Good day, ladies and gentlemen, and welcome to the Q2 2020 Exantas Capital Corp. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Kyle Brengel, Managing Director of Capital Markets. Sir, you may begin.

Good morning and thank you for joining our call. Before we begin, I would like to remind everyone that certain statements made in the course of 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 a number of 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 Factors section 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 is 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 and most comparable measures prepared in accordance with Generally Accepted Accounting Principles are contained in our earnings release for the past quarter. There was an announcement on August 3 that ACRES Capital has acquired the Management Contract of Exantas. With that, I will now turn it over to the Chairman of Exantas, Andrew Fentress, for opening remarks.

Thank you, Kyle. Good morning everyone, and thank you for joining our call. I'm pleased to be speaking today in my new role as the Chairman of Exantas following the acquisition of the Management Contract, which was announced earlier this week. With me today are Mark Fogel, the new President and CEO of Exantas; Dave Bryant, the CFO, who many of you know and have heard from over the years; Michael Pierro, Senior Managing Director, who came over from Exantas and has joined ACRES; and Kyle Brengel, Managing Director, who you just heard from. Given the recent transaction, our call today is going to focus on the rationale behind this exciting combination, and we will provide some detail on the second quarter results. We will forego the typical forward-looking loan origination expectations at this time. All of us at ACRES are excited about the opportunity to serve as the Manager of Exantas, and we believe that our lending platforms and portfolios complement each other well. In short, our goal is to be a full end-to-end solution for Middle Market commercial real estate borrowers nationwide. Let me share some background on ACRES. We are a leading balance sheet lender that provides debt capital solutions to the commercial real estate industry in the top 25 MSOs across the country. Since our inception in 2012, we have built a highly successful lending platform by providing more than $1.6 billion in transitional loans to strong middle market sponsors in all major asset classes. We focus on short-term first mortgage loans, generally overlooked by traditional lenders, that range in size from $10 million to $80 million. Our senior leadership consists of veteran commercial real estate finance executives with meaningful public company experience. In thinking about the combination, we want to continue to build on the Exantas strengths that were developed over the last four years by focusing on first mortgage loans of similar size, and for the next phase of asset life after in ACRES financing. We expect the ACRES platform will generate a new business pipeline of opportunities for Exantas. The complementary nature of our lending platforms provides a unique opportunity to offer one-stop commercial lending in the middle market, and we intend to leverage our experience and network of relationships to do just that. There are three important aspects of the transaction that I want to focus on. One is to deliver critical liquidity to Exantas in order to mitigate any potential margin call or liquidity risk; two, is to focus on asset management within the current portfolio; and three, is to then put the company back into a position to begin underwriting again, with an eye toward growing book value and earnings. Just to note on our two capital providers that you both read about in the transaction recently, Oaktree and MassMutual. Each of these two companies has been working with ACRES in partnership over the last several years, and they are equally energized about the opportunity in front of us all. With that, I'll now turn the call over to Mark Fogel, CEO and President of Exantas.

Thank you, Andrew, and good morning everyone. As Andrew highlighted, all of us at ACRES are excited to have closed on this acquisition and to begin the important work of managing Exantas for the benefit of all stakeholders. We have already taken several steps to enhance the company's financial profile and ensure business continuity, which is key to maintaining long-term relationships in the borrower community. I want to discuss the strength of our operating platform. In conjunction with the transaction, ACRES made the strategic decision to transition 18 professionals from C-III to ACRES, bringing our deep bench of experienced real estate professionals to 44. The majority of these individuals are from the former management, finance and accounting teams, as we felt it was important to maintain continuity in these critical functions. We are confident we have the right team in place to actively manage the current portfolio, advance our plan to fuel origination opportunities, and begin to grow book value and earnings. Turning to the recapitalization, we partnered with Oaktree and MassMutual to secure new capital commitments aggregating up to $375 million. We believe these capital commitments not only provide us with liquidity and optionality, but they demonstrate the strength and quality of Exantas's business and portfolio, and reflect the compelling growth opportunities that we have identified. Oaktree provided a $125 million financing facility with an initial drawdown at closing of $50 million. This facility provides Exantas with the capital needed to navigate through the impact of the pandemic on the existing portfolio, and to then restart originations. The MassMutual warehouse facility has a $250 million limit with a revolving period for the first two years. This non-mark-to-market facility can finance any asset class in the portfolio, and provide the company with a stable financing source through these challenging times. Moreover, with this facility, the company will have access to approximately $1 billion of financing capacity. Today, Exantas has a current cash balance of $90 million with access to an additional $75 million as needed. With that liquidity, Exantas is well-positioned to manage the current challenging landscape and to reengage the company's loan origination business. We anticipate that we will begin lending as we get into the fourth quarter with the pace picking up as we move through the balance of the year. We will now have our CFO, Dave Bryant, discuss our financial statements and operating results during the second quarter. With that, I'll now turn the call over to Dave.

Thank you, Andrew and Mark, and good morning. I am eager to work with the entire ACRES team on solidifying and growing the Exantas platform. Certainly, the COVID-19 pandemic has had a big impact on our results as we shared last quarter, and while we have seen some improvement, the impact has carried over into the second quarter. Our GAAP net loss allocable to common shares for the three months ended June 30 was $36 million or $1.14 per share. Core earnings were $7.5 million or $0.24 per share for the second quarter of 2020 and $14.9 million or $0.47 per share for the first six months. Year-to-date, we incurred a net loss of $235.1 million or $7.42 per share. Net interest income declined modestly for the second quarter by $200,000 as compared to the three months ended March 31. Our loan portfolios net interest increased by $3.4 million, but was offset by $3.6 million from the disposition of the CMBS portfolio. The improvement in our loan net interest income is largely due to the decline in LIBOR and the resulting positive effect it has had in lowering the cost of our liabilities. Loan assets maintained more of a constant yield from the benefit of LIBOR floor protection, which has a weighted average floor of 1.92%. In terms of significant items impacting second quarter GAAP earnings, loan reserves increased by $40.5 million, or $1.28 per share, and we now have a loan reserve balance of $61.1 million at June 30. We incurred $1 million or $0.03 per share loss on the sale of a CRE loan that had a basis of $18.5 million, which was a recovery of 95%. We recorded a loss of $900,000 or $0.03 per share in fair value adjustments to our strategic plan asset held for sale as we funded operating expenses at the property, and that property had closed as a result of the pandemic. Lastly, we recorded a loss of $900,000 or $0.03 per share in fair value adjustments to our remaining BP's CMBS. The net loss from these items in the second quarter was approximately $43.3 million or $1.37 per share. The implementation of CECL on loan loss reserves that applies to all mortgage rates and other financial institutions requires us to estimate expected credit losses over the life of our loans. In determining our expected credit losses, we evaluate by property and loan type, available relevant historical and current loan loss data, as well as future macroeconomic expectations. The impact of CECL resulted in the total allowance for credit losses at June 30 of $61.1 million or 3.4% on our $1.7 billion loan portfolio. The increase from our March 31 provision of $40.5 million resulted primarily from the expected impact of COVID-19 on the forward macro-economic forecast that is used for our CECL modeling, and secondly, the revaluation of two assets on which we incorporated loan-specific market terms into this analysis. It is important to note that these adjustments are non-cash reserves and upon the potential settlement of the two revalued assets, associated reserves would be charged off from the allowance. We would not expect an incremental charge to earnings. GAAP book value was $6.01 per share at June 30, as compared to $7.13 per share at March 31. GAAP book value decreased by $1.12 per share, which was impacted primarily by the $1.37 of significant second quarter items that I highlighted at the beginning of my comments. Our GAAP debt-to-equity ratio increased to five times at June 30, as our retained equity declined since year end 2019. At June 30, our $1.7 billion floating rate CRE loan portfolio at par had a weighted average LIBOR floor of 1.92% and a weighted average spread over LIBOR of 3.41% for a growth rate of 5.33%. At the end of June, we had $1.7 billion or 100% of our loan book with LIBOR floors that are in the money. With 30-day LIBOR at approximately 16 basis points at the end of the period, we expect to continue to see a benefit to net interest income during 2020 as the forward LIBOR curve projects rates to remain low for the balance of the year. With that, I'll turn the call back to Mark Fogel for final comments.

Thanks, Dave. In closing, I want to again stress our collective excitement about this highly strategic combination. We have reviewed the portfolio in detail and have developed a specific asset management plan for each loan asset that will take time. We believe there is significant opportunity to maximize shareholder value, especially with the company's enhanced financial profile. We look forward to leveraging our experience and network of relationships to start sourcing new origination opportunities, strengthening our position as a leading middle market lender. With that, I'd like to open the call up for questions. Operator?

Your first question comes from Steve Delaney with JMP Securities.

Good morning, Andrew and Mark, it's great to be here with you today. I’d like to begin by discussing the increase in the reserves; you mentioned they are now about $60 million. Can you clarify if there are specific reserves related to the two loans you mentioned, or is the entire $60 million considered general? Thank you.

Yes, the two loans, Steven, are one is a hotel that is closed, and the other is a retail center that has had some issues, and it's one of the actually remaining strategic plan assets.

Oh, okay.

So, we had basically gotten some information in the market about what those loans could garner if we were to dispose of them, which is a decision that hasn't quite yet been made. Obviously that portfolio is being reviewed by the ACRES asset management team, and so, yes, those two are a large part of the increase probably in the neighborhood of 25% of the total increase for the second quarter.

Okay. So, that $10 million there, and are they the same two loans that you show, you report as being the only two loans that were delinquent as of July 31, is there a correlation?

Actually one is one of them is not delinquent.

Okay.

There is another type, the one hotel property is.

Okay, great. That's helpful, and I guess just looking forward to your comments about restarting lending in the fourth quarter, and you've got your financing in place. I mean, great job on that. Obviously we're talking about REITs and when people talk about REITs, they think about dividends. So, when I look at your strong core EPS, your cash position, how should we think about the possibility of you re-establishing a cash dividend in the September quarter? Thanks.

Steve Delaney: Hi, Andrew.

I would just offer a comment. In closing, that modest dividend is fine. It doesn't have to be, I think just it sends a signal. If it was a nickel, I'd be thrilled. Okay? So, I'll just leave it there, and welcome, as I said, and good luck. I know you'll do a great job. Thank you.

Thank you.

Your next question comes from the line of Stephen Laws of Raymond James.

Hi, good morning. Andrew, Mark, congratulations on the transaction; and Dave, it's great to connect with you again. Could you discuss the situation with asset management? I know it’s early and you’ve only been with the company for about 72 hours, but in the press release, you mentioned 11 loans that received some form of forbearance waiver or partial waiver, along with an extension in the commercial real estate portfolio. I don’t think that number includes the two loans you just mentioned. Can you provide more details on loan modifications and share your thoughts on how many more loans you anticipate will be modified as you continue to evaluate the portfolio?

Mark Fogel: Yes, I'll address that. So, the 11 forbearance loans that were discussed really revolve around the effects of the pandemic, mostly hotel-related and retail-related type assets. It's important to mention that those assets were performing quite well prior to March. So, we've looked at the assets at ACRES, somewhat from afar, we've done our diligence on them. We understand what the issues are that surround those properties, but until we get in and speak with the borrowers and really dig deep as to what a potential business plan might look like on a go-forward basis, it's too hard to tell at this juncture what the ultimate outcome of those situations might be. As far as the rest of the portfolio goes, as you know, a good chunk of the portfolio is in multifamily-related type assets and self-storage, and for the most part, those assets are performing quite well, and collections have been strong. So, it's difficult to imagine in a go-forward basis what other potential forbearances might arise. At this juncture, we don't see any, as we look at the portfolio today, but it certainly is possible that other assets could enter into forbearance stages.

Great, appreciate the deck you guys put up earlier this week, and I thought there's a lot of great information there. One thing jumped out and talked about the complementary business strategies with ACRES and Exantas, you know, given the more transitional construction focus there, can you talk about that relationship, is it really doing loans with the same sponsors on different assets? Do you view this as more of a pipeline where you'll be able to do a new origination in Exantas to pay off a higher cost construction loan that you have in a different business segment? Can you maybe give us color on that bullet that talked about the complementary business lines of the two portfolios?

Mark Fogel: That makes sense, I appreciate the clarity. I’m considering how the two business lines compare. I understand the liquidity reference to 165 million, which includes existing funds plus potentially 75 million for new investments. It might be too soon to discuss the pace of limits, but could you share insights on the current market returns and how the returns on new loans compare to the existing portfolio? Additionally, are there any asset classes you are avoiding due to limited visibility in underwriting, like retail? Please discuss what opportunities are available at present and which property products seem to be the most promising in terms of returns.

Sure. We spent the better part of the last four or five months really studying the market and trying to understand some market dynamics, which is really difficult for most lenders right now. Certainly the multifamily asset class has performed quite well during this pandemic. It will be a focus of ours on a go-forward basis. There is a lot of competition in that space, and I would suggest that the spreads have remained somewhat similar to what they were pre-pandemic. So, this is a competitive landscape, but there are always opportunities out there that we can identify through our existing sponsors and brokerage network. As far as the other asset classes go, we are a little bit skeptical on some, retail in particular, and hotels are very difficult to determine where the market is going for those types of assets, but at the same time, we will always do what we've done in the past here at ACRES, which is bring in as many opportunities as we possibly can through our origination network, dig deep on assets that seem to make sense, and really study them hard, and underwrite them to determine whether or not they're a good fit for the portfolio. So, the real answer is, our focus will be on residential-related assets, but at the same time, we are not going to ignore other asset classes where there's potentially good opportunity.

Great, thanks for taking my questions this morning, and I look forward to additional details in the portfolio in the three months in course. Thank you.

Hello, this is Andrew. I want to thank everybody for joining us today. We're excited about the opportunity that's in front of us here. We look forward to working with all of you in the coming quarters and years ahead, and enjoy your weekend everyone. Thank you very much.

Thank you. That closes the conference call. You may now disconnect.