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Edited Transcript of RSO earnings conference call or presentation 31-Oct-19 12:30pm GMT

Q3 2019 Exantas Capital Corp Earnings Call

New York Nov 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Exantas Capital Corp earnings conference call or presentation Thursday, October 31, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew L. Farkas

Resource America, Inc. - Chairman, CEO & President

* David J. Bryant

Exantas Capital Corp. - Senior VP, CFO & Treasurer

* Matthew J. Stern

Exantas Capital Corp. - President

* Paul A. Hughson

Exantas Capital Corp. - Executive VP of Commercial Real Estate Lending Business Division

* Robert C. Lieber

Exantas Capital Corp. - CEO

* Steven Landgraber

Exantas Capital Corp. - IR

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Conference Call Participants

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* Jade Joseph Rahmani

Keefe, Bruyette, & Woods, Inc., Research Division - Director

* Stephen Albert Laws

Raymond James & Associates, Inc., Research Division - Research Analyst

* Steven Cole Delaney

JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q3 2019 Exantas Capital Corp. 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, Steve Landgraber, Senior Vice President of Corporate Finance. Sir, you may begin.

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Steven Landgraber, Exantas Capital Corp. - IR [2]

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Good morning, and thank you for joining the call. Before we begin, I would like to remind everyone that certain statements made in the course of 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 that are subject to a number of trends, risks and uncertainties that 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 reports on Forms 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of our Form 10-K. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as 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 generally accepted accounting principles are contained in our earnings release for the past quarter.

I will now turn it over to the Chairman of Exantas Capital Corp., Andrew Farkas, for opening remarks.

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Andrew L. Farkas, Resource America, Inc. - Chairman, CEO & President [3]

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Good morning, everyone. Thank you for joining. With me today are Bob Lieber, our CEO; Matt Stern, our President; David Bryant, our CFO; Paul Hughson, Head of Commercial Real Estate Lending; and Steve Landgraber from whom you've already heard.

We're pleased with our third quarter results, as we once again increased net income and realize the full benefits of our last quarter's loan portfolio acquisition. This quarter, we achieved our highest debt quarterly core earnings of $0.31. Our business plan primary focus is to achieve full deployment, while pursuing attractive risk-adjusted returns. Based on our current pipeline and ongoing earnings power, we expect to increase our quarterly dividend for the fourth quarter of 2019 to $0.275 or a 10% increase over our third quarter of 2019.

For some details about all of this and the driving factors behind it, let me turn this over to our CEO, Bob Lieber. Bob?

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Robert C. Lieber, Exantas Capital Corp. - CEO [4]

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Thank you, Andrew, and good morning, everybody. A little more on those details.

For the third quarter of 2019, we're reporting core earnings of 31% -- $0.31 per share, up 10.7% from core earnings of $0.28 per share last quarter, and up 30% from the $0.24 per share reported in the third quarter of 2018.

Our gross commercial real estate debt investments were $138.6 million for the third quarter of 2019. And as of September 30, 2019, commercial real estate loan portfolio balance was $1.8 billion and our CMBS portfolio balance at par was $506 million. Matt will go through more of those details shortly.

For the third quarter, payoffs exceeded investment activity by $131.7 million compared to net deployment of $100.8 million during the third quarter of 2018. Payoffs of $266 million this quarter were disproportionately higher than usual due to the borrowers achieving their business plans and taking advantage of the lower interest rate environment.

During the quarter, we recorded net interest income of $16.6 million or $0.52 per share compared to $15.6 million or $0.49 per share during the second quarter of 2019. Net interest income this quarter fully reflected our portfolio acquisition in the second quarter to -- from a credit and underwriting perspective, there are a couple of things to note. One is we're pleased to see the borrower business plans continuing to perform, sometimes faster than we planned, which means some of the loans are paying off sooner than we anticipated; and number two, credit reserves have come down. With the net reduction in the balance of our portfolio, we expect interest income to be slightly lower next quarter but expect to return to net interest income growth in the fourth -- first quarter of 2020. We strive to retain our credit discipline and return targets amidst this very competitive market. And we did have a couple of loans we expected to close trade away from us this quarter, and a few other loan opportunities were pushed into the fourth quarter of 2019.

Our fourth quarter pipeline is strong even when considering that the fourth quarter is typically our best quarter for originations. Therefore, we expect the fourth quarter to be substantially higher than our third quarter. And we have ample liquidity of over $180 million to fund this pipeline and grow net interest income. This translates to roughly 500 to $500 million of incremental capital deployment activity.

Turning for a moment to book value. Our GAAP book value per share increased to $14.12, up 4.3%, a 6% increase from the second quarter, and economic book value increased to $13.71 compared to $13.63 last quarter. Third quarter economic book value was the highest we've recorded since the $13.72 recorded during the third quarter of 2018. GAAP net income was $10 million or $0.31 per share compared to $6.3 million or $0.20 per share during the second quarter, and core earnings exceeded our quarterly dividend.

For that -- after that, I'd like to turn this over to Matt.

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Matthew J. Stern, Exantas Capital Corp. - President [5]

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Thank you, Bob, and good morning, everyone.

At September 30, 2019, our commercial real estate loan portfolio balance is $1.8 billion and consists of 98% floating rate assets. The composition of the portfolio remain consistent, both by property type and region.

During the third quarter, we originated 9 commercial real estate floating rate loans totaling $105.1 million with an average commitment of $11.7 million and a weighted average spread of 310 basis points over 30-day LIBOR. The weighted average unlevered yield on new loan originations decreased by 9 basis points to 5.75% during the third quarter compared to 5.84% during the third quarter of 2018. The loans we closed in the third quarter were consistent with our overall portfolio with multifamily comprising 73% of the total. Total CRE loan asset financing was $1.4 billion at quarter end with a weighted average spread of 1.53% compared to a spread of 1.62% during the third quarter of 2018.

Our CRE loan portfolio decreased by $155.7 million during the third quarter as outsized payoffs and paydowns of $256.9 million exceeded new loan originations. As discussed in prior quarters, loan repayments can be difficult to predict and have been greater than we initially expected for 2019. We had 11 loan payoffs in the third quarter, totaling $255 million, 7 of which totaling $163 million were paid off within 25 months of origination. Of the 7, 5 were paid off with fixed rate financing and 1 asset was sold, demonstrating that these properties have sufficiently achieved their business plan to exit the transitional market. The decrease in rates certainly informed our borrowers' decision to refinance these loans as did spread tightening since 2017, but it also serves as a reminder that our portfolio is substantially light transitional loans, where assets can achieve their business plans prior to maturity, and we believe this is a positive reflection of our credit underwriting.

Given the payoff activity this quarter, we now expect to reach full deployment in the first half of 2020. At the same time, we are affirming our 2019 deployment guidance and are introducing 2020 guidance of CRE capital deployment of $850 million to $1 billion.

Turning now to our CMBS portfolio. During the third quarter, we acquired $33.5 million in face amount of CMBS bonds at a spread of LIBOR plus 2.6%. This was partially offset by $9.3 million in sales and paydowns, resulting in net CMBS acquisitions of $24 million at a weighted average coupon of 4.66%. At September 30, 2019, our $506 million CMBS portfolio at par, which has the carrying value of $471.8 million, was comprised of $347 million of floating rate bonds and $125 million of fixed rate bonds. We recognize the net decrease from last quarter of $0.02 per common share to book value from our CMBS portfolio, including the impact of mark-to-market on our interest rate swaps.

We are pleased to announce our expectation of a seventh consecutive increase in our quarterly dividend for the fourth quarter of 2019 to $0.275 or a 10% increase over the third quarter of 2019. This is representative of an annualized dividend payment of $1.10 per year.

With that, I'd like to turn it over to David Bryant to discuss our financials.

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David J. Bryant, Exantas Capital Corp. - Senior VP, CFO & Treasurer [6]

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Thank you, Matt. Good morning.

Our GAAP net income allocable to common shares for the 3 months ended September 30, 2019, was $10 million or $0.31 per share and $21.8 million or $0.69 per share for the 9 months ended September 30. Core earnings were $9.9 million or $0.31 per share for Q3 2019 or an increase of $1.1 million or 12% over Q2.

Core earnings were $26.6 million or $0.84 per share for the 9 months ended September 30, 2019, for an increase of $11.7 million or 79% over the same period in 2018. The growth in our core earnings is being driven primarily by our year-to-date net investment production. Accordingly, we saw net interest income increase by $1 million or 7% as compared to the second quarter of 2019 and by $7.1 million or 18% for the 9-month period over the same time in 2018. We have also seen our general and administrative costs decline by $785,000 or 10% through the same 9-month period year-over-year. The growth in our dividends paid for the 9 months represents an increase of 125% over the same 9-month period in 2018.

In terms of significant items impacting GAAP earnings, we recovered $1.1 million or $0.04 per share of general loan loss reserves this period as a result from the payoffs of 4 loans with an aggregate balance of $72.6 million, which were risk-rated 3 prior to paying off. In addition, as a result of the increased loan payoffs this period, we recorded additional interest income of $0.05 per share from the acceleration of loan origination and exit fees. This acceleration of fees was partially offset by the accelerated recognition of financing costs of $0.03 per share, which is reflected in interest expense. The net impact was $0.02 of positive net interest income per share during the quarter.

GAAP net income adjusted for the reversal of our general reserve and net impact from these onetime fee adjustments would have been $0.25 per share, and core earnings adjusted for the accelerated fees and costs would have been $0.29 per share. GAAP book value increased at September 30 to $14.12 per share -- common share from June 30 of $14.06 and represents a $0.10 increase from December 31, 2018. We began reporting economic book value, a non-GAAP metric, at December 31, 2018, in an effort to improve consistency and transparency for our shareholders and the analyst community. GAAP book value per common share of $14.12, less the adjustment for unamortized discounts on our convertible notes and redemption value of our preferred stock, both totaling $0.41 per share, yields an economic book value of $13.71 per common share at September 30. As a point of comparison, the economic book value at December 31, 2017, was $13.63 per common share and highlights our book value stability.

Our GAAP debt-to-equity ratio declined slightly to 3.4x at September 30, down from 3.5x at June 30. Asset-specific debt declined by $48.8 million during the quarter due primarily to redemption of our 2017-CRE5 CLO in July; and second, from paydowns on our 2018-CRE6 CLO. Those were offset by a net increase in our CRE term facilities as we financed a portion of our loan pipeline during the period. Stockholders' equity increased by $2.1 million as GAAP earnings exceeded our dividend and were offset by a net decrease in our bond and corresponding swap mark-to-market valuations, which is of course reflected in other comprehensive income.

As an experienced issuer in the CRE CLO markets, having issued 9 deals totaling $3.7 billion of real estate CLO notes since inception, we have now issued and repaid 7 CLO financing vehicles, totaling $2.5 billion, with every investor receiving 100% of their principal and interest payments due.

We find the CLO market an attractive source of non-mark-to-market cost-efficient financing and expect to engage the marketplace when we are ready to launch our next transaction. While we saw a decline in the net deployment this quarter, our trailing 12-month gross production of $1.2 billion inclusive of the portfolio acquisition and $1 billion excluding the portfolio acquisition is indicative of our lending platform's evolution. Loan payoffs and paydowns were $256.9 million on loans with the spread of LIBOR plus 4.22% and an average life of 31 months. At September 30, our $1.8 billion floating rate commercial real estate loan portfolio at par has a weighted average LIBOR floor of 1.87% and a weighted average spread over LIBOR of 3.64%. To mitigate the impact of the decline in LIBOR, we have historically included LIBOR floors on our loans, along with minimum interest period protection. At the end of September, we had $967 million or 55% of our loan book with floors that are in the money as LIBOR dipped below 2% in early October. We'll expect to see a benefit to net interest income during the fourth quarter as LIBOR curve projects a further decrease in rates.

We have LIBOR floors on substantially all of our loans, most of which maintain a minimum interest rate protection period of 18 months and nearly all having at least 12 months of protection from the time of origination.

Looking ahead, we expect to redeem the remaining $21 million of our 8% convertible notes when they mature in January 2020. And we have sufficient liquidity of $183 million at October 30 to fund that redemption and to continue to fund what is now a robust commercial real estate debt investment pipeline.

With that, I'll turn the call back to Bob for final comments.

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Robert C. Lieber, Exantas Capital Corp. - CEO [7]

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Thanks, Dave. As you can see, our long-term operating strategy remains on track. We will continue to grow our portfolio and strategically deploy our capital. We now expect to reach full deployment in the first half of 2020 and experience -- we experienced the full accretive benefit from our second quarter loan portfolio acquisitions with core earnings of $0.31 per share. Economic book value increased from last quarter, and as you've heard, we are recommending that our Board raise our dividend to $0.275 for the fourth quarter of 2019. Based on this progress, we remain optimistic about the platform as we approach the end of the year and look forward to updating you on our next call.

With that, I'll ask the operator to open up the call to any potential questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from the line of Steve Delaney of JMP Securities.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [2]

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Congratulations on another strong quarter. I'd like to start off with Dave Bryant. Dave, we're accustomed to seeing the acceleration of fees and the $0.05 a share you alluded to. Thank you for also pointing out the $0.03 on financing costs. Should we assume that is largely related to the payoff on CRE5 that occurred back in July?

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David J. Bryant, Exantas Capital Corp. - Senior VP, CFO & Treasurer [3]

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It's partially related to that. It's also partially related -- or probably more so related to the accelerated payoffs, the high level of payoffs that we had during the quarter more than anything else.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [4]

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So are you saying that like on your bank facilities that you have, your bank repo lines where you would have senior floating rate loans, if you put loans on those lines and then they're paid off within 18 months, are you paying some sort of a fee to the bank in addition to the interest that you pay over LIBOR?

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David J. Bryant, Exantas Capital Corp. - Senior VP, CFO & Treasurer [5]

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It's not a fee paid to the bank. There is a cost to arrange the financing at inception. But more so than that, we had loans payoffs that were financed in our '18 6 CLO, and so those also had deal costs. And that, we estimate how long we think that deal is going to be outstanding, by this acceleration of payoffs, it accelerates the period of time over which we amortize those costs. And as a result, we had accelerated costs and the recognition of those financing costs in the third quarter.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [6]

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Okay, that helps, because we -- I understand what you're saying now. You have your fees that you recognize, but then you're setting up deferred cost of origination as well. So we really need to think about what the net impact is, which is really $0.02, and thank you for clarifying that on the banks because I had -- I understand about CLO cost, but I had misinterpreted that because we have not previously heard about any bank-related fees on the financing side.

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Matthew J. Stern, Exantas Capital Corp. - President [7]

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Yes. We can look at that for you, Steve, but it's substantially tied to the CLO cost that you made reference to. When you get an early paydown within the CLO, the expenses that were capitalized associated with that execution are amortizing the interest expense on an expedited basis when you have loan payoffs. And as Dave said, that's the primary driver.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [8]

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Great. And on the 3-rated loans that would pay off. Matt, I wonder from just a credit standpoint and market -- general market conditions if you could just comment on the conditions that allowed those loans that you had 3-rated to find either a new buyer of the property or refinance or whatever. But I'd like to kind of know a little background about how those problems, if you will, or potential problems went away and then if there are any additional 3-rated loans that you have on your books that might be covered by that $1.46 million general reserve.

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Robert C. Lieber, Exantas Capital Corp. - CEO [9]

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Paul, do you want to take that?

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Paul A. Hughson, Exantas Capital Corp. - Executive VP of Commercial Real Estate Lending Business Division [10]

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So first, I think you need to understand exactly what the 3 means. So 3 doesn't mean impairment, 3 doesn't mean we think we're not going to get our money back. 3 doesn't mean nonrefinanceable. What 3 means is they're lagging their business plan. So that if they were -- if it was a property that projected that it would renovate 100 units in the first year and 100 units in the second year and pop rents on their apartment complex by $150 and they are behind their plan, then it would be a 3. So we had 2 loans in Houston that were rated 3 refinanced into Freddie Mac. So yes, they were refinanceable at the proceeds. They just weren't meeting the original underwriting plan. There are fits and starts oftentimes with light transitional loans. Some get out of the box a little slower than others. And we like to think that we are appropriate in how we mark and vigilant into monitoring these assets. So 3 doesn't mean we think there's going to be a problem. 3 just means it's behind the original plan.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [11]

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Got it. That's helpful. So you're -- I do -- is it correct that you are on a 3-point scale as is some people are on a 5-point scale?

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Robert C. Lieber, Exantas Capital Corp. - CEO [12]

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No, we're on -- we are, right, so...

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [13]

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You are on a 5?

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Robert C. Lieber, Exantas Capital Corp. - CEO [14]

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Yes.

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Paul A. Hughson, Exantas Capital Corp. - Executive VP of Commercial Real Estate Lending Business Division [15]

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Yes.

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Matthew J. Stern, Exantas Capital Corp. - President [16]

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Yes.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [17]

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My bad then, I apologize. I was thinking the fact most loans generally sit at 3, and I misunderstood that these...

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Robert C. Lieber, Exantas Capital Corp. - CEO [18]

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Most of our portfolio sits at 2, and 2 means performing substantially in accordance with its underwriting plan.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [19]

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Plan. Okay. That's good clarity.

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Robert C. Lieber, Exantas Capital Corp. - CEO [20]

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When we do a quarterly review of all of the assets, we reevaluate how they're doing per their original underwriting plan and rate them accordingly.

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Steven Cole Delaney, JMP Securities LLC, Research Division - MD, Director of Specialty Finance Research & Senior Research Analyst [21]

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Got it. Appreciate that clarity. And one final thing for me. We noted that the weighted average floors on the 3Q originations were set at 2.34. Obviously, rates have moved -- LIBOR has moved lower. Is that simply a function of locking in terms with borrowers ahead of the fed cuts in July and September? Or is there some anomaly going on now in the market that because LIBOR has moved so low that the floors are actually being set slightly above LIBOR?

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Robert C. Lieber, Exantas Capital Corp. - CEO [22]

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So the answer to that is it depends, although it's not really a case of floors being a set above LIBOR. That's not what's happening. But there are -- floors are generally set somewhere between where LIBOR currently is and 25 basis points below LIBOR. So my guess, and Dave and Matt may know more precisely, is we probably shake out roughly 15 basis points below LIBOR on average for when the loan was made.

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Operator [23]

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(Operator Instructions) Your next question comes from the line of Stephen Laws of Raymond James.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [24]

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I guess I want to follow-up kind of where Steve left off but maybe from a little bit of the competition angle. I think, Bob, in your prepared remarks, you mentioned some originations in Q3. I think you used the phrase pulled away but maybe won by competitors. Can you talk about where they're competing? Are they willing to do lower LIBOR floors? Are there other points where they're competing against you guys and you're not willing to bend on your terms? Or can you talk about that competitive landscape and how it's impacting origination volumes and the outlook for that?

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Robert C. Lieber, Exantas Capital Corp. - CEO [25]

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Well, I think there is competition as it relates to floors. There are certain lenders, although a distinct minority, who would be willing to lend some with -- without a LIBOR floor or with maybe 1% LIBOR floor, which is not an avenue that we've decided to go down. I don't think our stance on floors is hurting our volume, although it's a competitive marketplace. That's just one of the pressure points. Floors, spread, proceeds, terms. Those are kind of always the pressure points. And it's just exacerbated in an environment like this where LIBOR is so low.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [26]

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Great. Appreciate the color there. And Dave, another point you touched on, appreciate the color, but it looks like positive $0.02 impact kind of the accelerated income and expenses in the quarter. Can you maybe talk about that in context versus maybe Q2 or Q1? Is $0.02 a normal contribution? Was that $0.01 higher than normal? Kind of can you frame that as far as what prior quarters have been on a kind of net onetime item benefit or accelerated benefit?

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David J. Bryant, Exantas Capital Corp. - Senior VP, CFO & Treasurer [27]

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Sure. It definitely was higher. It's not normal because the level of payoffs were certainly higher. And it was at least $0.01 higher, maybe a little bit more. I have to go back and look. But as I said, at least $0.01 higher than the previous quarter.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [28]

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Great. That's helpful. And Matt, if you could clarify, I think I just missed it, writing some stuff down, but I think you said a 2020 volume guidance of $850 million to $1 billion. Is that gross originations? Is that net of prepays? And can you maybe provide a little bit of clarification there because I think I missed it in your prepared remarks?

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Matthew J. Stern, Exantas Capital Corp. - President [29]

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Sure. That's an aggregate capital deployment number, both for loans and CMBS for the year. It's anticipated to be aggregate gross.

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Paul A. Hughson, Exantas Capital Corp. - Executive VP of Commercial Real Estate Lending Business Division [30]

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But not including the purchase.

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Matthew J. Stern, Exantas Capital Corp. - President [31]

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Yes. And so -- and Paul is pointing out and correctly, the guidance discussed on the call was relative to 2020. I would point out, as Paul just mentioned, that we are projecting that for 2019 exclusive of the loan portfolio acquisition of roughly $200 million that we did this year. It's not inclusive of that. So as I think Dave mentioned in his comments, if you look at LTM, I think we're about $1.2 billion LTM inclusive of the portfolio acquisition, and about $1 billion LTM, 930, exclusive of that.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [32]

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Great. I appreciate the reminder on the acquisition there.

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Matthew J. Stern, Exantas Capital Corp. - President [33]

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It's a little difficult, as we've mentioned before, to put a pin in exactly how much will be loans or CMBS. It really depends upon just the way the market prices and where we see our risk-adjusted opportunity.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [34]

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Great. Looks like under the strategic plan, that's largely completed at this point, 2 loans left, about $30 million. Maybe can you give us an update on those or thoughts on resolution or progress on resolving those 2 at this point?

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Robert C. Lieber, Exantas Capital Corp. - CEO [35]

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I'd say that the resolution plans are in progress. It's difficult to project at this time when exactly they'll close, but resolution plans around both are in progress.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [36]

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Okay. Great. We'll look for more information on that in the coming quarters then. And lastly, Dave, kind of a small point, but from a modeling standpoint, it looks like G&A expenses were lower this quarter than we've seen in at least the last 6 I'm looking at. Is the $2.1 million kind of a good run rate, or there's some onetime items that caused 3Q expenses to be lower? How should we think about that moving forward?

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David J. Bryant, Exantas Capital Corp. - Senior VP, CFO & Treasurer [37]

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There is a little bit of seasonality in G&A, Stephen, so that could be reflected in Q3. I can tell you that, for instance, our audit costs are primarily recognized in Q4 and Q1 when that work is actually done. So that is one example of the seasonality. And -- but we are largely through -- as we're largely through the strategic plan, some costs have come down such as payroll allocations and certain legal costs with cleaning up these noncore assets and disposing of them.

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Matthew J. Stern, Exantas Capital Corp. - President [38]

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If you're looking for a general guide there, I think it's Page 13 of our investor presentation, speaks to what we think G&A will look like on a prospective basis. I would say probably there hopefully a little bit inside of there is where we would expect it to shake out. And I think that's consistent with what Dave is saying.

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Stephen Albert Laws, Raymond James & Associates, Inc., Research Division - Research Analyst [39]

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Yes. Great. And I see that third quarter last year was a trough for the year as well, kind of pointing to that seasonality comment. So great. Well, I appreciate you taking my questions, and congratulations on, I believe, the seventh -- an indication of the seventh consecutive dividend increase. So nicely done on that.

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Robert C. Lieber, Exantas Capital Corp. - CEO [40]

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Thanks, Steve.

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Matthew J. Stern, Exantas Capital Corp. - President [41]

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Thank you.

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Operator [42]

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Your next question comes from the line of Jade Rehan (sic) [Jade Rahmani] of KBW.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [43]

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Can you just comment generally on where levered returns on equity are on a current basis in the lending market, your core business?

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Matthew J. Stern, Exantas Capital Corp. - President [44]

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Yes. I think we tried to give an indication there, Jade. I think it's roughly the same. We give ranges in our investor presentation, but I would say as a general matter, it's in the low double-digit range. It's asset by asset. But you see, I think it's on Page 12 of our investor presentation. I don't have it in front of me, but I think that's where it is, where you're seeing levered returns on the loan side. In some cases, the most competitive, it might fall a slight bit around 10 or even a little bit lower. And then on other loans, we're able to do a little bit better in other product types on a levered basis. And on the CMBS side, you see the same thing, where we're getting attractive credit-oriented terms and very attractive underlying. It might be a little bit lower in the current market, but then there are opportunities that we like, we're able to get a little bit of extra return. But in -- on average, across both of the primary asset classes, it remains as reflected in the investor presentation.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [45]

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And so when you -- when the Board decided about the fourth quarter dividend increase, how did you balance that against the consideration of potential lower forward returns and uncertainties regarding the interest rate outlook?

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Matthew J. Stern, Exantas Capital Corp. - President [46]

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Yes. We have looked at that. Obviously, there is -- we're not making dividend policy necessarily just 1 quarter at a time. We're looking at what we think the aggregate return profile is going to look like going forward for the company. Obviously, this quarter, there was a slight net deployment decline. But in general, inclusive of sensitizing what happens to LIBOR, what happens to payoffs, we've accounted for that in our determination of what a prudent dividend policy looks like, and in an effort to forward looking, make sure there's a sustainability to that.

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Operator [47]

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There are no further questions at this time. I would now like to turn the floor back over to management for any additional or closing comments.

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Robert C. Lieber, Exantas Capital Corp. - CEO [48]

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We want to thank you all for participating, and we look forward to following up with you on our next earnings call.

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Operator [49]

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Thank you. That does conclude today's Exantas Capital Corp. Third Quarter 2019 Earnings Call. You may now disconnect your lines.