XAN - Earnings call transcript Q4 2019 | ACRES Commercial Realty Corp.

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Operator

Good day, ladies and gentlemen. And welcome to the Q4 and Full Year 2019 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 [Operator Instructions].

conference recorded. this reminder, a is being As

I today's President conference, like to of host for introduce your Steve begin. Finance. you would Sir, now Corporate may Landgraber, Senior Vice

Steve Landgraber

the morning. call. Good you thank for And joining

expressions, certain expects Before we like historical intended are in conference would are used begin, information call the and and course this believes, based forward-looking call, statements statements. in forward-looking everyone of When identify to the not statements. made remind I similar that anticipates, on may words to constitute this

While are the current such based forward-looking company expectations believes that management's based statements these statements on assumptions, on reasonable and beliefs. are

forward-looking particular, of Form reliance cause are cautioned Factors uncertainties the XX-K These in Risk section update company and They are differ reports and date these risks hereof. the those forward-looking to our discussed forward-looking number with filed on to in not only statements, X-K, company's Forms these obligation its and the which uncertainties from statements. including trends, actual The of as XX-Q a any the statements. results on that to no speak SEC, could are of subject and materially to reports in risks the place Listeners undertakes XX-K. of undue contained

financial on non-GAAP this conference measures discussed certain will be Furthermore, call.

the non-GAAP principles Reconciliations for earnings these a generally accepted or Our with financial presentation of in of measures are past this measures information with quarter. information prepared contained our to most be substitute comparable to as GAAP. accordance in is in isolation to not accounting release considered in intended presented the accordance financial

Capital over Lieber, to Bob opening I will for Corp, turn of remarks. CEO Exantas now

Bob Lieber

Officer; Matt Steve With heard. Hughson, our Head Commercial Financial everybody. Estate Good whom Steve. today Dave Real President; of you've Landgraber, our Bryant, are our Thanks morning, Thanks Chief from Lending; already call Stern, and Paul joining today. for me

may and airplane this but who's Andrew go be we getting call, off to may didn't imminently be Farkas, by joined also want joining We an into longer. any

part him welcome So if here. a joins, we'll as he when gets Andrew

start to made progress Exantas XXXX. like I'd the by reviewing in

for which billion $X.X real investments. execute our of $X.XXX in XXX%. $X.X, in Economic $X.XX Exantas Our XXXX, continues value ended was excess by debt $XX.XX. at full of commercial We was the book $XX.XX nearly an We year of the related well core generated estate articulated team. originated earnings or of year dividend business increase dividend. acquired at versus successfully our to plan began XXXX and

finance real commercial to dynamic. are the Needless say, markets estate

through of our our offer calls earnings. have rate competitors, XXXX, the evolve. and to now borrowers. traditional will products this drive deployment, as capital examples expands well our which loan increase our is a We of The adjusted deliver borrowers to a investors product, market and our week in have middle provide our differentiate suite and as value platform announced differentiates a full fixed across to seen from competition many to loan Exantas expected last and articulated we from number consistently risk believe of markets Exantas As returns further our new products entrants

per $X.XX of Full $X.X core income XXXX in to or innings growth share is versus C-III purchased of nearly earnings well that over XXXX. in interest operating the $X.XX the from $XXX purchased $X.X originated was million as The billion Commercial $XXX $X.X million loans an improvement of loans loans acquired. million $XXX from for year of and in adjusted were recordings CM, core Deployment XXX million as Mortgage, was year CMBS with expenses. including or attributable in and $X.X million improvement $X.XX of net

albeit billion, guidance we purchase C-III, of within loans capital, original end XXXX, of at little compared which and purchased billion. our increase million XXXX, million million of Excluding lower we of falls $XXX the range. did versus materially things to deployed originated $XXX portfolio totaling offs from $XXX portfolio. the $XXX to so This $X Pay the a of XXXX our in million over outsized of impact $XXX and $X.X payoffs $XXX million some for CMBS million did the pay-downs in to were

platform. borrowers was to through additional It some coming fixed discuss our the attractive estate later its Matt estate in this for the and product it’s capture our Commercial at to deploy that that of integration financing real will capital real us specifically the shareholders, demand platform from feel and include Exantas we of benefits this loans commercial yields context expanding permanent announced more rate borrowers. but commercial allow C-III our to debt Mortgage will directly

is size long-term loan us Exantas same at from stop borrow competition commonly one originate. solution a and differentiates our for business feel short to the once fixed term the rate loans who we transitional assets utilize provide We then plan is on now completed. this borrowers most lender could the

to $X.XX during quarter share share Turning share the quarter core earnings and per $X.XX last results. quarter were fourth fourth per per to $X.XX XXXX XXXX. compared of

provided decline quarter by was driven on last earnings in the core primarily net quarter, the our earnings is with third during negative consistent quarterly call. This our which third quarter production from commentary

fixed experience introduction and interest will in of of QX the after quarter plans business of do continue million as capture payoffs activity originated $XXX rate million We to rate and allow downs $XXX.X took were originations Fourth lower relative refinancing QX, of business estate volume. achieved we this that usual some than as in QX. million loan $XXX.X us million the in environment. pay believe real increased to their the the pay expected advantage to higher our but $XXX down borrowers commercial New

million of Net deployment quarter of for the net $XXX the $XXX.X estate of million million debt real $XX.X was fourth payoffs. with gross investments

$XXX our million consists and XX, loans of was portfolio of debt of $X.X billion, real at estate commercial December commercial of par. CMBS As real estate $X.X billion XXXX, which

a per the during during last was interest quarter. Net book third share million $X.XX $XX.X per or compared decreased from or the $XX, and $X.XX to $XX.X value compared per XXXX. decrease GAAP to $XX.XX $X.XX of third million quarter to value income economic common fourth the $XX.XX was share quarter quarter share book

GAAP million $X.XX was or for in versus time non-core of per which income will million income GAAP $XX per was for his Dave any prior to XXXX one was year in $X.X to adjustments. or GAAP by third $X.XX the quarter. $X.XX comments. share impacted $X.XX net compared $X.XX share the income net negatively net activity, highlight

come our like under commercial In acquire to light of the conditions, now debt update to XXXX in we guidance. to expect And I though expect this from rate Exantas or market XXXX. guidance integration want normal least Commercial may real estate $X.X Mortgage, Of we to $XXX emphasize later characterize revisit billion million we'd has fixed about would this this to originations. I this this at originate need been origination recent year. and C-III market that normalized of would amount, we not of activity

strong looks $XXX loans closed and over sheets with pipeline million to-date. returned, term of this $XX current Our quarter million of

$XXX incremental This Some $XXX of ample pipeline We in grow second interest our to translates quarter. of income. roughly to to of million-ish deployment million the return term the capacity. million and $XXX will fund liquidity still net have close sheets

and to our interest net we then quarter expect into muted. first of at second will the relatively our the most the Given end be deployment be first quarter, income in of quarter the

However, current deployment competence the gives comfort with our $X.XXX current pipeline the our share. our in per us guidance, at and dividend

that, I'd to over Matt. With like it to turn

Matthew Stern

the on additional everyone. good and CMBS first morning Bob platform. information quarter fourth our loan mortgages portfolio. commercial some I'll of I’ll you, review CRE the which, provide performance of CX Thank integration and After

encouraged by lending fixed integration the through are C-III the Exantas Commercial for We Mortgage’s business. opportunities created rate of

deploying inception loans has of billion and business track originated Mortgage of billion record Commercial a its credit in $X.X floating history. rate C-III rate capital with $X.X has excellent loan. XXXX, an Since of profitably This fixed

will C-III Exantas's you May, Commercial immediately to CRE Exantas, recall which As rate floating $XXX was portfolio Mortgage accretive million earnings. sold in loans to of mortgage XXXX,

competition looking as Exantas’ valuable We transactions Exantas addition rate will business more floating from for tend a market transitional to We financing plan as to full of as a well assets often offerings, borrowers loans for increased. term equity benefit light has their to appropriate rate debt now borrowers suite believe fixed estate preferred the real rate are capital from able mezzanine short and be gains of traction. for in as the with differentiator be the permanent who loans, longer will business target term fixed situations.

our borrowers share of as loans. customer capital a seek existing capture maturities flexible, in well primarily new rate fixed rate offering of to the fixed universe rate able longer book be base, a floating rate term who our products by floating to reaching also as will We

the business, REITs of will rate one which few shareholder become enhance Exantas Additionally, a fixed will returns. operating securitization public

or originated be the be has subsidiary at from this doing part will income are taxable Exantas or will business TRS, as our of at operating CMBS deemed that is strategic Gains legacy on targeted loans item for securitization why which gross rate of XX or disposed note securitization. a plan. at million were One we is as of non-qualified NOLs net business activities, to TRS. REIT of be be REIT, will fixed these losses TRS Our loans which

In competitive allow space of them. these base book a was utilize so with estate real Exantas despite associated the against valuation valuable our and capital accelerate endeavor to creatively business meaningfully commercial asset. has to the there presence Exantas' conclusion, helps the us expands in integration will no this NOLs, currently allowance full value new marketplace. This the deployment

of and our estate was I'll last our of both December type XX, composition estate and property loan portfolio rate both commercial region The floating to now the relative CMBS fourth remained billion quarter. quarter balance address portfolio in and XX% consisted asset. activity by portfolios. commercial $X.X real real consistent XXXX, At

floating points day fourth $XXX yield quarter with compared during points to on XX The quarter, of XX and totaling over loan during a X.XX% basis XXXX. fourth originated spread of average commitment LIBOR. by average decreased estate basis to XXX $XX.X quarter originations of rate new commercial weighted During real the the X.XX% average loans, weighted an the million fourth unlevered we XX million

CRE at was spread X.XX% to $X.X during fourth compared X.XX of quarter a XXXX. asset loan average of spread a billion with financing % of Total end quarter the weighted

$XXX.X of payoffs pay-downs during the of million Our CRE $XXX originations loan offset remained loan portfolio million. as new quarter fourth and flat

have paid within fourth $XXX XX types XX, the the of of origination. loan the fixed refinancings properties XX the product. where rate their transitional these with market. business capture we achieved is own exactly loan had loan some sufficiently these to It situations of our demonstrating that can with assets of off paid rate were fixed we We and sold, Of quarter four which five months million totaling were XX in payoffs off were financing plan exit feel

to Turning now our portfolio. CMBS

During carrying million our was plus million We of fixed $XX December CMBS of million bonds offset swaps. X.XX%. the face CMBS of acquisitions quarter, amount of which weighted had interest book of per portfolio increase including of quarter of million we at $XX rate was million bonds, X.XX%. net acquired CMBS bond share at impact of the value a floating million XXXX, of rate partially common At mark-to-market coupon floating $XX.X by million, our a This $XX.X bonds. rate from in comprised a $XXX.X third average a $XXX of LIBOR rates value our rate recognized including resulting on of of from par, and portfolio, XX, last pay-downs, in $X.XX $XXX.X of and net million $XXX spread

like With discuss over I'd our Bryant Dave to to to it that, turn financials.

Dave Bryant

Thank you, Good Matt. morning.

quarter that $X.X share and per or ended shares months income three net XXXX. $X.XX million, were over the was flat XX, allocable per relatively to same and respectively. GAAP or was December and XXXX $X.XX the Core share year amount fourth for the $XX.X earnings $X.X period or million million adjusted $X.XX for per in Our the common for share XXXX

the year million, over share, per earnings $XX XXXX. or million in core $XX.X an share For calendar XXXX, or $X.XX increase per of were adjusted core or $X.XX earnings calendar

XXXX. being positive saw year. net is net earnings Accordingly, $X.X core were by investment our production for XXXX we driven in primarily XX% million last over increase income the our to growth The compared by interest our

appraisal, of $X.X property non-core $X.XX of of asset Bob valuation other on of that share terms impacting items earnings, comprised we fourth sale, mentioned a share and for incurred the or updated protective based million is a share or per In GAAP from operating both adjustment quarter per advances, from $X.XX legacy million an reflected $X.XX balance charges significant the in on per held income. $X.X

expected we the payoffs quarter, outsized of call, half during loan result in quarter decline unsubstantial was loans only to during combined last of stated beginning end cause the a share. by net second which We the decline we As fourth had income our a the in quarter's quarter, of positive fourth $X.XX XXXX. at partially payoffs net the of interest and third fourth a earnings This per offset to as production.

We in adjustment $X.XX XXXX former of XXXX investment. an that accelerated revaluation to loan approximately $X.XX from items which JV our $XXX deferred million recorded CLL. These part related resulted obligation from of plan of per XXXX investment we an interest of of as resulting indemnification disposal within expense or or share, recover offset from a by from securitization payoffs a costs reflected exited $XXX,XXX the was share strategic a the our per $XXX,XXX were nonrecurring that

from million impact these share. per negative $X.XX in combined approximately items XXXX or was $X.X net The

the positive toward profile as the first the pipeline run of our strong XXXX, to start the second production increase the again to investment quarter. With quarter net see quarter production we to production current from rate fourth full in of and impact our we expect in earnings

is our share. earnings $X.XX $X.X net income For of GAAP to core XXXX, compared per

net Net our of which income $X.XX charges, related plan. and to asset I outlined a includes the strategic

The non-cash value $X.XX difference option for the core amortization and equity non-cash combination significant on from on of the notes. of year the the in are other adjustment predominantly X.X% amortization of our compensation our of convertible expense the

XXst, XXth, from from and $X.XX a book at per per XX, a $XX.XX GAAP X,XXX book XXXX book from metric, at XXth. September represents was $XX.XX September at XX $XX.XX per common value at common December value, $XX December declined a decrease value of our share. share December Economical decline non-GAAP to share

However, $XX.XX an at of share from the economic increase of represents year $X.XX December book end XX, XXXX. value $XX.XX at per

which less adjustment share, book of per calculation preferred on of unamortized per the reconciles value our for convertible value totaled GAAP $XX of per common discounts our stock, notes value the redemption share and book economic $X.XX share.

economical at value our comparison, our As December of share point $XX.XX book a relative was reflects common book XXXX further stability. value per and XX,

historical January XXXX, is over will implementation loss require in Impacting that of new CECL, which loan the information. by property losses, and available, data, of expected estimate accounting credit credit as our financials, the losses we losses, macroeconomic determining and loss our reserves well starting loan In us credit loans. be X, type, our expected as type evaluated on relevant, to current loan guidance future life

million our of to at XX We on policy have CECL retained and be advisors, first in million loan our evaluated we reserve with going $X the the per had quarter the billion charge $X.X impact $X.X year-end adoption Since our point portfolio. results reserve on reserved $X.XX million earnings $X.X basis it in will or XXXX. share forward upon where XXXX,

our additional below book and period. and CMBS million, pay-downs our quarter loan Our GAAP for GAAP December we from of net securitizations in by at million our discussed. in partially ratio debt our $XXX offset experienced by mark-and-markets, net acquired this decreased at earnings CLO of Matt quarter, $XXX increase last our X.X the as during show borrowings by equity $X.X We a was which ramped-up Stockholders’ recourse dividend flat new increase were our XXst. which had remained debt-to-equity million times offset

CRE of CLO find CLO non in issuer the experienced an as financing. an attractive market source And markets, cost-efficient we mark-to-market

Exantas at largest XXXX-RSOX we million. XXXX, $XXX.X the in deal During history our issued CLO of Capital,

CLO million collateral today. capital our loan remains and million in In the addition, of with on sheet our were able $XX that as $XXX we only of balance recycle XXXX to liquidate original

a of pricing of million finances XXXX-RSOX. with the real transaction notes the quarter, at we leverage deal $XXX.X average Capital CRE of newest our Exantas we'll priced The CLO and estate notes. $XXX.X the million a rate X.XX% on close of We with factor spread floating of investment loans weight XX.X%. investment After non-recourse the announced grade grade

of plan XX However, a closing, expect history. BBB is leverage of and This our the financing after X.XX%. estate year billion $X.X notes CLO those to over we we transactions average million at $XX.X be CLO spread we XXth to of have at sponsored and our weighted notes, XX.X% purchase real our

our of of December decline and weighted average at of par LIBOR has months at LIBOR X.XX% floor XX At impact to spread the X.XX%. billion rate LIBOR the To in portfolio minimum loans XXst, $X.X of floors weighted protections, loan ranging typically time interest over floating CRE the average along origination. LIBOR, have included historically period from on we our XX with mitigate

floors money. our XXXX. we book LIBOR the of December, $X.X day LIBOR end that with at of billion loan or the XX is had at are At the with end in X.XX% That XX% of

to as decline forward seen in projects LIBOR see benefit expect week the We we income rates. and XXXX during the decrease net curve to the continue past over have to further interest LIBOR a

Lastly, our fund of we investment liquidity redeemed real $XX and the X% the robust remaining convertible fixed at notes in to and XXXX, sufficient rate a have floating estate February of pipeline. end debt January million

With for comments. back call some final to the turn Bob that, I'll

Bob Lieber

Thanks results. operating times, we new but and Dave. opportunities These fixed its capital are Exantas, optimistic great our year ability be and and this long a for in markets. term rate create business of the market certainly produce uncertainty current we us, interesting dislocations the remain creates will for strategy particularly XXXX think with about The believe particularly the addition to

open up I questions. to would any it for potential ask that, operator like the to With

Operator

Thank you [Operator Instructions].

line Our Delaney JMP first of question of Securities. Steve comes the from

Steve Delaney

on Commercial the the color appreciate Mortgage. I C-III

be to is wasn't release but clear get at stays you record Can any other what to activity in It this to me clarify positive, the those and not there clarify management REIT? But certainly the commercial on paid we on the I'm the we that it's REITs a you things. trying that. that the because been is will obviously I'm with it sale, -- that any announcement existing TRS Thanks. of know, kind You and just the agreement equity. revenue, manager manager in is to expenses sales TRS from and we of if any initial receiving the that share paid and initially couple the press others, positive in net fees the very and common strikes gain have somehow or loans mortgage return saw hearing hope than it and just what is other a couple now

Matthew Stern

I One that. guess parts pertains there it your to are I'll touch to two the second. REIT, and Steve, as that on then an was question hit first income I'll

So money occur that TRS is income the and produce -- up is the at distributed if answer And or QRS REIT would income then at that to income the the would the level. income level. the

Speakers] So the really for upstreaming It's that's piece. of gain. the first [Multiple securitization the the

bringing of X-K really And entirety its the reimbursement effort is As you the fixed loans arrangements, an -- this to expense team press part release there's cost our commercial the X% of partially [Multiple made profile of mortgage. might've only seen loans an the to the floating there bringing as that at look your that our a in that cost profile associated manager rate if are and team of with you in And be from made the business order over mitigate fixed there. behalf explained Exantas. that over just broader rate press at on to our will And Exantas, significant Speakers]. of execute release, to are

Steve Delaney

the you you the it? cetera, extent don't cash there you book GAAP the just to cover grow benefit and guess to the pull could et need company your to to you utilize said back NOLs, assume, want you I value And that REIT and as for if need I consolidated don't other dividends, upstream

Matthew Stern

perspective. be that could that you're think be money the which But clarify TRS decision, the left the right at you to I the a upstream would would from It right, a obviously book value positive I so utilize that be level, but could is event would could still NOL. taxable choose QRS TRS, one the capital thing. which is and to about we in the a or

Steven Delaney

very which X% That's especially missed. the I helpful, as I said

in bonds CMBS year a all as how things near just I in if but little spread a tights, Can had out fourth being issue weeks? in positive were market X.X this it's credit last couple of as you're in time new good seeing and recently on we quarter seeing two of generally fair know early still sold widening terms suspect have XX spreads value latest weeks the mark. You bit. at a disruption I CMBS you widened generally in the comment much ago,

Bob Lieber

to want take you Paul that? So

Paul Hughson

versus $XX.XX XX, CLO the wider. So stack our BNK XX say the things stack AAA ago, years at price like say yield top top and end. I think at are the I yesterday, I'd Monday probably at We and XX two I’d say probably the things that's priced would so on are weeks wider of over the that's of kind of XX.XX bottom like

Steven Delaney

somewhere, cleaning just have the expect a to that I've for spreads debt, the as be balance you color that right that basis is requirement. final and carry -- high in some so see to up and ways see et with hard XX some you’re But wait me, very company a life your it’s year we'll one because almost to rates to I'm side thing But the base got cetera good absolute going, -- widened much rates off. lower. job And on and some have of are you going of credit helpful. done XX so almost are economic sheet paid guys if cost get that points, as have may to I So an low

your Can be C You us still would that million you at X.XXs. when remind XXX Series have callable?

Mattew Stern

piece the So it. of last that's

and balance of carrying it's it July callable is our on I is and believe sheet I it X.XX at XXXX. think

Steven Delaney

while? Well, for so you've got that a of a little bit

Matthew Stern

while. to have existing something -- we'll from based a need that on think for I that's Yes, terms,

Operator

Laws question from Stephen the Raymond James. comes line next [Operator of of Your Instructions]

Stephen Laws

any yield it million mitigate that detail fixed to you What went instructors of little projections rate the that especially on with terms of interest a can strategy you some the give appreciate $XXX through rate originations, more just around But and if of loans from is? the floating on defers risk? the us rate. of financing typical details those outside Bob, slide? How

Bob Lieber

I'm over going the turn about to part that of in Paul he to to talk sees what business. that

Paul Hughson

majority So of the securitized loans XX transactions. loans fixed XX those that be and are full intention us hedged of year to a fully with call securitized that are component loans those. contributed the they’d different The rate that will protected are there's CX our contributed XX to or lines transactions. finance allow

the So to roughly have warehouse so $XXX the million capacity, and line given of floating close to rate we’ll fixed have that finance loans. we ability

Stephen Laws

off the remaining million assets, assets any left. run to update an need there are I update its Can bit legacy there, To appreciated. $XX or follow-up $XX to would maturity? those of just But last give to on us largely resolution think million be timing or

Bob Lieber

And a would be affects and all that couple market next the capital of the current real course the vast the quarters. that I the course things majority it's good -- the the sales I'd overall majority equal, will those the of is subject two next over I to gone say some of be think would of I assets But estate how that hope think question. quarters. substantial would to markets. resolved over like of environment that the But

Stephen Laws

to anything of way appreciate material that asset any we CECL. anticipation reserve Finally, Any else the line think build in expected shift changes either Dave as in mix to need that CECL about we on or reserve numbers going forward? in

David Bryant

January and we this don't our we that losses any Stephen, and looked term took forward look near at service Xst future. present Not obviously, just in on the effect and into change went it time, just of -- at history we've using to see

Operator

any there no time, to closing for call or questions. remarks. this turn the now I additional will further At management are

Bob Lieber

next progress I call. joining thank Thank on forward us Well, very for our much. you on We to earning our to you want this updating everybody look morning.

Operator

Thank call. QX you. the Corp. XXXX conference full does conclude Exantas and year That Capital earnings

You may now disconnect.

ACRES Commercial Realty (ACR) 4 Mar 202019 Q4 Earnings call transcript