Q3 2021 Acres Commercial Realty Corp Earnings Call

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 Companys reports filed with the SEC, including its reports on forms 8-K 10.

10-Q, 10-K, and in particular, the risk factors section of its 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 the earnings presentation for the past quarter.

With me on the call today are Mark <unk>, President and CEO and Dave Brian <unk> CFO.

Also available for Q&A is Andrew if interest chairman of ACR 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 the companys loan originations capitalization liquidity condition and the health of the investment portfolio.

Brian will discuss the financial statements and the operating results for the third quarter and.

And of course, we look forward to your questions at the end of our prepared remarks.

17, commercial real estate whole loans for $468 million during the third quarter.

These loans pay coupon interest at a weighted average of one month, LIBOR, plus 346% and each carry a LIBOR floor protection, which has a weighted average of one 8%.

Approximately $396 million or 85% of the originated loans are collateralized by multifamily properties, while the remainder are collateralized by self storage and office properties.

These loans had a combined weighted average LTV of 73% based on the underlying property valuations available at the time of each loans origination.

The company received payoff and pay down proceeds of $120 million from the full or partial repayment of 10 loans during the third quarter.

Payoffs and Paydowns were outpaced by loan originations producing net portfolio growth.

Borrower's ability to refinance indicate the quality of the sponsors and assets underlying the portfolio along with improving market conditions for refinancing our sales.

Looking ahead, we expect to target asset classes nationwide consistent with the company's origination history, including a primary focus on multifamily properties along with other segments, such as select opportunities in office hospitality and self storage.

The credit markets continue to be competitive, which as a result has accelerated spread compression, particularly in the multifamily sector.

In addition, lower LIBOR floor rates means lower all in rates for the company.

While <unk> is well positioned for growth, we will remain selective and focus on credit quality target markets and strong sponsors to originate accretive new loans for the portfolio.

The company is in a strong liquidity position with a diverse array of financing sources we.

We continue to manage the balance sheet to optimize for the lowest cost of capital structure, while extending duration.

We took several steps forward on these initiatives in the quarter.

In August the company issued $150 million of new five year, 575% senior unsecured notes.

Representing 10% of the portfolio.

We believe that the company has a well diversified nationwide portfolio with a concentration in the high growth southeast southwest and mountain regions of the United States or target asset classes are projected to provide sustainable cashflow, including the multifamily class, which has been particularly durable and represent 66.

<unk> of the loan portfolio.

In addition, the acres platform is over $250 million of loans and its development portfolio that will be eligible for the companies book in the coming quarters.

This unique sourcing opportunity provides a company with curated sponsor relationships and.

In class a newly constructed assets as attractive returns.

In summary, the acres team is pleased with the growth and quality of the investment portfolio, the improved balance sheet profile and the prospects for new originations going forward.

We will continue to execute on our business plan by originating high quality investments actively managing the portfolio and continuing to focus on growing earnings and book value for the company shareholders.

We will now have Acr's CFO day, Brian discussed the financial statements and the operating results during the quarter.

Thank you and good afternoon.

The company stock holders.

Compared to GAAP net income of 10.1 million or a dollar or four cents per share in the second quarter.

The third quarter results reflect one time charges to earnings totaling $9.5 million or one dollar per share on a full redemption of the 12% senior unsecured notes and the partial repurchase of the 4.5% convertible senior niche.

The total charges two orange comprised nine $9 of losses on the extinguishment of debt do a $5 million may call payment on the senior unsecured notes.

Our loan portfolio.

Slightly to 3.7.

Seven 1% over one month LIBOR.

All but one of which had a floor with a weighted average of 1.03% at September 30th.

Over the trailing four quarters, the weighted average LIBOR floor has declined from $1 eight 8% to 1.0% to 3% or by 85 basis points due to a shift in the loan portfolio mix as recent loan originations with lower floors have replaced.

Older loans that have paid off with higher floors at.

At September 30th 47% of the floating rate loans have LIBOR floors in excess of 1% down.

Down from 92% of the portfolio at December 31, 2020.

As we previously disclosed we anticipated ordinary tax loss carryforwards upon completion of the 2020 tax return filing.

Beginning with the tax year 2021, the net operating loss carry forwards are approximately $66 million.

Or $6 71.

Book value per share and have an infinite life.

Company also has available net capital loss carryforwards of $137 million or approximately $13 85, a book value per share.

That have a five year life.

The operating loss carryforwards can be utilized by simply retaining earnings from operations, while the capital loss carryforwards can only be used to offset a capital gain.

The Akers team is exploring a range of assets and options to invest in with the objective of creating capital gains to take advantage of a portion or all of this asset before it expires.

GAAP book value per share, which is calculated over vested common shares outstanding including warrants declined to $22 68 at September 30th.

From $23 56 at June 30, the.

The decrease to book value per share was driven primarily by the one time charges, resulting in the dollar and <unk> <unk> of GAAP net loss in the third quarter.

GAAP debt to equity leverage ratio and recourse debt leverage ratio increased from June 32.

Three six times and one four times, respectively at September 30th incur.

The increases were primarily due to commercial real estate warehouse advances a net increase in corporate borrowings and a reduction of equity the company had approximately $714 million of combined availability.

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Our first question is from the line of Stephen lives with at Raymond James. Please go ahead.

Hi, good afternoon.

I guess first it looks like the comparing the the last two that looks like a pretty big focus with new originations on the southeast and southwest with how you break out those geographies can you talk about.

What what you like they are obviously seems like multifamily is heavy but how <unk>. How is your pipeline consistent with that or is that really just a one quarter.

Coincidence.

Stephen This is mark yeah. So our pipeline going forward is consistent with those markets. We are really bullish on the southwest Texas in particular.

And the southeast we see a lot of population growth in those markets.

Fundamentals are strong for multifamily in those markets.

And you know in fact, there hasn't been a lot of construction going on to keep up with the population growth and the multifamily arena in those markets.

That combined with all the job growth and economic drivers are seeing in some of those.

Southwestern in southeastern markets.

Is why we're heading in that direction.

Great and then can you talk about the stock buyback.

Where you stand with that how you think I know you've had a little bit of accretion during the quarter from repurchase activity.

Just outlook for buyback, how you think about the use of capital there versus new investments given the pipeline you have in place.

Sure. This is Andrew So we completed the repurchase program July in July and we do not have any additional shares authorized for repurchase at this time the capital that we have allocated from the issue that we spoke about in that you can see from the five and three quarters is going to be invested in.

New loans and into some of the.

Investments that we've identified to address the tax asset.

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