Diluted

 

 

132,625,008

 

 

 

132,784,274

 

 

 

132,841,196

 

 

 

132,666,502

 

1. Expenses directly related to professional fees in connection with our new public company reporting procedures, the design and implementation of internal controls under Section 404 of the Sarbanes-Oxley Act and the implementation of the CECL standard.
2. Includes other expenses primarily related to the various costs associated with management succession, including executive search and severance costs, as well as certain unusual repair and legal expenses incurred on held-for-sale real properties no longer under construction.
3. Represents credit losses recorded in the provision for credit losses and recognized in distributable earnings upon charge-off of principal at the time of loan repayment or upon sale of real property where proceeds received are less than the principal outstanding.

 

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