Good morning and welcome to the Ares Commercial Real Estate Corporation's Conference Call to discuss the Company's Third Quarter 2019 Earnings Results. As a reminder, this conference is being recorded on November 8, 2019.I will now turn the call over to Veronica Mayer from Investor Relations.

Thank you, Elli [ph]. Good morning and thank you for joining us on today's conference call. I am joined by today by Bill Benjaminour, our Chairman and Head of Real Estate Group of Ares Management, our CEO, Jamie Henderson; David Roth, our new President; Tae-Sik Yoon, our CFO; and Carl Drake, Head of Investor Relations.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 use of words such as anticipates, believes, expects, intends, will, should, may and similar 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 a number of factors including those listed in its SEC filings. Ares Commercial Real Estate Corporation assumes no obligation to update any such forward-looking statements.During this conference call, we will refer to certain non-GAAP financial measures. We use these as measures of operating performance and these measures should not be considered in isolation from or as substitute for measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable to like titled measures used by other companies.I will now turn the call over to Jamie Henderson.

Thank you, Veronica. Good morning everyone and thank you for joining us today. As you may have seen this morning we announced that I will be stepping down as CEO of Ares on December 5th. But I am continuing in my position as a Director on the Board. In addition, I will remain at Ares through the end of this year.This is a bittersweet decision for me or one that is in the best interest to my family. In addition, I feel that I'm leaving the company in an outstanding position with a Board with extensive experience led by Bill Benjamin and a deep and highly capable management team led by our President, David Roth, Tae-Sik Yoon and JB Gerber, our Head of Originations.I also thank very highly of Bryan Donohoe our new CEO. And I can say with great conviction that he will do an excellent job leading ACRE in this next chapter of growth. I'm very proud of all that our team has accomplished together over the last several years.We've executed on our strategic plan to expand our platform across the U.S. with new offices, augment our talent, improve our origination capabilities and broaden our product offering. These initiatives have enabled us to remain more fully invested with loans that generate attractive risk-adjusted returns.As a result, we have collectively improved our profitability and materially increase shareholder value. In addition, we have increased a quarterly dividend four times since the beginning of 2018 for total increase of 22%, and we are very well-positioned to exceed 100% core earnings coverage of our dividend for the fourth consecutive year.I would like to express my gratitude to the entire team and to all of our shareholders and constituents for their support and I look forward to continue to contribute to the future…

Terrific. Thank you Jamie and good morning everyone. Earlier today we reported GAAP net income of $9 million or $.31 per common share and core earnings of $9.7 million or $0.34 per common share for the third quarter of 2019. So this brings us -- this brings our total core earnings for the first nine months of the year to $1.04 per common share in excess of $0.99 per common share that we have paid in dividends for the comparable period.As Jamie mentioned in the third quarter we closed five new senior floating rate loans totaling a $193 million in new commitments. Total funding for the quarter were $169 million.As of September 30, the loan portfolio included 47 loans with an outstanding principal balance of $1.5 billion, up 3% from the second quarter of 2019. Credit quality continues to remain stable with no impairments in our portfolio weighted average unlevered effective yield was 6.9%.Turning to our balance sheet, our levered remain consistent with the debt-to-equity ratio of 2.9 times. This is in line with our target given that 96% of our loans are senior positions.Let me now spend some time this morning discussing our unique portfolio positioning given the current declining interest rate environment. As we have noted in the past, our portfolio has historically benefited from rising interest rates given that 97% of our loan portfolio is floating-rate.At the same time however we have leveraged our direct origination capabilities and deep sponsor relationships to structure loans that provide protection against declining interest rates. To this end, we have purposely built in-LIBOR floors on almost all of our loans.More precisely at the end of the third quarter, 92% of our loan portfolio consisted of floating-rate loans with built-in LIBOR floors averaging about 1.7%. And in addition, 3% of our loans…

Thank you, Tae-Sik. On behalf of the Board of ACRE and the Real Estate Group of Ares's management, I want to thank Jamie for all his contributions over the past few years.He is leaving the company in an outstanding position. We look forward to continuing to work with Jamie after December 5 in his continue role as Director and we wish him much success.I'm also pleased to welcome Bryan Donohoe to the team effective December 5. Bryan has been known entity to us and well respected by the ACRE executives, which is accomplished track record, strong leadership and extensive relationships in the real estate sponsor community. We are confident that Bryan is very well suited to lead ACRE and successfully execute on our plans for continued strong and profitable growth in the years to come.I can assure you that Bryan will have the full resources of the broader real estate platform behind him, the Board of Directors with extensive experience, a deeply and highly capable management team led by David and Tae-Sik strong team of 20 investment professionals led by JB Gerber along with their asset management and capital market professionals.In addition, Bryan will be able to collaborate and benefit from his colleagues across the broader Ares' management platform including on the equity side of our real estate business.I want to express the confidence that I and the senior management team of Ares' management in ACRE given that the business is outperforming on all fronts. We have an outstanding leadership team in place. We are executing on our plan to stay more fully invested and we continue to generate attractive dividends returns for shareholders.With that operator, please open the lines for questions.

[Operator Instructions] Our first question comes from Stephen Laws with Raymond James.

Hi. Good morning. I guess first Jamie, good luck with what you pursue after this. And congratulations on a good job done you've done at ACRE over the last couple years. Moving to questions, I guess first, Tae-Sik, if I can follow up on your repayment comment, maybe specifically or the Q4 increase in repayments, so those some of the loans with senior breakout that are scheduled to mature early next year. And then specifically if you could talk to the -- looks like February to April you got three of your four residential condo loans scheduled to mature. Could you touch on those? And then whether you expect those to pay off that maturity or extend? Looks like a couple of them might be at pretty high interest rates as well. So I'd appreciate your comments around that?

Sure. Good morning, Stephen. Thanks for your question. So with respect to repayments, as I mentioned, we do expect a pick-up of repayment activity in the fourth quarter. I think we said something very similar on our last conference call. So without giving an exact estimate, we've had a little more than 100 million payoffs so far in the quarter. And I think for the total for the quarter we expect somewhere between call it 250 and 300 for fourth quarter in the aggregate inclusive of the hundred plus that's paid off so far.More specifically, respect to the residential condominium loans that you're referring to, one of the three that you're referring to this is identified as the 17.5 million senior loan in Florida. That has already paid off. And that is part of slightly more than 100 million that has so far paid off in the fourth quarter. The other two loans that you're referring to, one, is a maturity coming up in February 2020. And then the third, has maturity in March of 2020, again, I think both of those situations we do expect there to be pay off right around the maturity date. We don't have a specific timeline for those two, but the objective is to have both of those loans pay off on or about the maturity date.

Great. And can you touch on the Ares' financing facility. Have you – has the company utilize that at all? What are your thoughts as far as access or utilization especially if we see repayments slow? So, if you could talk a little bit about any in the update on utilization of that facility?

Sure. So first of all, we have not utilized facility this past quarter. I will tell you that it's still extremely helpful to us knowing that we have this so-called excess capacity behind us at any point. So it gives all of our originators for example the confidence that the capital will always be available to make sure that loans that we commit to have no risk of not being funded. So while it's not been specifically drawn I think it continues to be very, very additive to our origination activities in terms of again having that extra capacity always on hand to make sure that our origination never slow down.We would certainly anticipate utilizing the warehouse facility. Our primary goal of courses is to keep the existing balance sheet and the existing capital as full as possible. And I think we've done a very good job of making sure first and foremost that any repayment of capital is fully redeployed. We're obviously working towards and getting even more deployed and then eventually we'll get to drawing capital and utilizing the warehouse as it really was fully to really maximize its full potential.But to answer your question specifically to-date in this third quarter and so far in the fourth quarter we have not drawn upon the warehouse line because we have been keeping our existing capital balance sheet as fully invested as possible.

Great. And last question. Jamie, could you talk about the competitive market out there? Our discussions with borrowers, are they pushing back more on LIBOR floors? Are there other competitors spending in other places on underwriting? If you could maybe give us an update on those competitive landscape and what you're seeing in the marketplace? Thank you.

Sure. Thank you, Stephen. I think it feels really good. There was a little blip in Q3. I think the industry was adjusting to decrease in treasury yields. Fourth quarter as I mentioned in my prepared remarks, pipeline feels great. Overall pipeline year-over-year is better than it ever has been. A lot of that has been the result of us effectuating our strategy of building out a broader regional presence and partnering more closely with David Roth's equity team.So deal flow feels really good. I think the team has done an exceptional job of building in LIBOR floors during a time when nobody really felt like they needed that structure and that's showing up demonstrably in our earnings. And I think that's just a testament to kind of our credit first approach and the rigor whereby we approach lending. Borrowers are more alert to it. Now, we're still getting them. And I think overall structure feels really good. Don't really see kind of mask pitchuation [ph] on structural terms. So I think feels pretty good. I think real estate fundamentals still feel darn good given the long expansion.

Great. Thanks for the commentary there. Appreciate it. Take care.

Thanks Stephen.

Our next question comes from Steve Delaney with JMP Securities.

Good morning everyone. And Jamie, I would echo Stephen's comments about congrats to you; probably no better way to step aside than with the stock up 18% this year. And Bryan, look forward to having the opportunity to meet you soon. So turning to Q&A; Tae-Sik the new slide or the new presentation on LIBOR sensitivity was very welcome. So as you mentioned I think we're sitting here today 176.So, I know numbers and the way floors weighted averages and all move, but would it be reasonable to think that of the down fit that $0.08 benefit from down 50 that essentially were approximately have already with LIBOR today, we're realizing roughly half of that benefit. So, force [ph] and annually maybe $0.01 per quarter and is the LIBOR forecast part of why you and Jamie are suggesting that fourth quarter is going to be improved over third quarter? Thanks.

Good morning, Steve. Thanks for your question. That's exactly right. I think I mentioned in our comments that we do expect fourth quarter earnings to exceed those of third quarter. And I think part of the reason for that is the impact of LIBOR that we've already experienced. So the chart that we show on page five of the earnings presentation you can see that that really shows the changes on LIBOR from the September 30th spot rate which is around 2%. So we've already experienced plus or minus 25 basis point change in LIBOR. So part of our fourth quarter estimate is based upon the drop in LIBOR and the positive impact that we get from our LIBOR floors.

Thanks. And turning to the dividend, appreciate the comparison of dividends paid to cumulative core. Just assuming -- you've already declared that your fourth quarters dividend flat. If one may assured this, do you assume that you at this point that you will have met with your dividends through the fourth quarter with $32 whatever. Will you assume that you have met your requirement with respect to distributing taxable income and it may be -- and if not there's a couple ways to deal with that obviously because you've got some time before your final return is filed.But given where the dividends – the dividends at a nice healthy level and I think the worst thing a mortgage REIT can do is raise their dividend too much and then be in a position they have to cut it. As we look to next year I mean would you prefer to do if you had an additional distribution at this point would you consider a special dividend or which you just be as kind of patience as possible in raising the dividend rate from where we are now given the increases over the past year? Thanks.

Sure. As you know there is a number of inputs that the Board and Management in its recommendation will take into consideration in terms of setting the dividend. Certainly as you mentioned, stability and growth of the dividend is a key factor. Tax requirement being a read is also another important factor. Future forecast of our earnings and our ability to deliver returns is certainly a factor and then there's obviously a mirrored of other considerations to consider as well.So to answer really your question, for right now I think from a tax perspective we're in good shape. As you said this is not a year by year test. There are other ways to manage the REIT distribution requirements and we have obviously fully met them. I think we also had previously described the fact that we do have if you want to call it some undistributed taxable earnings that we have not paid down in the form of dividends. Some of that came about as for example the result of income that we derive when we sold a long time ago, few years ago our Fannie Mae Freddie Mac mortgage business.

Agency business.

Agency business and we had a gain there. We're able to manage that. We do pay some excise tax because of that and that is obviously one of the reasons we do have a tax expense line in our income statement. So we are able to manage that very well. And we'll certainly take that into consideration. And they're really -- finally your question about a special dividend, certainly that's another consideration and another option that we can follow. I know some of the other companies in our space and some of the other companies in the REIT world have done that as well and certainly that's something else we can consider.I would say, we have looked at this question very carefully. The Board has obviously looked at this question very carefully in setting this quarter's dividend as well as the prior dividend throughout the year. And we'll continue to closely monitor it, but right now I don't think I can really give you any sort of future outlook on what our dividends will be just given just a number of considerations that we need to think about.

All right. Well, we'll watch core EPS and to the extent that keeps going up. I think that will give us give us comfort on the dividend. Thanks for your comment Tae-Sik.

Perfect. Thank you, Steve.

Thanks Steve.

Our next question comes from Jade Romani with KBW.

Good morning everyone. This is actually Ryan Tomasello on for Jade. Just was hoping you can talk about where you're seeing incremental levered returns currently across the pipeline and on a go-forward basis. Just trying to understand how you're thinking about the confluence of factors of these recent rate cuts, potential additional rate cuts coupled with what seems to be still ongoing spread compression, the LIBOR floors you laid out. Just in general if you think that low double-digit IRRs are still achievable on a go-forward basis for this business particularly as the LIBOR floors inevitably roll off with repayments?

Hey, Ryan, this is Jamie. I guess I'd start by saying we've been really deliberate in creating a business model that's focused on the mid market and a lot of that has to do with infrastructure and having people on the ground all over the country. And that gives us a much broader top of the funnel. And we operate in kind of a medium size loan space plus or minus $40 million or $50 million. We did see a little bit of spread compression in the midst of kind of at the outset of Q3, but I've been very happy to see that feels like it's slowed down and even has widened a little bit. So feel pretty good about where spreads are. Not terribly concerned about the index. To tell you the truth, I think the team has done a great job of structuring around that.As we've stated many times kind of current levered ROEs are still in the low double-digits. So feel good about where the business hits today. We feel good about our balance sheet. And feel good about the loans that we're able to source in the mid market space. I think the large loan space is experiencing a lot of pressure or more pressure on spreads. So really happy about the business model that we've adopted.

That's really helpful. Thank you. And then I guess on the overall pipeline of loans that you're seeing and what's already closed. Can you give us some color on what types of loans those are in terms of geography, property type spreads, I guess I'm just wondering how that fits in with your prior comments on an levered returns?

Sure. Good morning Ryan. This is Tae-Sik. In terms of the characteristics of the loans that we closed so far again, I think they're very consistent with our history and our portfolio. So if you look at page four of our earning deck we don't expect those types of metrics to materially change from what we have. I think the other good news is that, as Jamie mentioned, the loans that we closed so far again in terms of their expected ROEs on a levered basis, again continue to be very consistent with our overall returns. And again, based upon what we've seen so far I think one of the benefits that we've always talked about before is, because we have a relatively smaller balance sheet that we want to obviously keep as fully invested as possible, we don't need to go out and chase market rate deals and we can be a little bit more selective in the type of deals that we do. And so I think that's selectivity both in terms of credit, as well as portfolio construction, as well as returns remain very consistent with our existing portfolio.

And just lastly, it looks like there were two loan modifications in the quarter on two of your condo mezzanine loans, one in New York and one in Hawaii. So just was hoping you can give us some color on what's going on there. How those borrower business plans performing? Are you expecting a full payoff or is it possible we should -- we could see some sort of impairment on those loans pending their performance?

Well, again, we certainly don't expect any impairment on any of our loans including the two that you mentioned. The Hawaii loan, we did extend out the maturity on that loan as you can probably tell. I think that is, we feel a very good loan. We want to give the borrower a little bit more time to execute the refinancing of that asset. That is in process. And so as I mentioned I think Stephen Laws has asked question about what we expect on the repayment of some of the loans that are coming up in the first half of 2020. And so we do expect that Hawaii loan to repay sort of on or about the now new stated maturity date of March 2020.With respect to the New York loan, this was really in relation to a bit of a change in the mix of units that the developer is building. We felt it was the right decision to make to really meet the different needs of the market than what was originally envisioned. So that was where the primary reason for the change in that loan itself. That loan doesn't mature until May 2021, so it's much too early to give any sort of insight as to whether that loan will pay on or about its maturity but certainly we don't see impairment on either of those two loans.

That's really helpful color Tae-Sik. I may be pushing a bit too much here, but can you say what the underwritten sellout value per square foot is of that New York condo loan and perhaps for the overall book?

Again, I think we're careful not to give too specifics on the business plans of these units. We do want to be very respectful of our borrowers and their business plans. Certainly, we do a very in-depth analysis of the market itself. We do a very in-depth analysis of our LTV, but Jamie did you want to add some comments.

Sure, Ryan. That's actually -- that's a very good question. And I think the way I'll answer that is, we've been very systematic in avoiding some of the major metros, luxury and ultra-Lux condo projects. We think there's material risk in that sector and there's probably opportunity for pretty material reset at which point maybe we'll be interested. So I can tell you what we haven't done. And I also tell you in a lot of these markets there is very, very significant demand for kind of middle of road product as I'd say. So we've been really systematic and avoiding the high-end and feel really good about every project that we've elected to loan on.

Thanks for all that color.

You're welcome.

Our next question comes from Rick Shane with JPMorgan.

Good morning, guys. Thanks for taking my questions. And Jamie, we wish you the very best as you move on to what's next in your career. It's been a pleasure getting to know you over the years. Just interesting context, you had a peer company report last night and I would describe that company took a more cautious defensive outlook. I'm curious were you guys are seen relative value an opportunity. And I do notice that if you compare sort of the portfolio originations this quarter versus the overall mix it seems like you guys are shifting to more defensive after classes as well. Is that just a one quarter thing or is that something that's really more tactical?

So Rick, thank you for your kind words. And I guess I'll start to address your question on loan portfolio mix, portfolio composition. So, one of the tremendous strengths of ACRE is the fact that every deal goes to a global investment committee and as over 300 years of professional real estate experience on it, that's both debt and equity and credit. So it is not an easy hurdle to clear. There's everyone of us on that committee have transacted many billions of dollars and pretty much every asset class in most major markets. So there's a lot of very granular street-level knowledge and asset class knowledge on that committee.I'll say, we've been really deliberate in even kind of increasing the level of rigor over the over the past several quarters. And I think our portfolio composition reflects that. We've been pretty conservative throughout our history and I would say we've gotten slightly more conservative over the last several quarters. So I'm not saying that every single deal has been like a scientific add to the portfolio, but I think the level of rigor is extremely high.

Okay. Thank you.

You're welcome.

Ladies and gentlemen, this concludes our Q&A and 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 November 22, 2019. To domestic callers, this will be available by dialing 1-877-344-7529 and to international callers by dialing 1-412-317-0088. For all the replays please reference conference number 10134445. An archived replay will also be available on a webcast link located on the homepage of the investor resources section of our website.