Ares Commercial Real Estate Corporation (NYSE:ACRE) Q1 2021 Earnings Conference Call May 4, 2021 12:00 PM ET Company Participants John Stilmar - Investor Relations Bryan Donohoe - Chief Executive Officer Tae-Sik Yoon - Chief Financial Officer Conference Call Participants Tim Hayes - BTIG Doug Harter - Credit Suisse Steve Delaney - JMP Securities Jade Rahmani - KBW Stephen Laws - Raymond James Charlie Arestia - JPMorgan Operator Good day and welcome to the Ares Commercial Real Estate Company’s First Quarter ...

[Part I. Financial Information](index=6&type=section&id=Part%20I.%20Financial%20Information) [Consolidated Financial Statements](index=6&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the quarter ended March 31, 2021, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, with notes detailing accounting policies and financial data Consolidated Balance Sheet Summary (unaudited) | Account | March 31, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | **Total Assets** | **2,090,803** | **1,929,497** | | Loans held for investment, net | 1,887,106 | 1,791,615 | | Cash and cash equivalents | 97,944 | 74,776 | | **Total Liabilities** | **1,514,830** | **1,456,482** | | Collateralized loan obligation securitization debt | 979,257 | 443,871 | | Secured funding agreements | 349,582 | 755,552 | Consolidated Statement of Operations Summary (unaudited) | Account | Three Months Ended March 31, 2021 ($ in thousands) | Three Months Ended March 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Total Revenue | 21,223 | 21,134 | | Net Interest Margin | 18,565 | 15,914 | | Provision for current expected credit losses | (3,240) | 27,117 | | **Net Income (Loss)** | **15,740** | **(17,263)** | | **Diluted EPS** | **$0.45** | **($0.54)** | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the company's organization, accounting policies, and financial accounts, including its **$1.9 billion** loan portfolio, **$22.0 million** CECL reserve, debt, related-party transactions, and subsequent events - The company is a specialty finance company primarily engaged in originating and investing in commercial real estate (CRE) loans, externally managed by Ares Commercial Real Estate Management LLC (ACREM), a subsidiary of Ares Management Corporation[28](index=28&type=chunk) - The company has elected to be taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes, commencing with its taxable year ended December 31, 2012[30](index=30&type=chunk) Loans Held for Investment Portfolio (as of March 31, 2021) | Loan Type | Carrying Amount ($ in thousands) | Outstanding Principal ($ in thousands) | Weighted Avg. Unleveraged Effective Yield | | :--- | :--- | :--- | :--- | | Senior mortgage loans | 1,842,782 | 1,853,141 | 5.7% | | Subordinated debt and preferred equity | 65,219 | 65,866 | 15.1% | | **Total** | **1,908,001** | **1,919,007** | **6.0%** | Current Expected Credit Loss (CECL) Reserve (as of March 31, 2021) | CECL Reserve Component | Amount ($ in thousands) | | :--- | :--- | | Reserve for Funded Loan Commitments | 20,895 | | Reserve for Unfunded Loan Commitments | 1,101 | | **Total CECL Reserve** | **21,996** | - Subsequent to the quarter end, the company originated a **$19.5 million** loan, purchased two loans totaling **$68.3 million** in commitment, and declared a Q2 2021 dividend of **$0.33 per share** plus a **$0.02 supplemental dividend**[179](index=179&type=chunk)[180](index=180&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 performance, including **$667.3 million** CLO securitization, **$100.7 million** equity offering, increased net interest margin to **$18.6 million**, and **$36 million** liquidity - Key developments in Q1 2021 include the issuance of the **$667.3 million** FL4 CLO Securitization, an equity offering generating **$100.7 million** in net proceeds, and the origination and purchase of several new loans[185](index=185&type=chunk) Results of Operations Comparison (Q1 2021 vs Q1 2020) | Metric ($ in thousands) | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Interest Margin | 18,565 | 15,914 | | Total Revenue | 21,223 | 21,134 | | Provision for CECL | (3,240) | 27,117 | | **Net Income (Loss)** | **15,740** | **(17,263)** | - The increase in net interest margin was primarily due to the benefit from LIBOR floors on the loan portfolio, as **97.0%** of loans have floors while only **13.8%** of borrowings do[199](index=199&type=chunk) - As of May 3, 2021, the company had approximately **$36 million** in liquidity, comprising **$4 million** of unrestricted cash and **$32 million** of availability under secured funding agreements[215](index=215&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to various market risks and its management strategies, including credit risk, interest rate risk mitigated by derivatives, and financing risk from margin calls - The company is subject to credit risk from its CRE loan portfolio, managed via thorough due diligence and ongoing review, with the COVID-19 pandemic increasing this risk due to potential borrower payment challenges[234](index=234&type=chunk)[235](index=235&type=chunk) - Interest rate risk is managed by primarily originating floating-rate assets financed with index-matched floating-rate liabilities and using derivatives like swaps and caps to hedge exposure[236](index=236&type=chunk)[238](index=238&type=chunk) Hypothetical Impact of Interest Rate Changes on Net Income (12-Month Period) | Change in 30-Day LIBOR | Increase/(Decrease) in Net Income ($ in millions) | | :--- | :--- | | Up 100 basis points | (1.9) | | Up 50 basis points | (2.2) | | LIBOR at 0 basis points | (0.4) | - Financing risk is significant due to margin call provisions in secured funding agreements, where market volatility can depress asset valuations and trigger these calls, posing a liquidity risk[247](index=247&type=chunk) [Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[252](index=252&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[253](index=253&type=chunk) [Part II. Other Information](index=51&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) The company was not subject to any material pending legal proceedings as of March 31, 2021, but acknowledges potential litigation for defaulted loans - As of March 31, 2021, the company was not subject to any material pending legal proceedings[254](index=254&type=chunk) [Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) The COVID-19 pandemic continues to pose significant risks, including adverse impacts on borrower payments, collateral values, liquidity, and increased CECL reserves - The COVID-19 pandemic continues to cause severe disruptions, adversely impacting global commercial activity and contributing to significant volatility in equity and debt markets, which negatively affects the company's business and operations[256](index=256&type=chunk)[257](index=257&type=chunk) - The pandemic particularly affects industries whose properties serve as collateral for the company's loans (e.g., hospitality), increasing the risk of borrower defaults and potential losses on insufficient collateral[259](index=259&type=chunk) - Financing agreements contain margin call provisions that could be triggered by credit events or declining collateral values, potentially forcing the company to post additional collateral or face default if unable to meet these calls[261](index=261&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[264](index=264&type=chunk) [Defaults Upon Senior Securities](index=53&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[264](index=264&type=chunk) [Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[264](index=264&type=chunk) [Other Information](index=53&type=section&id=Item%205.%20Other%20Information) This section discloses an affiliate's (Ares Management) investment in Daisy Group Limited, which terminated contracts with sanctioned banks - A disclosure was made regarding an affiliate's (Ares Management) investment in Daisy Group Limited. Daisy had customer contracts with Melli Bank Plc and Persia International Bank Plc, which have been designated under U.S. sanctions. Daisy has since terminated these contracts and does not intend to engage in further dealings with these entities[266](index=266&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk) [Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including corporate governance documents, key agreements, and officer certifications - The Exhibit Index lists key documents filed with the report, including the Indenture for the ACRE Commercial Mortgage 2021-FL4 CLO, CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and XBRL interactive data files[271](index=271&type=chunk)

Ares Commercial Real Estate Corporation (NYSE:ACRE) Q4 2020 Earnings Conference Call February 18, 2021 12:00 PM ET Company Participants Veronica Mayer - IR Bryan Donohoe - CEO Tae-Sik Yoon - CFO David Roth - President Conference Call Participants Stephen Laws - Raymond James Tim Hayes - BTIG Doug Harter - Credit Suisse Steve DeLaney - JMP Securities Jade Rahmani - KBW Operator Good afternoon, and welcome to Ares Commercial Real Estate Corporation's Conference Call to discuss the company's Fourth Quarter and ...

Financial Position and Debt - As of December 31, 2020, the outstanding balance under the Financing Agreements was $928.7 million[35] - The company had $110.0 million outstanding under its Credit and Guaranty Agreement as of December 31, 2020[35] - The outstanding balance of the CLO Securitization was $445.6 million as of December 31, 2020[36] - The company expects to maintain a debt-to-equity ratio not exceeding 4-to-1 for its leverage strategy[32] - As of December 31, 2020, the company had approximately $928.7 million of outstanding borrowings under Financing Agreements and $445.6 million under CLO Securitization[82] Market Conditions and Economic Impact - The company anticipates continued strong demand for shorter duration and floating rate loans due to favorable market conditions[30] - The COVID-19 pandemic has caused significant disruptions in the global economy, adversely impacting business operations and financial transactions[50] - The company is subject to risks related to COVID-19 and other economic conditions that could adversely affect its operations[46] - Market conditions may hinder the company's ability to refinance existing debt or access new debt, potentially at higher costs and less favorable terms[57] - The company may face increased funding costs and limited access to capital markets due to unfavorable economic conditions, which could hinder business growth[101] Investment Strategy and Risks - The company relies on Ares Management for investment advisory services, which has over 1,450 employees across more than 10 countries[26] - The company competes with various financial entities, including public and private REITs, banks, and institutional investors, which may limit its ability to acquire assets on attractive terms[39] - The company has formed several wholly-owned subsidiaries to manage specific loans and investments, including ACRC W TRS and FL3 TRS[38] - The company may need to restructure loan investments due to borrowers' inability to meet payment obligations, increasing the likelihood of incurring losses[52] - The company may experience significant volatility in equity and debt markets, affecting the potential for liquidity events involving loan investments[58] Regulatory and Compliance Issues - The company has elected to be taxed as a REIT, which requires it to distribute all REIT taxable income to stockholders to avoid federal income taxes[37] - Changes in laws and regulations could require adjustments to business practices, negatively impacting operations and financial condition[64] - The adoption of Basel III standards may increase capital requirements and constrain financing access for the company[71] - The company is subject to restrictive covenants in its Financing Agreements that may limit its ability to incur additional debt or make distributions to stockholders[86] - The company has submitted a claim for relief from registration requirements under CFTC rules, allowing it to use swaps as long as annual income from commodity interest trading is less than 5% of gross annual income[119] Credit and Investment Risks - The company may incur significant expenses if it needs to renegotiate credit agreements that utilize LIBOR beyond 2021[78] - Changes in interest rates and credit spreads could significantly affect the company's financing costs and net interest margin[89] - The company may face increased risk of loss due to significant debt, which could reduce cash available for distributions to stockholders[81] - The company may experience losses if its Manager overestimates yields or incorrectly prices risks associated with investments, particularly in transitional loans[145] - Investments in non-investment grade rated commercial real estate loans or securities carry a higher risk of default and loss, which could significantly impact distributions to stockholders[150] Liquidity and Cash Flow - The company is focused on preserving liquidity to meet cash requirements, with potential strategies including financing, public or private offerings, asset sales, and changes in dividend practices[53] - The company must maintain its REIT status by distributing at least 90% of its taxable income, limiting available funds for new investments[101] - The company's distributions for the years ended December 31, 2020 and 2019 exceeded its cash flow from operating activities, while for the year ended December 31, 2018, distributions did not exceed cash flow from operations[194] - The company has not established a minimum distribution payment level, and its ability to pay distributions may be adversely affected by various factors[191] - The company may incur significant losses if the underlying mortgage portfolio has been overvalued or if values decline, impacting collateral value for interest and principal payments[166] Operational Risks - The pandemic has led to increased operational risks, including cybersecurity threats due to extended remote working policies[60] - The company is highly dependent on information systems, and any failures could adversely affect its operating results and stock price[79] - The management and resolution of commercial real estate (CRE) properties may increase costs and detract from management's focus on other responsibilities[137] - The company faces significant liquidity risks as principal repayments from mortgage loans in commercial mortgage-backed securities and collateralized loan obligations will not be received until all senior notes are repaid in full[140] - The company may struggle to efficiently integrate newly acquired assets into its existing portfolio, which could adversely affect its financial condition[141] Stockholder and Equity Considerations - The company may issue additional restricted common stock and other equity-based awards under its Amended and Restated 2012 Equity Incentive Plan, and has established an "At the Market Stock Offering Program" to sell up to $100.0 million of shares of common stock[189] - Future offerings of securities may dilute the interests of existing stockholders and adversely affect the market price of the company's common stock[196] - The board of directors has significant discretion over major policies, including financing and distributions, with limited control from stockholders[202] - The rights of stockholders to recover claims against directors and officers are limited, potentially reducing recovery in cases of negligence[218] - The company's charter limits liability for directors and officers unless there is evidence of active and deliberate dishonesty[219]

Financial Data and Key Metrics Changes - The company reported GAAP net income of $14.9 million or $0.44 per common share, and core earnings of $10.5 million or $0.31 per common share, largely consistent with prior quarter results [13] - Core earnings per share remained stable at $0.31, consistent with the second quarter levels [8][13] - The liquidity position is stable at approximately $91 million, with a debt-to-equity ratio of 2.8 times overall and 1.8 times on a recourse basis [11][15] Business Line Data and Key Metrics Changes - The portfolio consists of 49 loans, primarily collateralized by multi-family, office, and industrial properties, with no loans collateralized by standalone retail centers [8] - The average occupancy rate for the multi-family portfolio is approximately 90%, with positive trends in underlying tenant rent collections in the mid-90% range [10] - There were no changes to the number of loans on non-accrual status, with 100% of loans held for investment making their contractual debt service payments [10] Market Data and Key Metrics Changes - The portfolio is diversified across 17 different markets with minimal exposure to gateway cities [9] - The company has a total of five hotel loans, all limited or select service models, and no full-service lodging assets in gateway cities [8][9] Company Strategy and Development Direction - The company focuses on defensively positioning its portfolio to withstand market downturns, with a 94% allocation to senior mortgage loans [7] - The strategy includes avoiding overpriced gateway markets and pivoting towards multi-family, office properties with long-term leases, and industrial properties [7] - The company aims to preserve credit quality while selectively making new investments based on safety and appropriate returns [11][17] Management's Comments on Operating Environment and Future Outlook - Management believes the company is well-positioned due to strategic decisions made prior to the pandemic, resulting in stable portfolio quality, earnings, and dividends [17] - The company is seeing a substantial pickup in both the quantity and quality of transactions, particularly in less volatile property types [11] - Management remains cautious about market volatility but is optimistic about the potential for attractive investment opportunities [21][47] Other Important Information - The CECL Reserve was at $27 million at the end of the third quarter, lower by approximately $1 million from the prior quarter [15] - The company has been actively managing its hotel asset, Westchester Marriott, which has seen improved performance due to reduced competition [14][29] Q&A Session Summary Question: Current liquidity holdings and future deployment - Management indicated that liquidity is at a good level, with $91 million available, and they are evaluating uses of that capital for new investments while maintaining defensive liquidity [20][21] Question: Average asset yield changes - Management noted that changes in asset yields are due to portfolio composition and not significant changes in the portfolio itself [22][23] Question: Update on Westchester hotel strategy - The strategy for Westchester Marriott has focused on long-term views, benefiting from reduced competition and managing costs effectively [25][29] Question: CLO market and financing plans - Management is evaluating various financing options, including CLOs, and sees positive signs in the capital markets [30][31] Question: Share repurchase considerations - Management is considering share repurchases but emphasizes the need to balance this with maintaining liquidity and market capitalization [34][36] Question: Non-accrual loans and outlook - There are currently three loans on non-accrual status, with constructive conversations ongoing with borrowers, leading to confidence in positive resolutions [50][52][55]

Financial Position - As of September 30, 2020, the company reported cash and cash equivalents of $81,295,000, compared to $5,952,000 in the same period of 2019[33] - The total cash, cash equivalents, and restricted cash amounted to $81,295,000 as of September 30, 2020, up from $6,331,000 in 2019[33] - As of September 30, 2020, the company's portfolio included 49 loans held for investment with an outstanding principal of $1.8 billion[54] - The balance of loans held for investment decreased from $1,682.5 million at December 31, 2019, to $1,778.2 million at September 30, 2020[65] - The carrying value of loans held for investment as of September 30, 2020, was $1.78 billion, with a fair value of $1.77 billion, indicating a slight decrease in value[128] Loan Portfolio and Performance - Total loans held for investment portfolio amounted to $1.778 billion with a weighted average yield of 6.3% as of September 30, 2020[55] - The net interest margin for the three months ended September 30, 2020, was $11.875 million, a decrease from $15.124 million in the same period of 2019[51] - The company reported interest expense of $40.450 million for the nine months ended September 30, 2020, down from $47.539 million in the same period of 2019[51] - 95.2% of the company's loans have LIBOR floors, with a weighted average floor of 1.74%[54] - The Company holds a total of $1,789.1 million in loans held for investment, with a carrying amount of $1,778.2 million, resulting in a weighted average unleveraged effective yield of 6.3%[61] Credit Risk Management - The company has adopted the Current Expected Credit Losses (CECL) methodology, which requires a broader range of historical experience and forecasts for credit loss estimates[38] - The company actively manages credit risk through due diligence and ongoing reviews of its loans held for investment portfolio[213] - The Company's CECL Reserve for loans held for investment is $27.1 million, representing 135 basis points of the total loans held for investment commitment balance of $2.0 billion[68] - The CECL Reserve related to outstanding balances on loans held for investment decreased from $26.1 million at June 30, 2020, to $25.5 million at September 30, 2020[69] - As of September 30, 2020, three loans held for investment were on non-accrual status with a carrying value of $68.0 million due to COVID-19[66] Impact of COVID-19 - The COVID-19 pandemic has introduced significant uncertainty, potentially leading to a prolonged recession that could adversely affect the company's business operations[25] - The Company has maintained regular communications with borrowers regarding the potential impacts of the COVID-19 pandemic on their loans[63] - As of September 30, 2020, the Company made four loan modifications totaling an aggregate principal balance of $108.0 million due to the impact of the COVID-19 pandemic[63] - The COVID-19 pandemic has led to increased volatility in global markets, affecting lending activity and potentially leading to margin calls[225] - The Company seeks to manage real estate risk through underwriting and asset management processes, particularly in light of the pandemic's impact[226] Debt and Financing Agreements - The total outstanding balance of the Financing Agreements was $960,291 thousand, an increase from $894,744 thousand as of December 31, 2019, reflecting a growth of approximately 7.3%[82] - The Wells Fargo Facility had an outstanding balance of $375,301 thousand as of September 30, 2020, compared to $360,354 thousand as of December 31, 2019, indicating an increase of about 4.2%[82] - The Citibank Facility's outstanding balance was $120,506 thousand as of September 30, 2020, down from $126,603 thousand as of December 31, 2019, showing a decrease of approximately 4.3%[82] - The MetLife Facility's outstanding balance decreased from $131,807 thousand as of December 31, 2019, to $104,124 thousand as of September 30, 2020, a decline of about 20.9%[82] - The Company has a $110.0 million Secured Term Loan with an initial maturity date of December 22, 2020, which can be extended to December 22, 2021[100] Income and Earnings - For the three months ended September 30, 2020, net income attributable to common stockholders was $14.9 million, compared to $9.0 million for the same period in 2019, representing a 65.5% increase[117] - Basic earnings per common share for the three months ended September 30, 2020, was $0.45, up from $0.32 in the same period of 2019, reflecting a 40.6% increase[117] - The company incurred a total income tax expense of $181,000 for the three months ended September 30, 2020, compared to $19,000 for the same period in 2019, showing a significant increase[119] - The total cash dividends declared for the nine months ended September 30, 2020, amounted to $33,201 thousand, consistent with the $28,573 thousand declared for the same period in 2019[146] Management and Fees - The base management fee is set at 1.5% of the Company's stockholders' equity per annum, calculated and payable quarterly in arrears[132] - The Company incurred management fees of $1,847 thousand for the three months ended September 30, 2020, compared to $1,578 thousand for the same period in 2019, and $5,468 thousand for the nine months ended September 30, 2020, compared to $4,730 thousand for the same period in 2019[140] - The Company incurred incentive fees of $303 thousand for the nine months ended September 30, 2020, down from $674 thousand for the same period in 2019[133] Real Estate and Asset Management - The company evaluates real estate assets for impairment quarterly, considering factors such as significant underperformance and economic trends[42] - Real estate assets are depreciated over useful lives of up to 40 years for buildings and improvements, and up to 15 years for furniture and fixtures[41] - The Company’s real estate owned as of September 30, 2020, was valued at $37.5 million, with no impairment charges recognized[78] - The fair value of the hotel property acquired on March 8, 2019, was estimated using a third-party appraisal, which utilized standard industry valuation techniques[126] Interest Rate Risk - The Company is subject to interest rate risk, with potential impacts on net income based on changes in 30-day LIBOR[219] - An immediate increase of 100 basis points in 30-day LIBOR could result in a decrease in net income by $11.9 million[220] - The company's assets and liabilities are sensitive to interest rates, impacting performance more than inflation[227] - Changes in interest rates do not necessarily correlate with inflation rates[227] - The company's activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation[227]

Financial Data and Key Metrics Changes - The company reported consistent core EPS of $0.32 per share and GAAP EPS of $0.29, benefiting from a diversified portfolio and LIBOR floor protection on nearly all loans [10][16] - The internal credit risk ratings improved, with 91% of loans rated 3 or better compared to 84% in the previous quarter [11] - Non-accruing loans decreased from 6% to 4% of unpaid principal balance [11] Business Line Data and Key Metrics Changes - The company strategically positioned its portfolio with 95% senior loans across 50 investments in 17 different markets, focusing on multifamily, office, and industrial properties [8][9] - Five transactions were executed to enhance liquidity, resulting in $60 million of net cash and reducing hotel loan exposure by $31 million [13][12] Market Data and Key Metrics Changes - The company maintained diversified funding sources, particularly for hotel loans, and avoided financing with spread-based mark-to-market facilities [9] - The average price for the five loans sold was 97% of par value, indicating strong market performance [13] Company Strategy and Development Direction - The company aims to maintain stable earnings, enhance liquidity, and manage risk exposure through selective asset divestments [7][8] - Future investments will focus on multifamily properties, industrial properties, and offices with long-term leases, emphasizing strong credit quality [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to weather economic headwinds and take advantage of attractive financing opportunities [9][14] - The outlook for the company remains positive, with expectations for improved performance in the third quarter [16][21] Other Important Information - The company has approximately $80 million in unrestricted cash and additional sources of liquidity available [17] - The CECL reserve was at $28 million for the quarter ended June 30, down approximately $4 million from the previous quarter [20] Q&A Session Summary Question: What is the target leverage level for the company moving forward? - The company does not have a specific target but aims for a debt-to-equity ratio of approximately 2.5 to 2.75, down from 2.9 [22][23] Question: Can you discuss the unfunded commitments and how they will be drawn down? - The company has approximately $250 million in unfunded commitments, primarily for positive events related to leasing and capital expenditures [25][27] Question: What is the current pipeline of opportunities and how do spreads compare to pre-COVID levels? - The company has seen a significant expansion in the pipeline of opportunities, with spreads wider than before, indicating a favorable environment for new loans [31][33] Question: Will the current level of earnings be maintained? - Management believes that operating earnings will remain consistent, with mitigated losses from the Westchester Marriott and continued benefits from LIBOR floors [36][38] Question: What is the status of student housing in the portfolio? - The company has observed positive trends in student housing, with occupancy and rates outpacing last year, driven by off-campus demand [50]