ACRES Commercial Realty Corp.

Good day, ladies and gentlemen, and welcome to the fourth quarter 2022 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 telephone keypad. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brangle, Vice President. You may begin.

Good afternoon, and thank you for joining our call. I would like to highlight that we have posted the fourth quarter earnings presentation to our website. This presentation contains summary and detailed information about the quarterly and year-end 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 the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on forms 8-K, 10-Q, and 10-K, and in particular, the risk factor section of its form 10-K. Listeners are cautioned not to place under 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 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 Bryant-Akers, 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 fourth quarter. Of course, we look forward to your questions at the end of our prepared remarks. The ACRES team continues 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 originated one $18 million new multifamily loan commitment in the fourth quarter. Loan payoffs during the period were $114.6 million, and net funded commitments during the quarter were $22 million, producing a net decrease to the portfolio of $74.6 million. The newly originated loan pays coupon interest at one month so far, plus a weighted average spread of 4.8%. The weighted average spread of the floating rate loans in our $2.1 billion commercial real estate loan portfolio increased to 3.78% over the one month benchmark rates. We expect to maintain an investment portfolio of $2 billion to $2.3 billion through 2023. 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. During the quarter, the company finalized terms with MassMutual under its non-mark-to-market agreement to upsize the commitment to provide for individual loan series, which will each have a five-year term from the date of issuance. The company has warehouse lines open with J.P. Morgan and Morgan Stanley with performing collateral on each. In addition, we have the reinvestment window available on our two ACR securitizations through May 2023 and December 2023. The bulk of the company's current portfolio was originated in 2021 and 2022, comprising 84% of the current par balance and have initial maturities of 2024 or later and extended maturities of 2026 or later. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. We ended the quarter with $2.1 billion of commercial real estate loans across 82 individual investments. As of December 31st, 2022, there were five watch list loans, including three delinquent loans representing 5.4% of the portfolio. This represents a decrease from December 31st, 2021 at which there were 11 watch list loans representing 8.1% of the portfolio. In January 2023, one watch list loan on a hotel portfolio in the Southwest region with a par value of $56.5 million was paid off in full, which reduced the value of our watch list loans in half as compared to year-end 2022. We had one specific credit event during the quarter. We reserved 100% against the remaining mezzanine loan from our acquisition of the company in 2020. The mezzanine loan has a par value of $4.7 million, and the underlying collateral is an office property in the Northeast region. As Acres does not originate mezzanine loans, you should not expect to see investments in this part of the capital structure again. We continue to hold four investments in real estate that we expect to monetize at gains in the future. These anticipated gains will be offset by the existing NOL carry-forwards with equity retained and reinvested into the loan portfolio. In February 2023, we sold one hotel asset located in Plymouth Meeting, Pennsylvania, with a basis of approximately $14 million that we received through a deed in lieu of foreclosure in July 2022. We expect to record a modest gain on the sale in the first quarter of 2023. In summary, the ACRS 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 now have ACR's CFO, Dave Bryant, discuss the financial statements and operating results during the fourth quarter of 2022.