ACRES Commercial Realty Corp.

Good day, ladies and gentlemen, and welcome to the third quarter 2022 Acres Commercial Realty Corporation 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.

Kyle Brengel Good afternoon, and thank you for joining our call. I would like to highlight that we have posted the Q3 2022 shareholder presentation to our website. This presentation contains a summary and detailed information about the quarterly and year-to-date results of the company. 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 words 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 Forms 8K, 10Q, and 10K, and in particular, the risk factor section of its Form 10K. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as the date hereof. The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures may 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 non-GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles are contained in the earnings presentation for the past quarter. With me on the call today are Mark Vogel, President and CEO, and Dave Bryan, ACR CFO. Also available for Q&A is Andrew Fentress, Chairman of ACR. 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 loan originations, real estate investments, and the health of the investment portfolio, while Dave Bryant will discuss the financial statements, liquidity condition, book value, and operating results for the third quarter, and provide an update on 2022 projected results. Of course, we look forward to your questions at the end of our prepared remarks. The Acres Origination Team delivered $181.3 million of new loan commitments in the third quarter, comprising three hotel loans, two office loans, and one multifamily loan. Loan payoffs during the period were $83.5 million, and net unfunded commitments during the quarter were $27.9 million, producing a net increase to the portfolio of $69.9 million. The newly originated loans pay coupon interest at the one-month benchmark rates, which comprise SOFR plus a weighted average spread of 6.04%. The weighted average spread of the floating rate loans in our $2.1 billion commercial real estate loan portfolio increased to 3.76% over the one-month benchmark rates. The weighted average benchmark rate is 3.65% as of 10-25-22. We observe spread widening in the period and are mindful of further potential widening as we deploy capital on our way to getting the company fully invested. As stated on our last call, we plan to maintain a loan book balance of $2 billion to $2.3 billion through 2022. During the quarter, we sold a former $19.9 million loan secured by an office property in Chicago that the company acquired via deed and lieu in 2021. At the time of the foreclosure, the asset was valued at $17.6 million. We sold the asset at $19.25 million prior to closing costs and other basis adjustments that resulted in a gain on the sale of real estate of $1.9 million included in GAAP net income. Also during the quarter, we redeemed the remaining $48.2 million of 4.5% convertible senior notes that the company issued in 2017. Finally, a few comments on balance sheet items as we know this topic is top of mind for many investors given the recent market volatility and base rate increases. The company has a healthy liquidity and financing profile. The company has warehouse lines open with JP Morgan and Morgan Stanley with performing collateral on each. The company also has agreed in principle to terms with MassMutual on an upsize and improved terms for its current facility which is being documented this quarter. The Barclays line, which has zero collateral, is being voluntarily closed by the company in the current quarter. The portfolio continues to perform, demonstrating sound and consistent underwriting and proactive asset management. The company ended the quarter with $2.1 billion of commercial real estate loans across 88 individual investments, of which only two, comprising 1.4% of the portfolio, were delinquent. As of September 30th, there were six watch list loans, inclusive of the two delinquent loans, representing 5.6% of the portfolio. As we have discussed previously, the company holds four investments in real estate that we expect to monetize for a gain in the future. These gains will be offset by the existing NOL and corresponding cash retained and reinvested into the loan portfolio. Lastly, there are two hotel assets currently classified as held for sale and as a result of being in a formal sale process. Early indications give us comfort that proceeds will be at or above par. A testament to the work of the asset management team here at Acres who work diligently to protect shareholder value during a challenging hospitality market over the last two and a half years. In summary, the Acres team is pleased with the quality of the investment portfolio, including investments in real estate, along with the improved balance sheet profile and the prospects for new originations and capital appreciation going forward. We will continue to execute on our business plan by selectively originating high-quality investments, actively managing the portfolio, and continuing to focus on growing earnings and book value for our shareholders. We will now have ACR's CFO, Dave Bryan, discuss the financial statements and operating results during the third quarter of 2022. Thank you.