Good afternoon, and welcome to Ares Commercial Real Estate Corporation’s conference call to discuss the Company's First Quarter 2017 Earnings Results. As a reminder, this conference is being recorded on May 2, 2017. I will now turn the call over to John Stilmar from Investor Relations.

Great, thank you. Good afternoon, everyone, and we appreciate you for joining us on today's conference call. I am joined today by Rob Rosen, our Chairman and interim co-CEO; John Jardine, our co-CEO; Tae-Sik Yoon, our CFO, Carl Drake, Head of Public Company, Investor Relations and Veronica Mendiola of our Investor Relations team. We’re also joined today by Jamie Henderson, our new President and Chief Investment Officer. In addition to our press release and the 10-Q that we filed with the SEC, we have posted an earnings presentation under the Investor Resources section of our website at www.arescre.com. Before we begin, I want to remind everyone that comments made during the course of this conference call and webcast, and the accompanying documents, contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the words such as anticipates, believes, expects, intends, will, should, may and similar such expressions. These forward-looking statements are based on management's current expectations of market conditions and management’s judgment. These statements are not guarantees of future performance, condition or results, and involve a number of risks and uncertainties. The company's actual results could differ materially from those expressed in the forward-looking statements as a result of number of factors, including those listed under the SEC filings. Ares Commercial Real Estate Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. I would now like to turn the call over to Rob Rosen. Rob.

Good afternoon to everyone. Thank you, John. Before I begin, I want to welcome our new President and Chief Investment Officer, Jamie Henderson, who started last week. Jamie is an experienced and accomplished commercial real estate executive and business leader, who has been well-known to us in our lending markets for years. He helped build and manage a highly successful real estate debt investment platform at Barrings Real Estate Advisors, a global advisory firm and its predecessors corner stone real estate advisors and BAPs and Capital Management and served in the leadership capacity at a multifamily focus real estate private equity firm. Given Jamie’s extensive experience in commercial real estate across originations, lending and portfolio management, coupled with the strong relationships and management capabilities, we are highly confident that he will, John and me execute on our growth strategy for Acre. We are thrilled to have him as part of our management team and we look forward to Jamie’s contributions in the coming months and years ahead. Let me now provide some high-level comments on our earnings results and are expected earnings trajectory for the remainder of the year. As we discussed on our earnings call last quarter, we expected our earnings in the first half of 2017 to reflect our meaningful excess capital that is not yet deployed and earning investment income, such that we would under earn our dividend in the first half of the year. As expected, our first quarter earnings of $0.23 per share are well below our full earnings potential and below our current dividend. As John Jardine will discuss based upon the back ended timing of our current quarters investment activity, our second quarter may look similar, to our first quarter. However, we are pleased to report that we are on track to achieve…

Thank you, Rob, and good afternoon, everyone. Let me start with some market comments that will put our historical and future expected originations into better context. As discussed on our last call two months ago, the real estate markets experienced a slowdown due to some macroeconomic factors, the U.S. Presidential election and higher short and long-term interest rates, which drove a reduction in property transaction volumes during the first quarter. Using data from real property analytics, first quarter property transaction volumes declined 18% compared to the first quarter of 2016. Within the value added real estate market, we witnessed a gap between buyers and sellers, a mid to rate volatility and uncertainty regarding potential tax reform. However, the market began stabilizing towards the end of the first quarter and transaction flow is now improving as we expect certain transactions which were delayed in the first quarter will be pushed into the second and third quarters of this year. Market fundamentals are favorable with a strong labor market, steady levels of new supply, solid rent growth and stable occupancy levels in support of property values. In addition, strong levels of value add and opportunistic real estate private equity dry powder exists in further support of transactions. That said, market pricing and terms are increasingly competitive and we continue to remain highly selective, we will not compromise our underwriting standards and we are using our flexibility and property expertise to generate pricing that is attracted on a risk adjusted basis and is accretive to our capital. We are using our broad financial footprint to seek out opportunities that are focused on cash flow in properties with stable property fundamentals and conservative capital structures. During the first quarter, the loans we closed were senior and floating rate and made to sponsored pursuing value…

Great. Thank you, John. In our earnings release this morning, we reported net income of $6.5 million or $0.23 per common share for the first quarter of 2017. Although, our first quarter earnings did not meet our long-term objective of covering our dividend, they were in line with our internal expectations and reflect the under investment of our capital. For the first quarter of 2017, the average unpaid principal balance of our investment loan portfolio was $1.3 billion and our first quarter borrowings averaged $984 million including our secured funding agreements, term loan and our recent securitization. As we have indicated previously, we remained well-positioned to benefit from rising short-term interest rates, as our portfolio continues to be invested predominantly in senior floating rate loans. In fact, as of March 31, 2017, 97% of our portfolio has measured by unpaid principal balance was comprised of floating rate loans all indexed to one month U.S. LIBOR. And as part of our match funding strategy, 100% of our debt liabilities are also floating rate, again indexed to U.S. LIBOR. As both our assets and liabilities of floating rate, we remained positively positioned for an increase in our earnings, in a rising short-term interest rate environment. For example, using our first quarter 2017 portfolio and results on a pro forma basis, we estimate in a hypothetically 100 basis points increase in one month U.S. LIBOR will result in approximately $0.13 in additional earnings per common share on an annualized basis. Since the beginning of the year, we have added approximately $450 million in new financing capacity. Yesterday, we entered into an amended $500 million warehousing facility with Wells Fargo, which increased by $175 million, the existing $325 million facility and extended the maturity date to December 2018 along with two one year extensions.…

Thank you, Tae-Sik. And we are sorry for the interruption in our call. In closing, we remain confident in all aspects of our business including our market positioning, the benefits of the Ares platform, the credit quality of our portfolio and our strong financial picture. We also have great confidence in our ability to generate higher and attractive earnings levels for our shareholders. As John discuss, we are now seeing a pickup in activity and our pipeline is comprised of high quality asset that are consistent with our core portfolio holdings. We have significant capital to invest in this market, and we will continue to deploy it in a manner that is a creative for our shareholders and that support attractive investment return. I also can emphasize enough, how confidence I am that Jamie's leadership and expertise will have significant way to the long-term value of our company. Lastly, I would like to thank one of our Directs, John Hope Bryant for all of his advice, leadership, integrity and voice council over the last five years. John has been one of our direct since our IPO and has decided not to stand for reelection when his current term expires at our annual meeting in June. Due to the demands on his time, from his other professional commitments. We want to wish John all the best in his new and existing endeavors. With that operator, could we please open up the line for questions?

[Operator Instructions] And our first question will come from Jessica Levi-Ribner of FBR.

Good afternoon. Thank you so much for taking my questions. One just broadly on the competitive landscape and then could you give a little bit more detail on to the pipeline is about senior loans, could you may be size it for us, I know that you have its high quality and consistent with the current portfolio but maybe some more details would be helpful if you can give them?

The pipeline is generally has been as traditionally 80% strip senior loans and 20% subordinate paper. And we anticipate maintaining that ratio maybe slightly increasing the subordinate loans that we will have on our transactions that we’ll have in place, but you could look at 80%, 75% strip senior and the balance of these subordinate or debt like preferred equity. And the pipeline is quite strong as I mentioned.

And then just a competitive landscape overall especially in the market that you play.

Well in the strip senior market was value mending. We have seen some competitive elements within the last quarter, we seen a few new entrances but nothing that is alarming in our view. We have as I mentioned to you a very skilled post financial footprint and we’re able to take advantage of opportunities and inefficiencies in the market place effectively. So, though there has been some modest compression in spreads, we don’t see anything alarming in terms of the competitive landscape in front of us.

Okay. And then one just clarification, you said earlier that you expect these deploy the $128 million plus the capital that comes back from repayments by year-end or did I hear that wrong?

No, you didn’t hear it wrong, I think that was - this is Rob, I think that we said we’ll look at the exact word, but what we were saying was that bulk of that would be deployed by year end and we don’t want to be held to an exact number but the message is loud and clear, that the pipeline and originations are increasing and that our confidence in deploying our excess capital and expected repayments is in fact our objective by the end of the year.

Okay, perfect. Thanks so much.

Sure. Thank you.

And Jessica before you go just to maybe clarify one point that John generally made in terms of again the pipeline as John said I think going forward he is looking at the pipeline that is sort of 80% senior, 20% on the mez preferred equity side just to clarify our existing portfolio slight conscious of that is more right now skewed towards senior, so right now as of March 31st, 92% of the portfolio is in senior loans and just 8% is in the subordinate loan.

Okay. Thank you for that.

Absolutely. Thank you, Jessica.

And the next question will come from Steven DeLaney of JMP Security.

Thanks. Hello, everyone, and Jamie welcome aboard, we look forward to meeting you soon. John, thank you very much for the color on prepays and pipeline, I think that’s the most in depth you guys have been on that topic and it was very helpful, because we came in about a million higher in net interest income for the quarter, but we had identical originations and actually slightly higher prepay, so we were puzzled because that delta was about $0.03 a share so helps us a good bit. On the first quarter with the $65 million can you recall whether that came the prepayment or prepayments it was multiple, did they come in earlier in the quarter relative to your $134 million of originations?

Yes, Steve. This is Tae-Sik I'm sorry. You’re exactly right is that the prepayments did come in much earlier in the quarter so unfortunately the prepayments were fun loaded and the originations of about a $134 million were towards latter half of the first quarter so we softer - all kinds of that spectrum.

Okay. Just wanted to confirm that. And on the term sheets of $200 million I understand that most of that coming obviously in the month of April but is it expected that all $200 million of those loans have a chance to close by the end of the second quarter?

Yes.

Okay. All right, great. Okay, very good. And just lastly on competition, we think you guys are probably seeing there are two new commercial mortgage REIT IPOs in the marketplace or one in the market, one that is been filed KKR and TPG. And John, I'm curious on the surface that looks like new competition, but can you comment as to whether those two existing entities these are not startups, whether you already see those players, and also the existing participants in the marketplace and rather than new competitors.

I run into TPG quite often, and we're the competitor.

Got it. Well, thank you very much for the color. It's helpful.

Thank you, Steve.

And the next question comes from Jade Ramani of KBW.

Thanks very much. Just on originations since the reported originations came in line with what you have disclosed March 3rd, when you reported earnings last quarter, doesn't look like you closed anything material in March and April. So, was that attributable to the market slowdown and just the time lag in - the timeline to closing loans or was there anything else that played into that?

No, there was just sort of standard slippage. These loans are still out there, they're active with the move a month or 45 days which sometimes happens.

On the term sheets, are those non-binding and what percentage of term sheets historically turned into the closings?

So, term sheets, there is money posted good faith of deposits are posted. And generally, when you position that where it's executed with money up, you have a 99% chances to closes occasionally. You'll have something that will go wrong that may have upon that environment issue that no one can deal with, but it's rare.

Okay, that's very helpful. The commentary around repayments you said 2017 repayments based on your current perspective should be below 2016, which would leave quite a significant amount of repayments in 2018 given the less than two-year duration. So, what percentage of portfolio would you expect to mature in 2018?

Jade again, the way we really analyze repayments at maturity as well as prepayments is we're evaluating one-off each individual asset each individual loan. We are in very, very close contact with each of the borrowers to understand where they are in terms of executing their business plans. And what we find is that once they achieve their business plans, they are looking to either monetize the asset by selling it or seeking long-term permanent financing. So, we don't really look at this statistically. I think you're right if you look at our so called weighted average life it's about two years that's based upon the contractual maturity. So, if you look at 2017 as we indicated, we expect significantly less prepayment in 2017 than we had in 2016 largely because as you saw we had significant new originations activity in 2016, so a lot of our loans are relatively fresh. So, I think to give you a general statement I think you are correct. We would expect more repayments to be occurring in 2018 just from a mathematical standpoint. And I don't think we have a quantified number for 2018 that we're prepared to provide. But I think generally you are correct, we would expect more prepayments in 2018 and 2017, but obviously 2017 we expect significantly lower than 2016.

I mean I guess my worry is that originations are ramping up currently hopefully that continues for the next few quarters that puts earnings on track to exceed the dividend by the end of the year and hopefully match the dividend for the full year. But then in 2018 you will be faced with another headwind which is spike in prepayments because of the short duration of the remaining portfolio. So, are there strategies you can do now to obviate that risk?

Yeah, this is Rob. I think that that I would respectfully take exception with the words spike. I think that last year, we had significantly higher repayments than we expected and it’s flowing into somewhat lower repayments in 2017. Mathematically, the portfolio turns over every 2 to 2.2 years, so we deal with that, we also all our competitive in terms of refinancing, when the refinancings are accretive and in fact are economically appropriate for us to do. So, the repayments and prepayments are not a 100% loss but rather present the opportunities in many instances for us to compete for refinancings. But offsetting the repayments is in fact a period of deployment at we anticipate increasing interest rates, higher spreads and in fact appropriate recycling and reunderwriting of credit and credit risk in 2018 as the existing portfolio repays. So, while the math in fact can in fact suggest as you called it a headwind, for us the opportunity to reunderwrite, redeploy, get capital out at increasing spreads and compete for refinancings sort of ameliorates the sort of risk that you're appropriately identify.

Hey Rob, if I can maybe add two other comments. In 2016, not only Rob as you said that we have significant repayments but just recall it we also sold our mortgage banking business Acre Capital and generated approximately $93 million of additional cash to put to work as well. So, in addition to the repayments we have that one-time additional liquidity that became available. Second to maybe reiterate what Rob said, in the history of Acre, we've already had 50 longer payments totaling about a $1.5 billion and so the portfolio has already turned at least once fully and obviously, we have already fully redeployed those assets into the current portfolio. That is the nature of our business is to have short-term, floating rate senior loans that will generally turned over in a 2 to 2.5-year time period, so it's all part of the business plan.

I was wondering if you could comment credit quality. You mentioned strong credit quality and consistent performance or no - I think the 10-Q says no loans are in default. Just could you comment on if credit performance was stable quarter-over-quarter, if there any loans from your vantage point in which credit quality has deteriorated and also could you comment on the retail aspect of the portfolio?

So, from a credit perspective, we have not compromised our standards and I think in our prepared remarks, we were fairly clear and our explanation as to the soundness and the credit worthiness of our portfolio. In terms of retail is concerned, we have two specific assets they are in the discrete mortgages that are on assets that are in the Chicago area, one of them is a very high quality North Michigan Avenue property, which is probably I think the realty at this point is like 65%. It has a significant lacing, it’s in very, very good shape and well located. Just a high-end retail assets, we have no concerns about that. Another asset that we have is in the Suburban market, where the business plan of a very successful household name that you would know if I could tell you. Basically, was going to take a significant position in this property, acquire the property for this sole purpose of re-letting that property from Barnes & Noble to and have successfully done so, to a healthcare provider that is investment grade. So, they took an asset that it was the space from a tenant that was paying six bucks and they ended up with getting 15 year leases for $24 triple that. And they’re going to be selling that asset in this summer and we don’t have the price on that yet because they are in the LOI stage, but we think it's probably going to be a good $25 million more than where our loan is, so it's probably somewhere in the mid-50s, it's probably where that price is going to come out. We have a few retail loans that are in a cross-collateralized pool of self-storage assets and all that we don’t see any significant problems in that area as well. So, from a retail perspective, we feel we are in very good shape.

Any other loans where performance could have deteriorated, where you are aware of performance deterioration?

No.

Well, thanks very much for taking the questions.

Thank you.

The next question comes from Douglas Harter of Credit Suisse.

Thanks. Just strategically, would you consider doing any longer duration loans to sort of help mitigate this sort of reinvestment cycle and keep the capital deployed longer?

So, we look at our opportunities in, in every arena, in every way. However, our fundamental business has been and I think it's quite elegant and that we are doing floating rate value added lending, which helps to mitigate some of the risk relating to increase as an interest rates. And then the creation of value, as we mentioned in my prepared remarks it helps to delever our position. So, the longer-term fixed rate type deals usually a lot more stabilized than its someway in consistent with what our fundamental business model is all about. I never say never, but we are more or less a short-term LIBOR based value ad lending group.

Yeah and look, this is Rob. Let me make perhaps a slightly more emphatic point. From my part as chairman, I don’t want to live through asset liability mismatches. And I don’t want to have essentially, we have done a great job in expensing the maturities of our warehouse lines we have got no mark to market exposure and our securitization that we just did in fact because of the replacement feature that we negotiated extended the duration of that. But if we wind up with appropriately match liabilities, taking advantage of longer term liability, opportunities in the market then as long as we can match fund, I don’t think we’d be oppose to that but I think it’s highly unlikely that we would subject our shareholders and ourselves to an asset liability mismatch.

Great. And then just one more on the repayment outlook, I guess what are the - I know you say you kind of look at granular level. What would be the scenario that prepayments could accelerate faster, faster than what you are looking for this year, what type of macro environment would make that more likely?

So, maybe I’ll start Doug. I think from a property perspective, we want our borrowers to succeed in their business plans. We expect our borrowers to succeed in their business plans and we think it’s very likely that our - succeed in the business plan and what is probably the least predictable, if you want to call back is the timing of when they can achieve those results. And so again, why we are very specific, we are very on top of our assets, we think we know what’s going on step by step as they reposition and further add value and cash to these assets. It's really the timing of when they achieved those results that could impact our prepayment reductions or assumptions either slower or faster. So, again, I think that from a loan-by-loan perspective is the biggest factor and when prepayments can happen. So, good news is sometimes not great news for us right because of the borrowers very successful and does it faster than they expect the faster than we expect, it’s likely though to accelerate that prepayment. Great news for the borrower great news from creation of value, unfortunately not so great news in terms of having an earlier prepayment then what we have projected. On the opposite sense again, if one of our borrowers takes longer than expected, obviously not great news in terms of executing the business plan, but good news in terms of holding on the asset longer, but still overtime, generating the value increase and cash flow increase that we expected. So, from a property by property perspective I think that is one impact. From a capital market standpoint, obviously if there was a sharp decrease in borrowing spreads where one of our borrowers said, hey I can, even though I haven’t completed my business plan, I can get cheaper financing today than what I have with the team for maker and they can try to refinance. We have not seen evidence of that very much in the past for a couple of reasons one is we do have some lockout protection of our loans that generally in a three-year loan will have anywhere from 12 to 18 months not in all cases, but in general we’ll have 12 to 18 months of lockout protection. And secondly, we build an upfront fees that in many cases we build in exit fees, so that it acts as somewhat of a barrier, if you want to call that, but somewhat of a discouragement to pay us early because those fees are going to be fully due whether they prepay us at whole maturity or they prepay as prior to that time period, so there are some things we can do to discourage prepayment even in the scenario of much lower borrowing spreads, but again I think those two would be the two ways to really think through and say, how could prepayment speeds impact our business.

Great, thanks Tae-Sik.

Thank you, Doug.

And we have time for one more question that question will come from Charles Nabhan of Wells Fargo.

Hi, guys. Thanks for taking my question. So, I wanted to get some color around your near-term guidance that the second quarter earnings will relatively resemble the first quarter. Now if I think about the dynamics heading into the quarter you closed the number of loans in the back half of the first quarter. You'll have the benefit of higher rates in the second quarter and presumably you’ll be closing roughly $200 million that are in your pipeline towards the end. So, if I think about all those factors in relation to your guidance would that imply that you’ll be receiving some repayments in the front half - towards the beginning of the quarter before the pipeline is closed or what’s driving given those tailwinds what’s driving the earnings to be in line with the first quarter?

Sure, Charles, why don't I start. So, as you know, I think you’ve said a lot of insightful comments of what drives earnings quarter-to-quarter? Let me just share a couple of other insights that impact quarter-to-quarter earnings as well. So, one is just pure timing of when it happens in the quarter, like I said if you tend to close a new loan towards the second half of the quarter or towards the end of the quarter particular it has a relatively minimal impact on that current quarter’s earnings, same thing with repayment. So that’s one. So, secondly, I think you are right that we are expecting some level of repayments in the second quarter again first quarter was relatively light at about $65 million but again we do expect and already have about $17 million repayments in the second quarter itself. So, there is some repayment activity. And the third is with respect to repayment again, timing wise very important, but also as you know when you get any repayment as I sort of mentioned the question from Doug is that when we do get a repayment and it's a repayment that happens substantially earlier than the state of maturity there is an acceleration of the remaining unamortized fees associated with those repayments so in some ways to get a repayment towards the end of the quarter. Let’s say just hypothetically you get it really right in the last couple of days of the quarter, it actually help you in that current quarter because you’ve earned the interest income for holding it throughout the vast majority of the quarter, but you've also got the sort of one-time benefits if you want to recall that from accelerating the remaining upon the amortized fees from that repaying loan. Having said all that, clearly our business is such that we regularly receive repayments. So even though I say it's a so called one-time recognition of that payment that does happen on a very regular basis. So, we're trying to take all of that information in addition to what you'd describe into account in terms of providing some level of estimation of what we are paying second quarter earnings will be going.

Got it. And as a follow-up, if we were to think about the business from an ROE standpoint, I think you said in the past that with the current capital base you would be able to reach roughly 9% on an ROE basis. And given your outlook for originations in repayments in your pipeline, could you talk about when you would expect to reach that threshold, and if that expectation still stands given the current capital base?

Sure. So, that expectation definitely does then, as I sort of mentioned in my remarks, once we're fully deployed based upon the type of yields that we're able to generate based upon the cost of capital on the liability side that we have in place today. That includes our warehouse lines, as well as our securitization as well as our term loans. So, based upon current conditions today, once we get full deployment, we believe that a 9% net ROE is definitely well within our reach and definitely our target earnings. From a target perspective, again this isn't on a trailing 12-month basis. But as you can imagine we have said that we expect to out earn our dividend in the second half of the year. And so, let me just say that we expect to start reaching annualized basis on a go forward basis not on a trailing basis, but on a go forward basis that towards again the second half of this year.

Got it. Thanks for the color guys.

Absolutely. Thank you, Charles.

And this concludes our question-and-answer session. I would like to turn the conference back over to Rob Rosen for any closing remarks.

Thank you, operator. I want to thank everybody for joining the call. I want to have make sure that you all sort of understand the tremendous enthusiasm and confidence that we hope you see in Jamie Anderson joining ACRE as President and Chief Investment Officer. Just a reiteration, please always remember we're credit focused shop, we don't stretch for credit or pricing and protection of our capital and deployment of our capital in sound accretive investments is what we're all about. We thank you very much for the time that you spent with us and for your interest in ACRE. Thanks, operator.

Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available approximately one hour after the end of this call through May 15, 2017 to domestic callers by dialing 1877-344-7529 and to international callers by dialing 1412-317-0088. For all replays, please reference conference number 10105461. An achieved replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website.