Good day, ladies and gentlemen, and welcome to the Third Quarter 2021 ACRES Commercial Realty Corp Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. [Operator instructions] As a reminder, this call is being recorded. I'd now like to introduce your host for today's conference. Kyle Brengel, Vice President. You may begin

10: 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 earning presentation for the past quarter. With me on the call today, our Mark Fogel, President and CEO and Dave Bryant, ACR's CFO. Also available for Q&A is Andrew Fentress, 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 at an overview of the company's loan originations, capitalization, liquidity condition and the health of the investment portfolio while Dave Bryant will discuss the financial statements and the operating results for the third quarter and of course, we look forward to your questions at the end of our prepared remarks. In the third quarter, we continue to grow and manage the loan portfolio, improve of the company's balance sheet profile by reducing cost of capital and extend duration while offering our sponsors outstanding service. The ACRES origination team delivered $468 million of new loan commitments in the quarter. This brings total production volume in 2021 to approximately $1.1 billion. These results reflect the efforts of the entire ACRES team in identifying, processing and executing on opportunities nationwide with our unique financing solutions in our target asset classes. From a capitalization standpoint, the company issued $150 million of new senior unsecured notes. This offering allowed the company to fully redeem its previously issued 12% senior unsecured notes, repurchase some of the 4.5% convertible senior notes that have a maturity date in August and supplement its liquidity profile. Portfolio quality remains high and is improving. The watch list loans comprising those risk rated A4 or A5 reflect 10% of the total commercial real estate loan portfolio as of September 30th as compared to 23% when ACRES took over the REIT last summer. We expect to continue expanding the portfolio for the remainder of this year and into 2022, in order to continue delivering on our strategic initiatives to maximize earnings and book value for the company's shareholders. Returning to loan production, we closed 17 commercial real estate whole loans for $468 million during the third quarter. These loans…

Thank you and good afternoon. The company's third quarter were a $1.04 per share in the second quarter. The third quarter results reflect one time charges to earnings totalling $9.5 million or $1 per share on the full redemption of the 12% senior unsecured notes and the partial repurchase of the 4.5% convertible senior notes. The total charges to earnings comprise $9 million of losses on the extinguishment of debt due to a $5 million make whole payment on the senior unsecured notes and $4 million acceleration of non-cash discounts along with $522,000 of interest expense due to the acceleration of deferred debt issuance costs. The quarter to quarter change also reflects the accrual of a full quarter of dividends payable on the company's Series D preferred stock, which were issued in the second quarter. In the third quarter, we also increased the provision for credit losses by 537,000 or $0.06 per share, related to Cecil compared to a $10.3 million Cecil reserve recovery in the second quarter. The third quarter Cecil reserve provision was primarily due to the increase in size of the commercial real estate loan portfolio offset by improvements in macroeconomic conditions. The impact of Cecil resulted in a total allowance for credit losses at September 30 of $18.9 million, which now represents 1.02% of the $1.9 billion loan portfolio at par. Net interest income was $9.5 million or $0.99 per share in the third quarter up from $7.1 million or $0.73 per share in the second quarter. As loan payoff volume declined, which resulted in less acceleration of deferred debt issuance costs in the third quarter. The weighted average spread of the floating rate loans in the company's $1.9 billion commercial real estate loan portfolio compressed slightly to 3.71% over one month LIBOR, all but one…

Thank you, Dave. Thank you, Mark. As you heard from Mark and David, we continue to make progress towards our stated objectives, carefully manage the portfolio, grow the portfolio through new originations with quality sponsors and manage the balance sheet of the company so that we can drive earnings and create value for our shareholders. The ACRES team is focused on these objectives and is grateful for your continued confidence and support. This concludes our opening remarks. We'll now turn the call back to the operator and look forward to your questions.

Thank you, sir. [Operator instructions] Our first question is from the line of Stephen Laws with Raymond James. Please go ahead.

Hi, good afternoon. I guess first it looks like the -- comparing the last two decks, looks like pretty big focus with new originations on the Southeast and Southwest with how you break out those geographies. Can you talk about what you like there obviously seems like multifamily is heavy, but how -- is your pipeline consistent with that? Or is that really just a one quarter coincidence?

Yeah, hi 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, 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. So, that combined with all the job growth and economic drivers, you're seeing in some of those Southwestern and 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 use of capital there versus new investments given the pipeline you have in place.

Sure. This is Andrew. So we completed the repurchase program 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 and that you can see from the five and three quarters is going to be invested into new loans and into some of the investments we've identified to address the tax asset.

Great. Yeah, that will be my next and last question was, any additional color, equity investments in commercial real estate properties is covers a lot, but can you give us any additional details kind of what you're looking at, how much -- how big of a mix of the portfolio that could become over the next year or so?

Yeah, I think as a quantum, you should think about the capital representing about 5% of the total of the total book and so, you're talking about a $100 million roughly that would probably be spread across four to five different investments. It would be with sponsors that we know and assets that we already know. We're not going out in a blanket market effort here. These are things that are close to home. We've got a good understanding handle on. And I think in the coming quarters, we'll be able to give you a little bit more detail around what they are, what the timeline looks like for executing and what our expectations are for the returns on those.

Great, look forward to hearing more about that. Thanks for your time this afternoon.

And speakers. It appears we have no further questions at this time. I'll return the call back to you. You may continue with your presentation or closing remarks.

Great. Well, thank you again for everybody to participate in the call. We look forward to continuing to update everybody over the coming quarters and please reach out to us, if there's any additional questions that you need answered offline. Thank you everyone.

And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.