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]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Steve Landgraber, Senior Vice President of Corporate Finance. Sir, you may begin.

Good morning. And thank you for joining the 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. While the company believes that these forward-looking statements are based on reasonable assumptions, such statements are based on management's current expectations and beliefs. They 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. 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 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 release for the past quarter. I will now turn over to CEO of Exantas Capital Corp, Bob Lieber, for opening remarks.

Thanks Steve. Good morning, everybody. Thanks for joining our call today. With me today are Matt Stern, our President; Dave Bryant, our Chief Financial Officer; Paul Hughson, Head of Commercial Real Estate Lending; and Steve Landgraber, from whom you've already heard. We also may be joined by Andrew Farkas, who's getting off an airplane imminently and may be joining into this call, but we didn't want to go any longer. So if Andrew joins, we'll welcome him as a part when he gets here. I'd like to start by reviewing the progress Exantas made in 2019. Our full year dividend for 2019 was $0.95 versus $0.475 in 2018, an increase of 100%. We generated core earnings of $1.7, which was well in excess of our dividend. We originated or acquired nearly $1.1 billion of commercial real estate related debt investments. Economic book value began the year at $13.54 and ended at $13.61. Exantas continues to successfully execute the business plan articulated by our team. Needless to say, the commercial real estate finance markets are dynamic. As articulated in our calls through 2019, our traditional markets have seen a number of new entrants and risk adjusted returns across products consistently evolve. The further differentiate Exantas from our competition and deliver value to our borrowers and our investors we have announced last week the examples will now offer a fixed rate loan product, which expands our platform to provide a full suite of loan products to middle market borrowers. We believe this differentiates Exantas from many of our competitors, and is expected to increase capital deployment, as well as drive earnings. Full year 2019 core earnings were $1.7 versus $0.71 of adjusted recordings in 2018. The growth in core innings is attributable to $5.9 million or $0.19 improvement in net interest income…

Thank you, Bob and good morning everyone. I’ll first provide some additional information on the integration of C3 commercial mortgages loan platform. After which, I'll review the fourth quarter performance of our CRE and CMBS portfolio. We are encouraged by the opportunities created for Exantas through the integration of C-III Commercial Mortgage’s fixed rate lending business. Since its inception in 2010, C-III Commercial Mortgage has originated $3.2 billion of fixed rate loans and $2.1 billion of floating rate loan. This business has a track record of profitably deploying capital with an excellent credit history. As you will recall in May, 2019, C-III Commercial Mortgage sold $211 million portfolio of floating rate CRE mortgage loans to Exantas, which was immediately accretive to Exantas's earnings. We believe the addition of the fixed rate business will be a valuable differentiator for Exantas as the competition for transactions has increased. We tend to target borrowers with light transitional assets who are often looking for more permanent financing as their business plan gains traction. Exantas’ borrowers will now be able to benefit from a full suite of real estate capital market offerings, from short term floating rate loans to longer term fixed rate loans, as well as preferred equity and mezzanine debt in appropriate situations. We will also be able to capture a share of the maturities in our floating rate book by offering flexible, longer term fixed rate capital products to our existing floating rate customer base, as well as reaching a new universe of borrowers who primarily seek fixed rate loans. Additionally, Exantas will become one of the few public REITs operating a fixed rate securitization business, which will enhance shareholder returns. Our fixed rate loans will be originated at a taxable REIT subsidiary or TRS, as these loans will be targeted for…

Thank you, Matt. Good morning. Our GAAP net income allocable to common shares for the three months and year ended December 31, 2019 was $3.8 million, or $0.12 per share and $25.6 million or $0.81 per share respectively. Core earnings were $7.3 million or $0.23 per share for the fourth quarter 2019 and that was relatively flat over the adjusted amount for the same period in 2018. For the calendar year 2019, core earnings were $34 million or $1.07 per share, or an increase of $11.6 million, or $0.36 per share over adjusted core earnings in calendar 2018. The growth in our core earnings is being driven primarily by our positive net investment production over the last year. Accordingly, we saw our net interest income increase by $5.9 million were 11% for 2019 compared to 2018. In terms of significant items impacting the fourth quarter GAAP earnings, we incurred $3.3 million or $0.10 per share of charges on a non-core legacy asset held for sale, comprised of $2.2 million or $0.07 per share that Bob mentioned from a valuation adjustment based on an updated property appraisal, and the balance of $0.03 per share is from protective operating advances, both reflected in other income. As we stated during last quarter's call, we expected a decline in net interest income during the fourth quarter, as a result of outsized loan payoffs in the second half of 2019. We had unsubstantial loans payoffs at the end of the third and beginning of the fourth quarter, which was only partially offset by our net positive fourth quarter production. This combined to cause a $0.06 decline to earnings per share. We accelerated deferred costs related to our 2018 securitization of approximately $700,000 or $0.02 per share reflected an interest expense that resulted from loan payoffs…

Thanks Dave. These are certainly interesting times, particularly in the capital markets. The current market dislocations create uncertainty but for us, we believe this creates new opportunities and we think 2020 will be a great year for Exantas, particularly with the addition of the fixed rate business and remain optimistic about our long term operating strategy and its ability to produce results. With that, I would like to ask the operator to open it up for any potential questions.

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

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

I guess there are two parts to that. One was an income question as it pertains to the REIT, Steve, I'll touch on that first and then I'll hit your second. So the answer is the income would occur at that TRS level. And then if the income or the -- money and income is distributed up to the QRS that would produce income at the REIT level. So that's the first piece. It's really the upstreaming of the [Multiple Speakers] for the securitization gain. As part of the broader arrangements, there's a significant cost profile to bringing over the team in order to execute this business at Exantas. And as you might've seen in our press release, 1% of loans that are made -- fixed rate loans only that are made on behalf of Exantas, there will be an expense reimbursement associated with that to the manager [Multiple Speakers]. And if you look at our 8-K and our press release its explained there. And that really is just an effort to partially mitigate the cost profile of bringing your over the entirety of the fixed floating rate team from commercial mortgage.

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

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

That's very helpful, especially the 1% which as I said I missed. You had a good fourth quarter in credit in terms of CMBS spreads and a positive fair value mark. I know it's still early in this latest disruption as recently as two weeks ago, we were seeing new issue 8.4 10 year bonds being sold at near all time tights, but I suspect if things have widened out a little bit. Can you just comment generally on how much spread widening you're generally seeing in the CMBS market in the last couple of weeks?

So Paul you want to take that?

So I would say the BNK yield price yesterday, AAA 10 years at 95 over I’d say two weeks ago, that's probably like versus like 76, so I think that's top end. We priced our CLO on Monday and I'd say at the top of the stack things are kind of $15.20 wider and at the bottom of the stack things are probably 35.50 wider.

So it’s hard to -- and to expect that as low as absolute rates are going, in some ways that may be an economic requirement. But if I'm a life company and I see the 10 year you’re going to have 50 basis points, I've got to get some carry somewhere, so almost -- spreads almost widened just because base rates are so much lower. But we'll have to wait and see on the credit that color is very helpful. And one final thing for me, you guys have done a good job of cleaning up the right side of your balance sheet with some high cost debt, et cetera that you paid off. You still have your Series C 116 million at 8.58s. Can you remind us when that would be callable?

So that's the last piece of it. I think it's carrying on our balance sheet at 1.16 and it is callable and I believe it is July of 2024.

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

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

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

Bob, appreciate some of the details that you went through with projections on originations, especially $200 million of fixed rate. But can you give us a little more detail on that slide? What the typical yield is? How it defers if any instructors from terms of the floating outside of just the rate and financing strategy around those loans to mitigate interest rate risk?

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

So the majority of those loans are 10 year fixed rate loans that are fully call protected with the intention that they’d be contributed to securitized transactions. C3 contributed 35 or 40 different full securitized transactions. The loans are hedged and there's a component of our lines that will allow us to finance those. So given that we have roughly $900 million of warehouse line capacity, so we’ll have the ability to finance close to fixed and the floating rate loans.

To follow-up on the last bit of remaining legacy assets, I think its $30 million or $40 million left. Can give us an update there, timing to resolution or are those assets largely just need to run off to maturity? But any update there would be appreciated.

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

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

Not at this present time, Stephen, it obviously, just took -- went into effect on January 1st and we've looked at our history of losses and we look forward using service and we just don't see any change to that in the near term future.

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

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

Thank you. That does conclude the Q4 and full year 2019 Exantas Capital Corp. earnings conference call. You may now disconnect.