Acres Commercial Realty Corp (ACR) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Resource Capital Corp. Q1 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Purvi Kamdar, Director of Investor Relations. Ma'am, you may begin.

Thank you. Thank you for joining the Resource Capital Corp. Earnings Conference Call for the first quarter ended March 31, 2017. I am Purvi Kamdar, Director of Investor Relations. When used in this conference call, the words believe, anticipate, expect 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 subject to certain risks and uncertainties, which 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 report on Form 8-K, 10-Q and 10-K, and in particular, Item 1A on the Form 10-K report under the title Risk Factors. 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, for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with the generally accepted accounting principles and the access to our filings with the SEC at www.sec.com.

Let me now turn it over to the Chairman of RSO, Andrew Farkas, for opening remarks.

Thank you, Purvi. Good morning, everybody. We're here in New York having this call with you and with me today are Bob Lieber, who is RSO's CEO; Dave Bryant, who's the Chief Financial Officer; Paul Houston, who is Head of Debt and Equity Principle Investing; and Dave Bloom, Head of Real Estate. Also with us today is Matt Stern, who you recently read this morning has been appointed as President of RSO, and I want to take the opportunity to welcome Matt.

For those of you who are not intimately familiar with the culture of Island Capital and the C-III companies, I consider our management to be what we call mission deployable, based on the status of any given project or company on which we're working. Our sort of defensive and restructuring planning stage for RSO is pretty much over.

So while we're continuing to implement liquidations of various different assets and non-core businesses, it's time now to really turn our focus to the offensive side, net income growth, capital base growth. And we believe that Matt Stern is very, very well qualified to lead the company to this end. Matt was one of the leaders of the M&A team when we acquired Resource America and he knows this company like the back of his hand. He will be working hand-in-hand with myself and Bob Lieber, who will continue as Chairman and CEO, respectively. So Matt's addition here should be considered something that is augmenting our skill set and not replacing the skill set, but having somebody who's going to wake up every morning thinking about net income growth and capital growth is something that is now primary to the business plan in our next stage.

During the first quarter, RSO continued to execute on a strategic plan that we laid out in November 2016. Drawing on the expertise and experiences of C-III's established full service platform, we feel that RSO is well-positioned to dispose of the noncore businesses and investments, and ultimately, increase value for shareholders. Shareholders should note that the C-III management and RSO officers including myself, own over 1.2 million shares in the company. So our oars are in the water pulling in the same direction as yours. Over my past 30 years in the real estate space, I've taken over the managerial responsibilities of numerous real estate finance companies during the process of building each one of them. These include Insignia Financial Group, Island Capital and C-III Capital Partners. Through this experience and the dedication of a focused group of managers, many of whom have 25-plus years tenure with me, we're confident that we'll be able to see this plan through and continue to unlock value for our investors.

With that, I'll turn it over to our CEO, Bob Lieber, who'll provide a more detailed update on the progress. Any additional transparency will provide, beg your pardon, moving on forward on this front.

Thank you Andrew, and good morning, everybody. I also want to welcome Matt to the RSO team. I think it's going to be a great addition to what we're doing here. It has only been a couple of months, 2 months actually since our last call and we want to provide a brief update on our progress with the strategic plan. And since March 10, the time of our last call, we have monetized an additional $23 million of loans and securities, bringing the 2017 first quarter monetizations to $56 million and total monetizations to over $100 million of the $480 million of investments that we targeted to exit as a part of our strategic plan communicated last year.

You may have noticed in the press release that we have added an additional table titled Schedule III, strategic plan update. We've created this table in an effort to improve the transparency and allow the market to track the progress of our strategic plan. As we move forward, this table will provide a status update on where we are in divesting noncore assets and the results of those efforts.

The table breaks out the various categories of assets that compromise -- comprise the total of $480 million, and I'd like to take a moment to talk you through the layout of the table. Again, it's on Schedule III, which is towards the back of the earnings press release. In the first column, we'll show you the components by category and the $480 million, which were the assets that we laid out to be liquidated over time.

As we move from left to right across the page, the second column shows the impairments of, and/or other unrealized adjustments that have not yet been monetized by the company totaling about $41 million. The middle column provides realized losses and recognized interest income on assets that have been monetized or exited, totaling about $8 million. The column titled monetized through March 31, 2017, shows proceeds received from the monetization and exiting of these assets. In the final column, on the right provides the current book value of the remaining identified plan assets. There may be questions about that, Dave will go into more color behind those numbers if you have those -- have questions about that.

Our goal here is to improve the transparency about the disposition activities, and I do want to take the chance to remind everybody that the timing and the proceeds from these activities is unpredictable. Liquid securities can be sold when we see favorable pricing in the markets, and we have, or when we see, require additional sources of liquidity.

However, the process for disposing of the legacy CRE loans and operating businesses may be lengthier and is not as much that we can share about the progress until these transactions are actually complete. I'll note in the first quarter of 2017, we did monetize one of our held-for-sale CRE loans and reported a $7 million GAAP gain. The $32 million loan was written down to $14 million in the fourth quarter of 2016, based on appraised value and we are fortunate to receive proceeds of $21 million on those loans during the first quarter. We're extremely pleased that our real estate team was able to negotiate a discounted payoff in excess of the appraised value. This successful result is indicative of the experience of our real estate mortgage team as well as C-III special servicing business, which has resolved greater than $50 billion commercial real estate loans over the past several years.

In terms of the deploying proceeds from monetizations, the RSO commercial real estate debt team is in the market and beginning to regain traction again. Borrowers have not viewed RSO as a viable source of financing, while Resource America was engaged in the process to explore strategic alternatives.

In the first quarter, RSO originated 6 new loans with an aggregate committed balance of approximately $130 million. With 5 new loans totaling approximately $100 million in process today, we note that our origination pipeline continues to grow. The market for RSO's traditional bridge loans remain strong as well as other CRE debt investments is strong and our team is fully engaged in sourcing new opportunities.

The RSO's existing origination channels are fully activated and the broad C-III network has come together to provide new opportunities for the RSO platforms. The origination trajectory is positive with deal flow increasing month-over-month, and we will continue to report originations on a trailing basis when we can speak with specificity about the quarterly and year-to-date production

A comment on the market. Despite an increasingly competitive market out there today, we believe that opportunities do exist to deploy proceeds into attractive yielding investment opportunities and our pipeline will grow over time. That said, we will continue to exercise the credit discipline that is the foundation of C-III's platform and the management teams track record.

Lastly, we are stabilizing book value, which was an explicit stated objective of ours last year. We advise that we intended to clear a $0.05 per share per quarter dividend for each quarter during 2017. And to put this book value to some context, this was the first period since September 2014 that RSO's quarter-over-quarter book value remained flat. We are keenly focused on preserving and maximizing shareholder value and see this as a good trend.

Now I'll ask Dave Bryant, our CFO to discuss the financial results. David?

Thank you, Bob. Our GAAP net income allocable to common shares for the 3 months ended March 31, 2017, was $2.7 million or $0.09 per share. At March 31, our GAAP book value per share was $14.16, relatively flat as compared to $14.17 at December 31, 2016. The quarter-over-quarter decrease in book value can be attributed to the following: net income of $0.09 per share offset by a common dividend of $0.05 per share; and $0.05 per share associated with restricted stock divested during the period. We reiterate that the dividend guidance of $0.20 per common share for 2017 is expected to help minimize any book value degradation as we continue to execute on a strategic plan.

As Bob mentioned, we have monetized $100.3 million of assets since announcing the strategic plan, including $55.6 million during the 3 months ended March 31. Proceeds during these 3 months ended include: $21.3 million from our legacy CRE loan portfolio; $15.8 million from our Commercial Finance segment; $13.6 million from a partial liquidation of Pelium Capital Partners, which is an unconsolidated subsidiary; and $4.9 million from our Middle Market Lending segment. The supplemental schedule we have included in the earnings release provides additional details on this activity. And the current carrying value of the remaining assets, we anticipate disposing of over the next several quarters. Approximately $93 million of the remaining $331 million carrying value of identified assets are liquid assets and securities and the balance is comprised of legacy CRE loans and noncore businesses that we will, of course, look to maximize value on.

On our last call, we introduced core earnings and we have enumerated the principles of the calculation in this earnings release. I will take a minute to recap this metric. We adjust net income by removing results from all noncore assets, which includes those classified as discontinued operations and assets held for sale. Moreover, the calculation also includes adjustments for industry-standard items, such as non-cash equity compensation expense and unrealized provisions and impairments. As a reminder, we have also included a segment view of the core earnings calculation that allows investors and analysts to gauge the progress of our strategic plan as we transition to the CRE debt investment platform. We had a core earnings net loss of $0.11 per share, down from net loss of $0.12 in the fourth quarter of 2016.

We expect to see this trend improve as we monetize additional assets and reinvest those proceeds into CRE debt-oriented investments.

Turning to our commercial real estate portfolio. Our 3 most recent securitizations that closed in 2014 and 2015 are subject only to over collateralization tests, which we have comfortably passed. The existing vehicles financing our commercial real estate loans continue to perform well and have produced reliable cash flow. We have total capacity of $650 million on our commercial real estate term facilities and have approximately $213 million available at March 31. We are at match-funded with nonrecourse floating rate term financing on a substantial portion of our lending platform and look forward to issuing a new CRE securitization in the near future, as, and if, market conditions permit.

We also expect to utilize our warehouse alliance to allow us to refinance assets from a 2014 [Vintage COO] that has delevered. Further, our $1.3 billion commercial real estate portfolio is substantially all floating-rate, self-originated whole loans. During the 3 months ended March 31, 2017, we closed 6 new commercial real estate loans with a total commitment of $128.9 million and an average loan balance of $21.5 million. Our GAAP leverage stands at 1.8x down from 1.9x at December 31. The decline was a result of net pay downs of $59.7 million on our liabilities, offset by an increase in our book value of $2.1 million.

We remain focused on the execution of the strategic plan. We believe that we have ample liquidity to fund the business on a going-forward basis. As Bob just mentioned, we expect to deploy this liquidity judiciously in risk-adjusted higher-yielding commercial estate debt and debt securities. With that, my formal remarks are completed, and I'll hand the call back to Bob Lieber.

Thanks, Dave, and thanks to all of you for joining our call today. We appreciate your interest and support and we want to reiterate that 2017 is a transition year and maybe bumpy. But as we continue to -- our efforts to refocus the investment strategy of RSO, restructure the balance sheet and increase our commercial real estate debt originations and execute on our strategic plan, we're optimistic about the future. With that, I will open up the call to any questions.

(Operator Instructions) We're showing no questions.

Okay, well. Again, thank you all. If you do have questions that come to you, if you've gone through any of the materials that we've provided, don't hesitate to call. We're happy to discuss with you our progress and our goals for RSO and we look forward to speaking to you again soon.

Thanks everybody very much. As Bob said, we are constantly available. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. And this does conclude the program. You may all disconnect. Everyone, have a great day.