Ares Commercial Real Estate Corporation

Hello and welcome to today's ACRE Q422 earnings conference call. My name is Bailey and I'll be the operator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please put a star followed by one on your telephone keypad. I would now like to pass the conference over to our host, John Stillmer.

Please go ahead when you're ready. Good afternoon and thank you for joining us on today's conference call. I am joined today by our CEO, Brian Donahoe, and our CFO, Tasek Yoon. In addition to our press release and the 10-K 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, as well as 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 condition and management's judgment. The 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 assumes no obligation to update any such forward-looking statements. During this conference call, we refer to non-GAAP financial measures. We use these measures of operating performance, and the measures should not be considered in isolation from, or 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 Donahoe. Thanks, John, and good afternoon, everybody.

This morning, we reported fourth quarter results, which included the second highest level of quarterly distributable earnings in our history of $0.44 per share and capped off a strong year where annual distributable earnings of $1.55 per share matched our previous record in 2021. Throughout 2022, the overall strength in our distributable earnings was driven primarily by the continued benefits of our nearly 100% floating rate interest rate sensitive asset base. In addition, we hedged or fixed approximately a third of our liabilities. 2022 was a very successful year in which we fully covered our regular and supplemental dividends from distributable earnings at 110%. In addition, we made a conscious decision to bolster our liquidity and further strengthen our balance sheet throughout much of the year. While our strong distributable earnings benefited from the tailwinds of higher interest rates, these same higher interest rates have also led to some headwinds for the overall commercial real estate market. Specifically, we're seeing many property owners take a pause on executing business plans as they adjust to these historic increases in market interest rates. At the same time, certain markets are experiencing weaker leasing and occupancy trends. As has been well publicized, the office market in particular is facing challenges from shifting demand in a post-pandemic economy. Although we believe our senior loan-oriented portfolio has been carefully constructed, we aren't immune to the effects that these market headwinds present. As you'll hear from TASIC, these industry-wide movements have resulted in higher credit reserves, a greater number of loans in default or on non-accrual status, and elevated risk ratings. We are very focused on maximizing the outcomes for these situations, and we believe we are well equipped to handle them. It's important in the context of these broader industry headwinds to take a minute to review our positioning and capabilities. At Aries, we believe we have a demonstrated playbook on navigating volatile markets and capitalizing on illiquid environments. Our approach during these periods is first and foremost to operate with additional clarity while keeping an eye towards opportunistic investments. The Aries Real Estate Group has over $51 billion of assets under management and more than 2,000 properties globally managed by over 240 investment professionals. This provides significant advantages to Acre in helping understand markets and in tapping into extensive asset level experience. These insights led us to shift into a more defensive posture in 2022 and puts us in a better position to navigate a more complex real estate market going forward. Our overall liquidity was enhanced by $823 million in principal loan repayments during 2022, a new record for our company. In addition to these loan repayments, we realized more than $38 million of proceeds from the sale of the Westchester Marriott in the first quarter of 2022. This was a property where we became the owner in 2019, successfully navigated operationally through COVID, and executed the business plan for the property. This led to a positive return through the total life of the investment, and highlights one of the many ways we can achieve successful outcomes with a property operating below plan. In terms of our investment activity during 2022, we originated $725 million of new loan commitments with more than a third of such new commitments in the multifamily sector. Additionally, we invested opportunistically in AAA securities backed by a diverse pool of underlying loans. Looking forward, There is significant uncertainty regarding the commercial real estate market and property values. Our focus will be to resolve certain situations to maximize outcomes while prudently deploying capital into attractive new investment opportunities. We believe our liquidity and property level expertise position us well to successfully navigate and ultimately capitalize on the current environment. With that, Let me now turn the call over to Tasek to walk through some of our financial highlights and further details on our portfolio and capital position.