Ares Commercial Real Estate Corporation

Good afternoon and welcome to the Aries Commercial Real Estate Corporation's conference call to discuss the company's second quarter 2021 financial results. As a reminder, this conference call is being recorded on July 30th, 2021. I will now turn the call over to John Stilmore from Investor Relations.

Good afternoon and thank you for joining us on today's conference call. I'm joined today by our CEO, Brian Donahoe, Tasek Yoon, our CFO, and Carl Drake, our head of public company investor relations. In addition to our press release and the 10Q that we filed with the SEC, we've posted an earnings presentation under the investor resources section of our website at www.arescre.com. Before we begin, I want to remind everyone that comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, and similar such expressions. These forward-looking statements are based on management's current expectations of market conditions and management's judgment. These statements are not guarantees of future performance, condition, or results and involve a number of risks and uncertainties. The company's actual results could differ materially from those expressed in the forward-looking statements as a result of a number of factors, including those listed in its SEC filing. ARIES Commercial Real Estate Corporation assumes no obligation to update any such forward-looking statements. During this call, we will refer to certain non-GAAP financial measures we use as a matter of presentation for operating performance, and these measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable to like-titled measures used by other companies. Now, I'd like to turn the call over to Aries Commercial Real Estate CEO, Brian Donahoe, who will walk through our second quarter earnings results. Brian?

Thanks, Sean, and good afternoon, everybody. This morning, we announced another strong quarter with distributable earnings of 37 cents per share, up 16% year-over-year. We're pleased with our performance, which is primarily being driven by our portfolio of strong and diverse credits, increased investment activity, reduced funding costs, and the continuing benefits we receive from our LIBOR floors. Our company continues to benefit from ARRI's scaled real estate platform alongside a growing economy and a more active real estate market with improving fundamentals. Overall, as individual property transaction activity has increased over the quarter, we are now at levels commensurate with the second quarter of 2019. The improving economy is also driving broad-based rent growth, which is improving across all major property sectors with particular strength in multifamily, one of our favored and targeted sectors. Against this backdrop of improving fundamentals, we are seeing an attractive competitive landscape highlighted by post-pandemic market inefficiencies on the origination side while stronger players like us are able to benefit from more attractive funding. This has resulted in a more fragmented marketplace that enables scaled platforms, such as those affiliated with ARIES, to find attractive investment opportunities and grow market share. The capabilities and reach of the broad ARIES platform are driving sourcing advantages throughout our space, and even more specifically in high-conviction property types, such as industrial and multifamily, as well as in favored segments such as self-storage, student housing, and select office opportunities. The increased size and diversity of our investment pipeline enables us to remain highly selective, closing less than 5% of the loans we evaluate while maintaining a strong deployment pace. The result of this is that we are seeing loan opportunities with all-in spreads that are approximately in line with pre-pandemic levels but with attachment points and credit terms that tend to be more attractive than pre-pandemic structures. The strength of our platform and the market opportunities have enabled us to accelerate our new investment commitments. In fact, the second quarter commitments of $311 million represented the third consecutive period in which we grew new commitments and origination volumes. This higher loan activity is also driven by incumbent borrower relationships, as approximately 64 percent of our commitments this quarter came from repeat borrowers. However, we were also pleased to find strong receptivity from new, high-quality sponsors, given the breadth of our product offerings. As an example, during the second quarter, we closed a $38 million multifamily loan with a new sponsor that is one of the largest multifamily owner-operators in the Southeast. with more than 30,000 units under management. This origination momentum is continuing to the third quarter with approximately 254 million of new commitments closed thus far in July. In order to support our expanded investment pipeline and greater investment activity, we issued 6.5 million common shares to raise just over 100 million of common equity at a 10 percent premium to book value near the end of the second quarter. The benefits of scale from our two equity raises this year will enable us to further gain market share during an attractive time to invest as the overall economy continues to recover. As far as the capital we raised in June, we are working hard to invest the majority of the net proceeds in the third quarter, but do expect that the additional shares that we have issued to have a temporary modest impact to our earnings per share in the third quarter. However, given our expected pace of capital deployment, we do not expect that our fourth quarter earnings will be impacted. Most importantly, as we have said consistently from the beginning of this year in connection with the announcement of our supplemental $0.02 per share quarter dividend, we continue to expect full coverage of both our regular and supplemental dividends from our distributable earnings for the full year 2021. Turning to the portfolio, Our book remains 98 percent invested in senior loans, and approximately two-thirds of our loans are collateralized by multifamily, office, industrial, and self-storage properties. We continue to be underweight hotels and retail exposures. And against the backdrop of an improving economy and further bolstered by the strength of our asset management capabilities, we continue to see strengthening of the credit of our portfolio as reflected in our weighted average internal loan risk rating, which improved for a third consecutive quarter to 2.8 as of Q2 2021 versus 2.9 in the first quarter and 3.0 at year-end 2020. Additionally, loans on non-accrual declined from three to one, reflecting the healthy recovery of underlying property performance. While the COVID-19 pandemic and all the uncertainty and challenges it brought are not over. We have optimism for the remainder of 2021 and beyond. With that, I'll now turn the call over to Taycik to provide more details on our second quarter results and financial position.