Thank you. Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2020 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. [Operator Instructions] 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.

Good afternoon and thank you for joining our call. 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 it's reports on Form 8-K, 10-Q, 10-K and in particular, the Risk Factors sections of our Form 10-K and Form 10-Q. Listeners are cautioned not to place undue 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 will be discussed on this conference call. Our presentation of this information does not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with Generally Accepted Accounting Principles are contained in our earnings presentation for the past quarter. With me on the call today are Mark Fogel, President and CEO; and Dave Bryant, our CFO. Also available for Q&A is Andrew Fentress, Chairman of ACRES. 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 strategic initiatives, updates on our portfolio, and our resumption of originating loans; while Dave Bryant will discuss our financial statements and operating results for the fourth quarter. And of course, we look forward to your questions at the end of our prepared remarks. I want to begin by highlighting a significant post year event. As of February 16, Exantas Capital Corp. became ACRES Commercial Realty Corp. and is listed on the New York Stock Exchange under the symbol ACR. This was the final step in the strategic transition of Exantas to the ACRES network by bringing the platforms together under the ACRES name. As discussed previously, ACRES and Exantas's complementary platforms will help us to achieve our goal to be an end-to-end solution for the middle market commercial real estate borrowers nationwide and accelerate our loan originations overtime. We marked a significant milestone during the fourth quarter when we began originating loans again, the first since March 2020. During this time we closed five commercial real estate whole loans for $83.4 million; significantly two of these loans are refinanced, ACRES Capital development loans. These loans were collateralized by a mix of multi-family and selective hospitality properties, and we're issued relatively in line with the portfolio LTV at 71% and carry a weighted average coupon of one month LIBOR plus 6.19%. The company ended the quarter with $1.5 billion in loan assets across 98 individual investments. As of January 2021, 98% of the loans were performing while only 2% were delinquent. Additionally, during the fourth quarter, 12 borrowers paid down or fully repaid a $160 million of their loans, we continue to believe that the ability of our borrowers to refinance in this…

Thank you, Mark and good afternoon. Our fourth quarter results reflect our continued positive progress. Before discussing the results for the quarter, I would like to note that all per share numbers reflect the 1-for-3 reverse stock split that took effect on February 16. At that time, every three issued an outstanding shares of company common stock were converted into one share of company common stock. Any fractional shares that were created because of the split were returned to shareholders in the form of cash. Taking effect of the split, ACRES Commercial Realty's diluted weighted average common shares outstanding over the fourth quarter was approximately 11 million shares. Our GAAP net income allocable to common shares for the three months ended December 31, 2020 was $21.5 million or $1.95 per share, up from $3.8 million or $0.36 per share in the prior year fourth quarter. GAAP net income includes $18.6 million or $1.70 in CECIL reserve recovery. This positive movement reflects a more constructive outlook on macroeconomic factors as we have seen broader improvements alongside the vaccine rollout. In addition, it reflects the reversal of a specific reserve related to the hotel asset for which we received the deed in lieu of foreclosure that Mark discussed. Our other items in our results include a $1.6 million or $0.14 per share gain on conversion based on an appraisal related to the same hotel loan, as well as $700,000 or $0.06 per share loss related to the sale during the quarter of our last remaining asset held for sale, a hotel property in Palm Springs, California. Net interest income was $9 million or $0.82 per share for the fourth quarter compared to $11.6 million or $1.06 per share for the third quarter 2020. The primary drivers of the $2.6 million decline were…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Steven Laws with Raymond James. Please proceed with your question.

Hi, good afternoon. Congratulations on a difficult year and certainly the rebranding; I know you guys were excited to continue to put your fingerprints on it. So with that said, as we look at the loan pipeline; origination pace as you mentioned almost $100 million I think since year-end. How does that compare to repayments? And what type of net portfolio growth should we expect to see this year?

Hi Steve, it's Mark. How are you?

Good.

Good. I would expect given where market conditions are today that our origination pipeline will remain strong. I think with regard to pay-offs, as we mentioned in the call; we had about $160 million of payouts in the quarter and dependent on market conditions, I would expect that payoffs would remain in that sort of range on a quarterly basis going forward. As far as originations go, we have about $1 billion plus or minus in capacity and so long as market conditions are strong, I would expect that we're going to be extremely active on the origination front, and try to sort of maximize our returns through the origination.

Great, thanks for that color. When you look at the unsecured notes, the 12% notes; can you talk about the options there around refinancing those or replacing those? Is that a 2022 event or what are the pre-payment terms around that?

Hi, Steve this is Andrew Fentress. We have a non-call through the end of July of 2021 and then, there is some declining prepayment penalties after that date. And so, I think as we approach the back half of the year we'll begin to evaluate options and overall cost of capital analysis on that topic.

Great. I appreciate the color there. And last question for now; the deed in lieu assets of the hotel, can you talk about the timeline -- what options are from here? And kind of how you guys will go through that process evaluating the best solution there?

Yes. You know, this is an asset that we really like, it's -- it's -- it was a strong performing hotel pre-COVID and we didn't see any sense in trying to sell the property in the market. Today, hotel assets are not trading very well, as you probably would expect. And so, we feel like given the fact that we have a good projection on strong net operating income in 2021 and going forward, that we're going to hold the asset for at least the next 6 to 12 months, evaluate options as the market changes and continually seek out potential buyers of the property.

Great. Appreciate the comments this evening.

Thank you.

[Operator Instructions] Your next question comes from the line of Steve Delaney with JMP Securities. Please proceed with your question.

Thanks. Good evening, everyone, and thank you for taking the question. While you guys have been busy for sure, and I hope you're also doing well. So the buybacks are so rational and obviously, I look at the $0.41 book value accretion and applaud that when you think about it relative to book value or anything else. I mean it far -- that just the absolute amount of $0.41 far exceeds any dividend you may have elected to pay. So, I think shareholders should look at that kind of kind of is a large dividend in some ways. That said, I'm looking at the buybacks and it looks like you bought the shares back at about $10 average in 4Q. That's now up to 12 stocks close enough, it's in spending range of $14. So, you know, I guess getting towards sort of like a 70% price-to-book. Just curious like you've got plenty of authorization where is sort of a level where you would look at that and say, whether it's 80% of book or 85%; is there your some level where you would simply say we will put this money into our loan portfolio, we will consider a cash dividend and as an alternative to return capital; you know, great run. And I guess the question is, how much longer should we expect if the stock continues to move? Buybacks will be a big part of the capital allocation each quarter. Thanks.

Yes. Hi, it's Andrew Fentress. Thanks for the question. We obviously -- I think like a lot of people when we saw the 30% to 40% of book value thought that it was very clear. I think as we approach 75% or 80%, if we get to that level, it will begin to evaluate it from that point forward and understand whether or not it makes sense like you say to allocate those dollars to new origination and drive an ROE that would be in excess of what we expect to return on a buyback there.

Okay, thank you. I appreciate that. And Mark, the grade that lending is kicking up, I think that's your natural business and where you want to be. Help us understand the -- we looked at your -- we've looked at your historical pipeline, Steven, who was just on the line. And I have -- we've been on earnings calls perhaps two or three weeks. And we see L-plus 300, we see L-plus 350, maybe we see an L-plus 400; what would you say -- I guess the relationship with the borrower, the level of transitional -- you mentioned coming loans coming off development, so I assume they are just early in lease-up. And so the real question is, getting a 600 spread and a 75 basis point floor; what are the factors that allow you to obtain that type of pricing vis-à-vis what we would normally see in middle market bridge loans? Thanks.

That's a good question, Steve. And I would say that you'll still see several of those types of loans that you see in every day bridge lending, the L-plus 300 to 350s to 400s.

Right.

But what we have and when I talked about it coming out of development and we've talked about this often, is the ACRES capital side of the business where we focus quite heavily on ground up construction of multi-family properties and other asset classes, and it helps us develop a relationship with the borrowers that eventually leads to providing them a stabilizing bridge loan once construction is complete. And I think it allows us to capture a little bit better interest rate because of the fact that it's this one-stop shop solution without any sort of friction costs associated with going back to market for new loan. So, I think that helps on driving some sizeable size interest rates that you might not otherwise see on these types of assets. And it also allows our portfolio to grow with -- what I'll deem Class A assets; I mean everything coming out of the development pipeline is a Class A assets. So, it really improves our portfolio from a property standard perspective.

No, a great point. Well, strategically located I'm sure, for new construction and full amenities, etcetera, etcetera, it makes a lot of sense. And I guess from your borrower's perspective, since this is a relationship business; while he or she or whoever is paying 7%, I suspect that's a roll down from what the construction development and construction loan coupons work [ph]. Am I correct?

That's right. Coupons in construction can -- are certainly in excess of that depending on how you leverage the deals. But the construction market for middle market properties has still not really bounced back all that much, so we have a lot of opportunity there and certainly we're getting good yield, and certainly our borrowers like to see that dropdown in rate on the REIT side as we bring it in.

Sure, makes sense. One final quick thing if I may, for Dave Bryant. Dave, you reported your book value on a GAAP basis at $20.57. Exantas, in the past, before the management changed would also use an economic book value figure which was not that materially different. But are we now -- the fact that you didn't mention economic, should we assume that going forward it will be a GAAP book value figure?

Simply put, yes, Steve.

Okay.

We believe in the GAAP number and that's what we'll use.

All right. And on the initial -- the initial -- got you, [indiscernible] warrants; we were getting dilution warrant on the penny warrants. We were getting dilution of about 4% from reported book value as of September 30. If I applied that same 4% discount, you know, I'd get a current -- like a warrant diluted book value figure of about $19.75. I don't know whether you all internally -- whether you run that calculation or you have that figure in your mind but just my logic and going applying the warrant.

It doesn't Steve; I'll tell you why. The warrants are in our denominator for GAAP, so they've already been…

Oh, I see. Thank you. Okay. Because we have not seen that before.

But of course they were affected by the 1-for-3 split as well.

Okay, great. So when you calculated the $20.57, you had the $1.4 million pre-split warrants in there?

That's right.

Thank you, Dave, for clarifying that. And I appreciate everybody's comments. Thanks.

Thanks, Steve.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Mr. Andrew Fentress for closing remarks.

Thank you, everyone for joining the call. We appreciate your interest and time, and look forward to speaking to you again after our first quarter results in May of this year. Have a good evening, everyone.

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.