Thank you. Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2023 ACRES Commercial Realty Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brengel, Vice President, Operations. You may begin.

Good morning, and thank you for joining our call. I would like to highlight that we have posted the fourth quarter 2023 earnings presentation to our website. This presentation contains summary and detailed information about the quarterly and annual results of the company. Before we begin, I want to remind everyone that certain statements made during 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. 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 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 its 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 may 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 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 Fogel, President and CEO; and Eldron Blackwell, ACR's CFO. Also available for Q&A is Andrew Fentress, Chairman of ACR. I will now turn the call over to Mark.

Good morning, everyone and thank you for joining our call. Today I will provide an overview of our loan originations, real estate investments and the health of the investment portfolio. While Eldron Blackwell will discuss the financial statements, liquidity condition, book value and operating results for the fourth quarter and full year 2023. Of course, we look forward to your questions at the end of our prepared remarks. ACRES team continues to execute on our business plan by selectively originating high-quality investments, actively managing the portfolio and continuing to focus on growing earnings and book value for our shareholders. Loan payoffs during the period were $98.3 million. We closed one new commitment of $29.7 million and net funded commitments during the quarter were $3.9 million, producing a net decrease to the loan portfolio of $64.7 million. For the weighted average spread of the floating rate loans and the $1.9 billion commercial real estate loan portfolio is now 3.77% over the one month benchmark rates. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. The company ended the year with $1.9 billion of commercial real estate loans across 70 individual investments. At December 31, there were 11 loans rated four or five, which represented 16% of the par value of our portfolio, an increase of three loans and 8% of par value respectively, as compared to the end of the third quarter of 2023. Additionally the weighted average risk rating increased from 2.6 at September 30 to 2.7 at December 31. This increase in weighted average risk rating is attributable to a combination of some properties falling slightly behind on implementing underwritten business plans and/or overall capital market conditions. We continue to manage several investments in real estate that we expect to monetize that gains in the future. These anticipated gains will be offset by NOL carryforwards and we expect to retain the equity and reinvest potential gains into our loan portfolio. In summary, the ACRES team continues to be focused on the overall quality of the investment portfolio including investments in real estate, with the goal of improving credit quality and recycling capital into performing categories. We will now have ACRs CFO, Eldron Blackwell to discuss the financial statements and operating results during the fourth quarter.

Thank you and good morning, everyone. GAAP net income allocable to common shares in the fourth quarter was $1.7 million or $0.20 per share. Included in net income as an increase to current expected credit losses or CECL reserves of $1.1 million or $0.13 per share as compared to CECL reserves during the third quarter of $2 million. For Q4 increased to general CECL reserves is primarily driven by model increases and general portfolio credit risk from sustained elevated benchmark interest rates, offset by model improvement and expected macro and economic conditions affecting the general commercial real estate market. The total allowance for credit losses at December 31st was $28.8 million, which represents 1.54% or 154 basis points of the $1.9 billion loan portfolio at par and comprised $4.7 million in specific reserves and $24.1 billion in general credit reserves. Turning to results from our real estate investments, net loss from real estate investments increased to approximately $800,000 in the fourth quarter from approximately $400,000 in the third quarter. This was primarily due to the seasonality of hotel operations. Included in the fourth quarter property operating loss was $1.2 million of non-cash, depreciation, and amortization. Earnings available for distribution or EAD, for the fourth quarter, was $0.55 per share as compared to $0.73 per share for the third quarter. The difference being a $0.15 decline in net interest income from net payoffs and the impact of two non-performing loans and 8% increase in G&A expenses, offset by a $0.05 reduction in management fees. GAAP book value per share was $26.65 on December 31st versus $25.07 on September 30th. This increase was primarily due to our buyback program, which generated $1.32 of book value per share for the fourth quarter. We used $4.7 million of the share repurchase plan to redeem 601,000 common shares at an approximate 71% discount to book value at December 31st. At quarter end, there was approximately $9.8 million remaining on the Board approved program, which had been increased by $10 million by our Board during the fourth quarter. Available liquidity at December 31st was $108 million, which comprised $83 million of unrestricted cash and $25 million of projected financing available on unlevered assets. We completed the reinvestment window in both of our CRE securitizations during 2024. Any loan payoffs and the securitizations will now pay down notes going forward. Our GAAP debt to equity leverage ratio slightly decreased to 3.8 times at December 31st from 3.9 times at September 30th. Our recourse debt leverage ratio also slightly decreased to 1.1 times at December 31st from 1.2 times at September 30th, primarily due to a reduction in our CRE loan book, offset by borrowings related to our development of a student housing project at Florida State University. With ,that I will now turn the call to Andrew Fentress for closing remarks.

Thank you, Eldron. I think as we all know 2023 was a challenging year for the mortgage markets broadly. And looking into 2024, we see improvements as capital markets are reopening and asset level transactions are beginning again. As a firm, we remain focused on the credit quality of the portfolio. We're maximizing the value of our investments made to offset the company's NOLs and we're continuing to serve the needs of our borrower clients. This concludes our opening remarks and I'll turn the call back over to the operator for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Stephen Laws with Raymond James. Please go ahead.

Hi good morning. I appreciate the comments so far. Can you maybe talk a little bit more about what drove that increase in four rated loans since it is a discussion for borrowers at the asset level performance in our nearing maturity dates, kind of, what drove that increase and how should we think about loan migration of [Technical Difficulty]

Good morning Steve. Thank you. This is Mark. We had four loans migrate into the four and five territory this quarter, and using our standards, our watch list standards. And I think it's more about some property level cash flows, less about the credit quality of the asset in general. And we feel really good about those assets. It's really just sort of a short-term pickup on property operations. And just because deals flow into that four and five category does not mean that we expect a principal loss on those assets. In fact, one of our five assets was resolved in Q1 of this year with the recovery of our entire full principal balance.

I appreciate the comments on that. And then Mark, I had a follow-up on your comments in the prepared remarks around, at some point, monetizing most of investments and recycling and the cash flow and loan investments. How do you think about the timing of that? Any assets queued up that maybe you do that with sooner rather than later?

Yes, Stephen, we have some visibility on two of those assets. There's no certainty around those right now, but they're sort of getting to the point at which we expected to monetize. But at this juncture, we have no visibility on the timing of that.

Okay. And then lastly, the stock repurchases were very accretive during the quarter. Can you talk about why you gave their remaining authorization, but a continued appetite for that versus possible reinstating the dividend or possibly doing both, kind of how do you think about returning capital to shareholders?

Hey, Stephen, it's Andrew. So I think as we've said in the past, we're really ROE focused. So as the stock continues to rally that gap gets narrowed then it will be more favorable to deploy capital into the loan book and ultimately begin returning capital to shareholders through a dividend. So we took advantage of some pretty meaningful discounts. There were some block volume that were presented to us in the late part of the fourth quarter that we took advantage of because we felt the discount was just significantly attractive. I don't know if we're going to see those again at those levels, hopefully not. But that's our plan as we think about managing shareholder with capital and return to capital to shareholders.

I appreciate the comments this morning, and congrats on a nice quarter.

Thanks, Stephen.

[Operator Instructions] The next question comes from Chris Muller with Citizens JMP Securities. Please go ahead.

Hey, guys. Thanks for taking the question. So I want to echo Stephen's comments there. It's great to see those buybacks and the nice book value accretion. So I just wanted to hit on the dividend a little bit here. Do you guys think that that's a 2024 event? Or is that going to be more 2025 after you get some of the REO off the books and start getting some new loans coming in here. I guess what's -- how are you guys viewing new loan originations versus dividends and just the whole capital deployment picture in this current environment? Thanks.

Yeah. So again, we're -- when we deploy new dollars in the loan book, our objectives are for roughly a 15% return on equity. So that's the calculus that goes through our deployment lens. And we think about that in the context of repurchasing shares as well. So at the levels that we were repurchasing in the fourth quarter, you can do the math that we're significantly above that 15% ROE number. So that's why we were happy to return capital to shareholders through the repurchases that we did in the Q4. As it relates to the timing of a dividend, we have not given guidance as to specifically when that will occur. I would tell you that as Mark indicated our objectives are to monetize some of the investments that the company made to offset the NOL this year. And as those monetizations occur, the capital will be able to be redeployed back into the loan book and drive additional EAD, or earnings available for distribution. Another one of our stated objective is to have an EAD that roughly equates to a 10% dividend at book value. We think that dividend is roughly competitive with the market and our peers. And so those are the metrics that we're using internally to think about monetizing assets, returning capital into loan book and then ultimately having EAD capacity to pay a common dividend.

Got it. That context is helpful. And then, I guess, so in the deck you guys put a slide in there with interest rate cap maturities and I think that's very helpful. And so it looks like you have a big chunk of maturities come in the next interest rate cut maturity to be clear in the next couple of quarters. I guess, how are conversations going with those borrowers? And do you expect broadly most of the borrowers be able to replace those caps in this current rate environment?

We're getting way ahead of it, obviously, we're having conversations early on, six months in advance of those interest rate cap maturities. For the most part, I think our borrowers are replacing the caps, no issues. Obviously there's conversations around structure, some wish to potentially create some interest reserves in lieu of caps. But generally speaking our borrowers have a lot of equity invested in these assets and there's a lot of upside related to the majority of our assets, so they're sticking by their assets, they’re investing in the caps. And, yeah, I would say that the majority of the conversations have been very positive.

Got it. Thanks for taking my questions. And congrats on a strong finish to the year.

Thank you.

This concludes our question-and-answer session and the fourth quarter and full year 2023 ACRES Commercial Realty Corp. earnings conference call. Thank you for attending today's presentation. You may now disconnect.