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. 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 its 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 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 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 middle market commercial real estate borrowers nationwide and accelerate our loan originations over time. 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 refinances of ACRES Capital development loans. These loans were collateralized by a mix of multi-family and selective hospitality properties, and were 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 $160 million of their loans. We continue to believe that the ability of our borrowers to refinance in this uncertain environment speaks to the health and quality of the sponsors and assets underlying our loan portfolio. Our portfolio was well diversified in terms of both geographic concentration and property type. Outside of Texas, no state comprises more than 10% of our loans, and approximately one-third of our portfolio is in the high growth southern region of the United States. Multi-family, which has been one of the most resilient asset classes during the challenges of the pandemic, is 56% of the portfolio, while the remainder is split between office, hotel, self-storage and other assets. As discussed last quarter, we took a deep dive into the entire portfolio and created a specific plan for each asset on our watch list. We sold our last remaining asset held for sale, a hotel asset in California. We also received a deed in lieu of foreclosure on a select service hotel valued at approximately $40 million upon acquisition, which was in excess of the loan's cost basis. As progress was made on the vaccine rollout we will determine the optimal plan forward with this asset and will report accordingly. We have made sequential progress regarding our balance sheet and liquidity position. At year-end, our total leverage ratio was 3.9 times debt to total equity, down from 4.6 times at the end of the third quarter. In terms of recourse debt, leverage was 0.8 times, down from 1.1 times. As of the end of February, ACRES had $150 million of net liquidity, an overall working capital reserve target of $40 million to deploy into additional commercial real estate loans and common stock repurchases. At December 31, 2020, $1 billion of financing capacity comprising three different term warehousing financing facilities, a senior secured financing facility, and senior unsecured notes was available. The ACRES network is now actively originating and underwriting new loan opportunities on behalf of the company, and we are focused on finding the ideal combination of location, assets, and sponsorship. As mentioned previously, we restarted loan originations in November 2020, closing $83.4 million of commercial real estate loans. Building on that momentum, during the first quarter of 2021, our originations are already approaching $100 million to date. As we continue to execute our strategy, we are confident that we will continue to see opportunities to increase originations. In terms of the market dynamics, there is a fair amount of competition for high quality loans, particularly in sectors that have been more resilient to COVID-related challenges such as multi-family and industrial. To that point, we have seen moderate spread compression in these types of assets, but we are also seeing opportunities that offer wider spreads in segments such as hospitality and office. We will remain selective and focus on credit quality, markets, and sponsors, and believe we will continue to source a mix of attractive opportunities. As we move through 2021, we are confident about the market to deploy capital using the ACRES network and the enhanced capitalization. Our priorities remain on actively managing the loans in our portfolio and continuing to pursue originations with a focus on appropriate risk-adjusted returns. We have an experienced underwriting team and a highly disciplined approach, and I am encouraged by our pipeline and our progress closing loans year-to-date. In addition, we are exploring the possibility of structuring a CLO in the coming months, weighing the opportunity based upon market conditions. We will look forward to reporting to you on our activity going forward. We will now have our CFO, Dave Bryant discuss our financial statements and operating results during the quarter.

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 and 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 a $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 the pay-offs and pay-downs of commercial real estate loans in the third and fourth quarters, as well as the full quarter impact of increased financing costs associated with our MassMutual senior secured financing facility, our senior unsecured notes, and our new CLO issued in September, which we discussed last quarter. The weighted average spread of the floating rate loans in our $1.5 billion loan portfolio expanded slightly from the third quarter to 3.56% over the weighted average one month LIBOR floor of 1.88% at quarter-end for a gross rate of 5.44%; these LIBOR floors are in the money on all our floating rate loans, with one month LIBOR at approximately 12 basis points at the end of February. We expect to continue to see a meaningful benefit to net interest income as the forward LIBOR curve projects rates to remain low in the near term. All except two of the company's 98 commercial real estate loans were current on debt service payments through the end of January 2021, including two loans performing in accordance with forbearance agreements. The implementation of CECIL on loan-loss reserves, which applies to all mortgage REITs 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 by loan type available relevant historical and current loan loss data, as well as future macroeconomic expectations provided by independent economic experts. The impact of CECIL resulted in a total allowance for credit losses at December 31 of $34.3 million or approximately 2.2% on our $1.5 billion loan portfolio. This represents an $18.6 million reduction from our allowance for credit losses at September 30. GAAP book value per share calculated over vested common shares outstanding, including warrants rose to $20.57 at December 31, 2020 from $18.10 at September 30, 2020. The increase to book value per share was driven by $2.02 of net income during the quarter, along with $0.41 related to share repurchases that were completed in the quarter. Note that the difference between the $2.02 of net income contribution to book value and the $1.95 of GAAP net income in the fourth quarter relates to the share count, and utilizing average shares for the income statement and shares outstanding at quarter-end for book value purposes. During the fourth quarter, ACRES repurchased 535,000 shares for $5.4 million. In 2021, through the end of February, we have purchased 565,000 shares representing $6.9 million. These purchases in the aggregate were at an average price of approximately $11 per share. The company has board authorization to repurchase up to $20 million of current outstanding shares through June 2021. Our GAAP debt to equity leverage ratio decreased to 3.9 times at December 31 from 4.6 times at September 30. As a result of the new financing commitments and debt refinanced during the year, the company had $1 billion of availability on its CRE term, warehouse and senior secured financing facilities, and senior unsecured notes aggregated as of the end of December. At the end of February, the company's available liquidity was approximately $150 million including $37 million of unrestricted cash, $78 million of projected financing available on unlevered assets, and $75 million of availability on our senior unsecured notes. These components were offset by our working capital reserve target of $40 million. With an enhanced financial profile, including improved liquidity and reduced recourse leverage, as well as reduced margin call risk; along with the recommencement of originations and a robust pipeline, we look forward to updating you on originations over the course of 2020. This concludes our opening remarks and I will now turn the call back to the operator for questions.

Thank you. At this time, we'll be conducting a question-and-answer session. 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 is 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? 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 depending on market conditions, I would expect that payoffs would remain in that range on a quarterly basis going forward. As far as originations go, we have about $1 billion plus or minus in capacity; 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 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 are 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 insight. For my final question for now, could you discuss the timeline regarding the deed in lieu assets of the hotel? What options do you have moving forward, and how will you assess the best solution for that process?

Yes. You know, this is an asset that we really like, 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.

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 exceeds any dividend you may have elected to pay. So, I think shareholders should look at that kind of as 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 some level where you would simply say we will put this money into our loan portfolio, we will consider a cash dividend 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. When we observed the 30% to 40% of book value, it seemed quite clear to us. If we reach 75% or 80%, we will reassess our position at that stage to determine if it makes sense to allocate those funds towards new originations, aiming for a return on equity that exceeds what we anticipate from a buyback.

Thank you. I appreciate that. Mark, it seems that the increase in lending aligns well with your core business focus. Could you clarify the situation? We’ve analyzed your historical pipeline, and we’re observing L-plus 300, L-plus 350, and possibly L-plus 400. What factors contribute to the relationship with the borrower, especially regarding transitional loans? You've mentioned loans transitioning off development, indicating they are likely in the early stages of lease-up. Consequently, the key question is how you are procuring a 600 spread with a 75 basis point floor. What factors enable you to achieve that pricing compared to typical middle market bridge loans? Thank you.

That's a good question, Steve. I would say you'll still see various types of loans typical in bridge lending, such as L-plus 300 to 350 to 400. However, what we've discussed frequently is the ACRES capital side of our business, where we focus heavily on ground-up construction of multi-family properties and other asset classes. This approach helps us build a relationship with borrowers, ultimately leading to providing them with a stabilizing bridge loan once construction is complete. This allows us to secure slightly better interest rates since it acts as a one-stop shop solution without the friction costs typically associated with seeking new loans in the market. This strategy helps achieve more favorable interest rates on these types of assets and facilitates our portfolio's growth with what I consider Class A assets. Everything emerging from the development pipeline is a Class A asset, which significantly enhances our portfolio's standards.

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. Am I correct?

That's correct. Coupons for construction can exceed expectations depending on how you take advantage of the deals. However, the construction market for middle-market properties hasn't really recovered significantly, which presents a lot of opportunity for us. We're definitely achieving good yields, and our borrowers appreciate seeing a decrease in rates on the REIT side as we implement it.

Sure, that makes sense. Just one quick thing for Dave Bryant. Dave, you reported your book value on a GAAP basis at $20.57. In the past, before the management change, Exantas also used an economic book value figure that wasn't materially different. Since you didn't mention economic value, should we assume that going forward it will be a GAAP book value figure?

Simply put, yes, Steve. We believe in the GAAP number and that's what we'll use.

Okay.

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.