Ares Commercial Real Estate Corporation

Good afternoon and welcome to the ARIES Commercial Real Estate Corporation's conference call to discuss the company's fourth quarter and four-year 2021 financial results. As a reminder, this conference call is being recorded on February 15th, 2022. I will now turn the call over to Veronica Mayer from Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us on today's conference call. I am joined today by our CEO, Brian Donahoe, Tasik Yoon, our CFO, and Carl Drake, our head of public company investor relations. In addition to our press release and the 10-K that we filed with the SEC, we have 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 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 filings. ARIES Commercial Real Estate Corporation assumes no obligation to update any such forward-looking statements. During this conference call, we will refer to certain non-GAAP financial measures. We use these as measures of 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 would like to turn the call over to our CEO, Brian Donohoe.

Thanks, and good afternoon, everyone. Today, we reported another strong quarter of results, which concluded a record year for our company. In the fourth quarter, we reported distributable earnings of 41 cents per share and $1.55 per share for the full year, up 14% compared to a year ago. We had another active quarter with 365 million of new loan commitments bringing our total to a record $1.4 billion for the full year. Our originations drove portfolio growth of 33% to $2.4 billion, which supported our increased earnings for the year. Our credit quality continues to be relatively stable with a positive migration in our weighted average portfolio ratings, and we continue to actively manage our assets. To that end, we're pleased to announce that we've entered into an agreement to sell our one REO property, the Westchester Marriott, with an expected close at the end of the first quarter. As we look back at 2021, we're proud of many of our accomplishments. We scaled our capital base accretively, further diversified our portfolio, and meaningfully strengthened our financial structure. We increased our access to non-recourse debt, and our equity base is now 44% larger than one year ago. We also generated distributable earnings well in excess of our dividends for the fifth year in a row, and we believe we are well positioned for the year ahead. In addition, over the last year, the ARIES real estate platform across the U.S. and Europe now stands at $41 billion of assets under management, including nearly $10 billion in real estate debt AUM. The scaling of our debt business has expanded our market coverage and access to transaction opportunities, which allowed us to increase our origination activity while maintaining rigorous standards for credit quality. We welcomed new institutional sponsors to the ACRE platform while remaining a trusted partner to our legacy sponsors who value our ability to customize solutions, our certainty of capital, and speed of execution. In the fourth quarter, approximately 75% of our loan commitments were secured by multifamily and self-storage properties, both of which benefit from strong rental trends. The remaining 25% was in the industrial sector, which certainly has its own merits, and we are an active player in both debt and equity across the ARIES platform. We continue to see robust activity in our target markets of the South and Mid-Atlantic, where we see strong demographic growth growth drivers. The returns on the new loans were consistent with our target levels commensurate with the risk profile of each asset class. The portfolio continues to be well positioned for potential increases in interest rates with approximately 98% invested in floating rate loans. Our portfolio is largely comprised of what we believe are more stable property types with our most recent originations focused on multifamily, industrial, and self-storage assets. Further, and as I mentioned earlier, in November of 2021, we entered into a purchase and sale agreement for the Westchester Marriott. Since taking over the property in early 2019, we executed on our strategic plan, including improving operations and completing renovations. By reducing the expense load and focusing on the harvesting demand, we were able to successfully manage the property throughout the pandemic. Our ability to deliver on our strategic plan demonstrates the hospitality expertise and relationships of our team and throughout the ARIES platform. While this is the only REO in our 10-year history, taking ownership of a property is one of the tools that we can use to protect our investment outcomes. Upon the sale of the property, we have elected to make a loan to the new owner, a highly regarded sponsor who is bringing substantial new equity capital that is subordinate to our loan. Looking ahead, we expect that 2022 will be another great year for our company and our shareholders. By leveraging the growth of the ARIES real estate platform, our enhanced capital structure, and diversified sources of liquidity, including the ARIES warehouse, we expect to efficiently deploy our equity base to remain as fully invested as appropriate throughout the course of the year.