ACRES Commercial Realty Corp.

Good day, ladies and gentlemen, and welcome to the first quarter 2021 Acres Commercial Realty Corp. Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session with instructions to follow at that time. If anyone requires assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brengel, Vice President. You may begin.

Good afternoon and thank you for joining our call. Before we begin, I want to remind everyone that certain statements made during this call are not based on historical information and may constitute forward-looking statements. When used in this conference call, the word believes, anticipates, expects, and similar expressions are intended to identify forward-looking statements. Although the company believes that these forward-looking statements are based on reasonable assumptions, Such statements are based on management's current expectations and beliefs and are subject to several trends, risks, and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Form 8-K, 10-Q, 10-K, and in particular, the risk factors section of our Form 10-K and Form 10-Q. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles are contained in our earnings presentation for the past quarter. With me on the call today are Mark Vogel, President and CEO, and Dave Bryant, our CFO. Also available for Q&A is Andrew Fentress, Chairman of Acres. I will now turn the call over to Mark.

Good afternoon, everyone, and thank you for joining our call. Today I will provide an overview of our strategic initiatives and updates on our portfolio and loan originations, while Dave Bryant will discuss our financial statements and operating results for the first quarter. And of course, we look forward to your questions at the end of our prepared remarks. We are pleased with the ongoing loan originations since we restarted lending late in 2020. As importantly, the portfolio has continued to perform, demonstrating sound and consistent underwriting and asset management. Our progress is evident in our results as we grew book value per share to $22.27 as of the end of the first quarter, up 8.2% from the end of 2020. These results reflect our efforts over recent quarters to provide our borrowers with a one-stop solution for their borrowing needs. We continue to work as a team to achieve our goal of being an end-to-end solution for middle market commercial real estate borrowers nationwide. Additionally, we were active with the authorized share repurchase program during the quarter and repurchased an additional $9.5 million of common stock this quarter. The company ended the quarter with $1.5 billion in loan assets across 92 individual investments. As of the end of March, all but three of these loans were performing and current on contractual payments. We believe we have a well-diversified portfolio with a presence across the country, but with a concentration in the high-growth southern region of the United States. In addition, over half the loan book is backed by multifamily assets, a particularly durable real estate segment. We are pleased with our continued new loan production after restarting lending towards the end of 2020. During the quarter, we closed six commercial real estate whole loans for $144.3 million up from $83 million in the fourth quarter. All six of these loans were originated with new borrowers. Five of the loans are collateralized by multifamily properties and one is collateralized by a hotel. The weighted average coupon on these loans is one month LIBOR with a LIBOR floor of 0.44% plus 4.38% and the LTV is 67%. Offsetting the new loan production were several pay downs and payoffs and two loan sales. During the first quarter, we received proceeds of $197 million from the repayment of 16 loans. While these elevated levels of paydowns resulted in a net negative production for the quarter, we believe the ability to refinance indicates the quality of the sponsors and assets underlying our loan portfolio. Furthermore, included in these paydowns and payoffs were a few loans that were on our watch list and one preferred equity investment. Our remaining preferred equity investment paid off in full in April. As we look ahead, we anticipate that we will continue to see paydowns from the current portfolio offset by continued acceleration of new loan production. Similar to what we discussed last quarter, there is a fair amount of competition for high-quality loans. To that point, we have seen moderate spread compression, particularly in our target segment of multifamily, but we are also seeing opportunities that offer wider spreads in segments such as hospitality and office. We will remain selective and focus on credit quality, markets, and sponsors to originate new loans for the portfolio. Furthermore, we believe we offer a unique value proposition for our customers. We place a priority on the service and convenience of our products. This includes providing an end-to-end lending solution for middle market sponsors from construction through stabilization and beyond. We are further enhancing our operating platform by expanding the Acres origination presence in Dallas, Miami, and Los Angeles. all of which are located in regions where we see continued loan origination activity. We are encouraged by our pipeline and the loans we currently have going through our underwriting process. We continue to maintain a solid balance sheet and liquidity position. At the end of the first quarter, total leverage ratio is 3.9 times debt to total equity, consistent with the year-end level. And in terms of recourse debt, leverage was 1.2 times up from 0.8 times due primarily to the increased utilization of term warehouse facilities to finance commercial real estate loan originations. As of the end of April, ACRES had $143 million of net liquidity over our working capital reserve target of $40 million to deploy into additional commercial real estate loans and common stock repurchases. At the end of the quarter, more than $900 million of financing capacity comprising three different term warehousing financing facilities, a senior secured financing facility, and a senior unsecured notes was available. We will now have our CFO, Dave Bryant, discuss our financial statements and operating results during the first quarter.