XAN - Earnings call transcript Q2 2018 | ACRES Commercial Realty Corp.

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Operator

Good morning, and thank you for joining the Exantas Capital Corp. Earnings Conference Call for Quarter Ended June 30, 2018.

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 we -- may constitute forward-looking statements. When used in this conference call, the words believe 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. the are including the X-K, its XX-K in uncertainties with reports XX-Q and of and, SEC, section the reports particular, risks discussed XX-K. company’s in filed and our These Form Factors Risk on Form to the Listeners of on these only hereof. undue forward-looking are place reliance which statements, cautioned speak not date as these company no undertakes statements. obligation The to forward-looking update any of measures call. financial non-GAAP will certain on conference be Furthermore, this discussed

as non-GAAP in filings be to of Chairman presentation Capital substitute of with it accounting accepted is information financial in with presented to comparable over a Our Corp., to turn or information through Exantas not for opening intended Andrew the most the accordance SEC I considered GAAP. the isolation our like remarks. accessed to at prepared Reconciliations financial generally this in now principles the to can with measures accordance of measures Farkas, www.sec.gov. be would these

Andrew Farkas

joining of call I Hughson. is Bryant Good morning. Matt Carr, well our Dave on with today. also Lieber Relations, Thank Head have who’s here and Andrew Stern, Paul as as Investor for us. you Bob

during Analyst under began of Day Along an Corp., conferences. ticker and announced in second of call, with Capital stock awareness changed Exantas by credit-focused estate following May, we’ve company’s we C our rebranded In XAN trading rebrand, the increased the the completion and investor the Exantas name the to a attending the the recently company substantial transformation plan real commercial the stock and last and its quarter PRC, the strategic of we into As company common investment symbol vehicle. and preferred new XAN. hosting respectively. Series

to visibility relations earnings. efforts and discuss as continue Capital and growth transparency, We our our increase we in strive expect Partners XXXX to platform efforts to drive C-III core provide greater leverage these throughout investor to

ago months achieve investment the XX billion earnings making our we transitional last of the CMBS. to loans real to company set months, acquiring for out estate continue over We core and as In XX track results deployed achieve to plan. on XAN’s we strategies $X seek into we are to potential our commercial capital of execute

second per New share, in activity calls. to continued in for continued board our our and earnings plan increase for core $X.XX and investment net payoffs, in net origination of core quarter. substantiated financings would insurances in This, improved earnings of dividends have an in attractive outpaced interest and improved to this share growth with We those and And dividend to investment $X.XX you has established we to increases our the resulting This increase warehouse share our capital to fueled additional portfolio growth be income. the for cost the with coupled Lieber. with forward of quarterly third The increased increase other CEO, up terms, CLO look second an of the pleased in announced second the quarterly to plan the future after strategic for the I’ll $X.XX per very to XXXX. per I’m reporting dividend share when over prospects growth. in personally on core the rate results it results from our turn quarter that, approval. anticipated seek quarter, we per which quarter Bob $X.XX earnings the

Bob Lieber

morning, Thank and you, everybody. Andrew, good

the up quarter plan. early our executing earnings of when $X.XX which adjusted core quarter of to core in the we per share, share from $X.XX stages year increased per were first and XXXX, and For common up a strategic negative a a share the ago from second is $X.XX in

A a more reasons: this shareholder which than quarter first, and results per reflection $X.XX net preferred to the for the the third, following of better past XX% investments ago; the true first of by our is second, earnings increased our other the shares, XXX the XXXX of impact XX redemption positive of full the last common has year half the the a reflect strategies quarters commercial that from months; impact over B and quarter note credit, sale from that for Series over earnings As more $X Exantas’ which first loans exclude book potential real earnings up have the million also Andrew realized XX% shareholder. that million for real are core of XXX investments I than estate was of in are and legacy XXXX relates by common value. commercial almost loan a mentioned, for the the during million, quarter than gain estate of core quarter of and prior the a the resolved of should to held second settlement and investment

outstanding core the that loans earnings. net company’s as the would As investment legacy the our primarily highlights our And perspective, cost the were expect in and REITs we this history. largest are mortgage increased in quarter company’s a core funds to the results reminder, plan fact issued the were interest tightest result our June rise second CLO discontinued XXXX at earnings CLO that were yielding of issuance growing and excluded from portfolio operations of the identified the of our a strategic definition in history, of in second and spread execution was notes income do. From the the

as demand our demonstrates for strong are in extremely this debt the it with reception CLO markets continued offerings. transaction and company’s We pleased

compression originations market. Our including the offset competitive result a the new August one today’s of help year, completed CLO executions, of in as spread of last some in

business capital core we to to until be execute to plan, available are expected full continue lumpy our continue increase but our deployment. may deploy on earnings reach and we As

to our be adjustments consecutive with core dividend in warrants to Further $X.XX discuss to Our continue near-term our outlook And dividend visibility board. earnings by per an core anticipated we share. improves, will policy second continue dividend as the will informed quarterly earnings. increase

a of was of the end increase couple the book the Finally, turning of share in second by to to of XXXX a at driven of value The quarter the at $XX.XX compared the value XXXX. to increased balance sheet. factors. as first $XX.XX Book end quarter

net value first of Matt? in With described, as market, the of associated payment also, $X.XX per resulting as CMBS turn to that, our per $X.XX in the positive per the I per of second of the The legacy share. I’d of well quarter, like $X.XX share, loan for dividend in the net share to $X.XX the gain a book Matt. gains a of increase to over with call share marking is unrealized income but primarily inclusive settlement share, $X.XX portfolio per

Matt Stern

morning, company by begin origination closer with quarter XX-day a and LIBOR. loans at XXX good of CRE you, I’d In average everyone. basis of XXXX, the points look over and Thank activity. to like the weighted of million originated second Bob, investment XXX the taking quarter’s this spread

our floating many like our from of in lender rate benefit As and increases rates. a interest competitors, short-term earnings

As competition, the summarized on weighted Page new compression despite yield the average X last spread the of largely of from release, our market some XX originations unlevered during quarter over unchanged months. been earnings has

self-originated portfolio positive the the earnings power of deployment second pay downs in pay-offs of core driver of this XX our rate for quarters. originations of capital over further our total in third investment of our growth months book billion $XXX million. This our of progress $XXX whole a quarter net for deployment for the and net exceeded million quarter loan commercial helped a last million and increase June the $X.X last is few anticipated in floating quarter. $XX portfolio our The increase XX, during the real comprised New estate CRE At has loan XXXX, primary dividend was loans.

team million on classes the increased remaining of and identify the while have company’s add CRE we attractive throughout its our the recognize management asset loan portfolio floating no returns history customer of we That deal loan including rate competitive, from of team loan and maintaining and communities to $XXX the bonds C-III us credit same portfolio. June continue At an and as credit was million United unique should workforce bonds, States. $XXX standards. the to At communities and has are It, provide property and favorable specifically apartment of we continues in and our competition across our see to Our this flow, the opportunities ground and type, risk-adjusted have market, communities rate team this a boots origination focused of XX, diversification view borrowers to to platform, of meaningful property-type our which with portfolio in relationships. comprised hedged. said, being owner repeat therefore, a come and lender operator diverse quality long representation and we time, at housing U.S. fixed asset company’s cities. million the catering $XXX non-gateway in broader have par a the that on class, apartment to throughout CMBS surprise XXXX,

quarter, the and acquired During bonds, amount investment in tranches. second $XX safe grade of junior million low CMBS including we

One loan compressed, while we portfolio. underwriting throughout to of provides comfortable but to company’s the returns the investing. the we trusts, capital asset credit and identifying CMBS have risk-adjusted be selectively C-III’s CMBS is believe stack core duration yields yields real and competencies good risk-adjusted to investment estate Similar and class, underwriting which of continue adding attractive diversification

strategic the to Turning plan.

for next more held-for-sale investments, to in to X being are than loans the expect are are sheet this reclassified $XX nine quarter months. X million six which assets longer have targeted their these resolution. CRE our and We that of sale or loan resolve to immediate to plan remaining, pursuant we no of these on Accordingly, balance loans terms loans from strategic XX% comprised of

and last excess We of our in are current retained closing exited our to mark. have proceeds received slightly loan at middle-market pleased

receive could related additional In to addition, proceeds investment. we earn-out this

Finally, we of discussed progress couple company’s calls, of the last on reducing our capital. cost on our

of June, As advance issued It us company’s CLO and an spread our in the Bob with of XX% points which a issuance. million CLO provided LIBOR. mentioned, was a XXX we rate basis initial successfully largest $XXX

the finance Our cost spread issued weighted portfolio from XX, company’s in X funds are compression of the originations real XXXX, of since offsetting some loan of a June year. the CLOs and average commercial primary continued of decrease the estate most recently last our XX% during driver new

existing new to improving our and facility by by favorable amending continued terms cost asset-level market company’s We an of the capital have reduce warehouse terms. more a facility the also financings with through warehouse of

We discussing progress core look in that, With this to are and over growth quarters it discuss turn to to like progress Bryant financials. come. earnings to quarter I’d the forward and our pleased with the future to Dave

Dave Bryant

morning. Good you, Thank Matt.

Our share. three months was $X.X to common allocable $X.XX XX income or GAAP million for June ended net shares per the

loss or was XX share. net June to months ended million GAAP six for $X.X the per allocable Our common shares $X.XX

a of gain realized assets, for second million settlement Our the nonrecurring net of discontinued loan, strategic $X or income following the noncore loss $XXX,XXX of the income These items significant a other adjustments includes net these in legacy Each and/or noncore from $X.X operations. included to $XXX,XXX million net a from $X.XX quarter the of share. approximately items: per of from were plan.

had well first growth the interest million items: a asset LIBOR the income are rising has cost the equity XX% incremental XXXX. net $X.X XXXX core June the quarter compared This stock platform, net of a XXXX over impact by XX, growth XQ of We XX% net lowering approximately increase value positive As of our saw floating last XX being on earning as estate asset to or the over as on increases on and These has Andrew financing of had for XXXX, our our as B or and or accretive in asset-based core $X.X rate approximately and to and growth production our was year net income the X our or capital driven carrying A million commercial interest X and strong. ended growth quarter the our million investment in $XXX Series real benefit on very million interest core The XX% in for preferred months redeeming a assets net asset core investments. of credits the trailing from respectively. highlighted, been income. our XX% of $XXX core second

and per earnings operating balance shareholders. share. the $X.XX core net interest and or income months transformation ended benefiting our Our X June increased common simplification of core were our for XX has The yielded sheet lowered costs, $X.X million

at deploy XX% year-end the increased our expect increase to XXXX. credit strategic of market-standard XX% in as to new credit ratably assets our investments leverage. we to We the the with use execution compared as and proceeds finalize a of real investments estate equity total plan to allocated remaining Likewise, core commercial

real $XXX Fargo extension right with the pricing commercial In buy Our our Wells GAAP million a a facilities, closed loan debt-to-equity ratio asset-level reduced our increase facility pledges, increase commercial from increase results on up from $XX debt offset of on borrowings, our in excess and markets. which on excuse We in net by million, -- options estate and and have in times which reflects in distributions X.X $X net in XX. our X.X times, million X-year stands estate we million credit of prices real earnings at lowered XXXX of including April. extended leverage through a me, March the future at July, X of The $XXX we CMBS with derivatives. of driven new total spreads our capacity was equity by now mark-to-market additional facility the improvements seen term

real in XXX and $XXX X-month a weighted of X August XXXX assets million plus million estate XXXX loans. of of finance last points, and real at June average of estate commercial securitizations notes comprised $XXX LIBOR Our helped issued basis XX

issued for June Our after at the funds redeemed issuance the on cost plus LIBOR XXXX issued of commercial an in commercial have Corp. Exantas XXXX, plus date. call loans X.XX% LIBOR RSOX, was on we cost X X.XX% our a estate loans of XXXX. real August of CLOs second our July, recently at XX, XX. In estate CLO and XXXX real of March on is And notice Capital XXXX redemption we funds X

had approximately X of a securitizations lifespan years. Our CRE last X

any additional turn call settlement we to I’ll strategic ample back from in plan, that, Before we for of assets Bob our believe origination and fund to have sale a a pipelines. or remaining With the final that liquidity liquidity our comments. investment

Bob Lieber

Dave. Thanks,

on negative initiated we XX our have we look forward note earnings. would laid the of financial $X.XX followed This per from from the we quarter. a core I And a able another quarter. the in to positive has As financial the and to achieve per objectives the updating track share for out all I’d of third are company increased that our of we’re Operator? questions $X.XX can calls. period dividend -- this like earnings achieve almost discussing which been -- that’s which to any you these have. strategic for on anyone was with on today a to share providing to fourth our the guidance have quarter per our ago. future what the With to rising share you covering results, Core that, operator hear, months as dividend to results continued efforts objection the We quarterly XXXX, investment might in $X.XX progress share we ask plan, from to of open by $X.XX up

Operator

[Operator JMP from Delaney you. of Thank first And comes from Instructions] the Steve question Securities. our the line

Your line is open.

Steve Delaney

Matt, if start you. could I with

on color? LIBOR type loans, average the On loans, helpful. would -- anything give over little a spread Could more us coupon of How mentioned new color of number million many would you property originations, the the comments geo X.XX%. about weighted you the be $XXX and be the of

Matt Stern

Yes, it in loans was XX total.

Steve Delaney

XX?

Matt Stern

more, substantial Yes, were asset But as side maybe think other were majority, on were I XX. multifamily. the multi. there from XX% I And or one was in perspective. an the The majority, substantial hotel mentioned, class one and

Steve Delaney

not finances Okay, directly multi, market, in we I what and that we involved great. CLOs. CLO hear guess, but hear, In the better the we’re in multifamily

want loans, the there? is do fact, multifamily I financing there, of the is, but to focus get portfolios know your concept? good for a CLO to make benefit you sort you So, connected in

Bob Lieber

execution. CLO originating the though. why just got a marginal impacted loans, not That’s multifamily That’s originate we in loans. You benefit

we see it continue do For a transitional with in opportunity us, [indiscernible] business light lot to of work where we plans.

on the We’re side. doing at C-III that equity

So product we’re that heavily type. in invested

We have on around in both side. product that type. a of equity traffic lot and efforts We debt the it

our natural overall a just origination. really of it’s So extension product

Steve Delaney

Got it.

what property like you’d you you the financing circumstances, hearing. of sounds it I’m financing like. those the if happy collateral lines, the on is type regardless So be And bank and were

Bob Lieber

for It as right. us lines. warehouse our just works That’s on well

hospitality of the obviously, You risk-adjusted you do we continue multifamily do spreads, example. for that returns at product, like originate origination strategy. tighter But than to

Steve Delaney

And the in now that Can loans reclassified then not move HFI whether borrowers a are are you loans? back the and near-market portfolio. on those into yield on two or payments, the say current whether there’s

Dave Bryant

The of approximately the interest mentioned, a It of slightly payments borrowers months. be expect might in are on both near-term market those as below I one both nine would say, cases. we six current times. been has modified resolution rate. to Matt in But do several to loans

Steve Delaney

Now it’s property by portfolio. properties belief not it can Or back borrowers? your you take feel you’re back if the to you’re the that expecting in going be you’re that have the assume on regular to putting based refinanced I the

Matt Stern

Yes, was those terms. one improved same of weren’t and bit we the evaluated normal strategic their of classification resolve original deals we a long to the okay, ROE they they At that wanted primary according that an just providing to the profile loans drivers as for were while we to target in operationally, them the the expect time, the term. plan

Steve Delaney

realize to sorry exactly at whether a floating floating And that talked of you that’s type about these significant could just that one, know or me. ball as jumped CLO I When a a single what CMBS structure component are portfolio, you, is? And on Matt, or out maybe you rate there the that explain don’t is. my rate. CMBS the last there topics I pick didn’t was but and

Just that’s attractive last floating on finding what you’re the And one. being my curious, side?

Matt Stern

some to we relative product borrowers of single single-asset, in opportunities of seen. series the have a are that There priority Sure.

investment is side, so a on other those. evaluate team Our conduit the opportunities combination and continues opportunity straight it but of not to CMBS just CMBS

Operator

question Ben the next from from our line BTIG. And comes Zucker of

Ben Zucker

Just little were start but... the bit? a could little know about spreads I off, bit, that we to your a talk market down quarter-over-quarter,

Andrew Farkas

up please? you little bit, a speak Could

Ben Zucker

Yes, sorry. Can you hear me now?

Andrew Farkas

you. Thank Yes.

Ben Zucker

environment about multifamily basis Can market XX little points you were a about you also quarter-over-quarter, bit? targeting spreads talk I loans. down that the were your know but

So I’m seeing just curious now. much you’re how competition right there out

Bob Lieber

Well, competitive. market think the I is

I loans. continue I robust. share the our I pipeline reasonably fair is I mean, we forward of to think originate, think think,

to at So we’re think proceeding, competition plan. be continues out really, the to there, while pace according I our

Matt Stern

correctly a help you frame one come that, to to spreads bit. little pointed Ben, in way add To have as origination loan I out, it, new think

the cost pretty well. think has same across funds the market. But consistent I that’s at moved time, as the of

seeing We’re levered the that comments. as CLO in the and execution both And the to yields. LIBOR on both spoke on that as mitigate the well our line increase side has also helped warehouse that, has our impact unlevered that on we

Ben Zucker

but you going willing a any definitely also, And part that much also. up thought the to returns there’s how redeeming CMBS? to the risk-adjusted CMBS those of between even guys a bridge your And hear allocate higher-level since And to you capital do I costs to I forward. your there. loans now guess, to know tick opportunity I and best as investment clear where that, there additional see book? of your that to of continues portfolio, right part equity is improve you’re funding strategy, CRE you’re you quick The follow-up for securitizations, an it’s

Matt Stern

somewhere how framework would in we neighborhood portfolio the provide we’re then our for investments of to for target allocation, longer-duration page, specific a it. a product. end, portfolio, our And balance. of remember in about the the make the loan-type don’t try Presentation, would Investor in the of combination XX% we but the XX% On traditional I thinking up to

But mind, a how So either up precision, certainly, now, per with CMBS. know CMBS other I least how long-duration there product we that would in made there’s with our much cap would at of of or forward. much don’t going have as be be se,

Ben Zucker

And quarter-to-quarter. predict helpful. lastly, That’s it’s and from repayments hard very to originations I know

this anticipate it different your from pipeline way, a second CRE you’re and the of So in the further on loan maybe portfolio based half you the expecting, year? do ask repayments to throughout growth that

Matt Stern

We pipeline our building. loan do origination see

in that year. in million year. the the half to half the second in I first maybe to think see half We we did in of continue of aggregate, grow the the $XXX year million of the do this first $XXX-or-so expect

the precision As you difficult expect to to we where be, do continue still out, with portfolio net repayments grow. predict pointed but exactly it’s to see will

Operator

further showing turn time. this to I’m questions now Bob I any And at over the to would any for like call Lieber remarks. not back closing

Bob Lieber

for to participating you here do anything? all with close Thank would Andrew, you today. want

Andrew Farkas

Continuing and a to privilege express kind continue know we of to is expressing we been the the company follow earn. you've have support to to confidence us

of I a doing think that over years. several we last that at have course the the job been good

team an deserve continue to expect that to forward. you. progress several for us you'll go job, years. the follow hope we that Thank and continue we my like to We trust we as as through excellent I'd commend management next

Bob Lieber

you Thank up. all to following for participating Look forward operator. you, Thank today.

Operator

disconnect. ladies in thank the Everyone, day. nice all conclude you Thank you gentlemen, a for and This you. may participating have program, today's and And conference. does

ACRES Commercial Realty (ACR) 4 Aug 182018 Q2 Earnings call transcript