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| 8-K - 8-K - ACRES Commercial Realty Corp. | a201888xanform8-k.htm |
1 Investor Presentation August 2018 1. Formerly known as Resource Capital Corp.
Forward Looking Statements and Other Disclosures This presentation contains forward-looking statements within the meaning of federal securities laws. These forward-looking statements are not historical facts but rather are based on our current beliefs, assumptions and expectations. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this presentation. We use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “target,” and variations of these words and similar expressions to identify forward-looking statements. Forward-looking statements are subject to various risks and uncertainties that could cause actual results to vary from our forward-looking statements, including, but not limited to: . changes in our industry, interest rates, the debt securities markets, real . the timing of cash flows, if any, from our investments; estate markets or the general economy; . unanticipated increases in financial and other costs, including a . increased rates of default and/or decreased recovery rates on our rise in interest rates; investments; . our ability to maintain compliance with over-collateralization and . the performance and financial condition of our borrowers; interest coverage tests in our CDOs and/or CLOs; . the cost and availability of our financings, which depends in part on our . our dependence on Exantas Capital Manager Inc. (f/k/a Resource asset quality, the nature of our relationships with our lenders and other Capital Manager, Inc.), our “Manager”, and ability to find a suitable capital providers, our business prospects and outlook and general replacement in a timely manner, or at all, if we or our Manager market conditions; were to terminate the management agreement; . the availability and attractiveness of terms of additional debt . environmental and/or safety requirements; repurchases; . our ability to satisfy complex rules in order for us to qualify as a . availability, terms and deployment of short-term and long-term capital; REIT, for federal income tax purposes and qualify for our . availability of, and ability to retain, qualified personnel; exemption under the Investment Company Act of 1940, as . amended, and our ability and the ability of our subsidiaries to changes in our business strategy; operate effectively within the limitations imposed by these rules; . availability of investment opportunities in commercial real estate- . legislative and regulatory changes (including changes to laws related and commercial finance assets; governing the taxation of REITs or the exemptions from . the degree and nature of our competition; registration as an investment company); and . the resolution of our non-performing and sub-performing assets; . other factors discussed under Item IA. Risk Factors in our Annual . our ability to comply with financial covenants in our debt instruments; Report on Form 10-K for the year ended December 31, 2017 and . those factors that may be contained in any subsequent filing we the adequacy of our cash reserves and working capital; make with the Securities and Exchange Commission. We undertake no obligation, and specifically disclaim any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this presentation might not occur and actual results, performance or achievement could differ materially from those anticipated or implied in the forward-looking statements. i
Forward Looking Statements and Other Disclosures Past performance is not indicative of future results. There is no guarantee that any investment strategy referenced herein will work under all market conditions. Prior to making any investment decision, you should evaluate your ability to invest for the long-term, especially during periods of downturns in the market. You alone assume the responsibility of evaluating the merits and risks associated with any potential investment or investment strategy referenced herein. This presentation contains information regarding financial results that is calculated and presented on the basis of methodologies other than in accordance with accounting principles generally accepted in the United States (“GAAP”), which management believes is relevant to assessing the company’s financial performance. Please refer to page 27 for a definition of “Core Earnings” and the reconciliation of Net Income (Loss) to Core Earnings. Unless otherwise indicated, information included in this presentation is as of or for the period ended June 30, 2018. No Offer or Sale of Securities This presentation is for informational purposes only and does not constitute an offer to sell or the solicitation of any offer to buy any securities of Exantas Capital Corp. (“XAN”) or any other entity. Any offering of securities would be made pursuant to separate documentation and any such securities would not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Hypothetical Performance Hypothetical performance results presented herein are for illustrative purposes only and should not be interpreted as an indication of future performance. Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. No representation is being made that any fund or account will or is likely to achieve profits or losses similar to those shown herein. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently realized by any particular investment program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical investing does not involve financial risk, and no hypothetical track record can completely account for the impact of financial risk in investing. For example, the ability to withstand losses or adhere to a particular investment program in spite of losses are material points which can adversely affect actual investment results. The hypothetical performance results contained herein represent the application of the models as currently in effect, and there can be no assurance that the models or portfolio constituents will remain the same in the future or that an application of the current models in the future will produce similar results because the relevant market and economic conditions that prevailed during the hypothetical performance period will not necessarily recur. There are numerous other factors related to the markets in general or to the implementation of any specific investment program which cannot be fully accounted for in the preparation of hypothetical performance results, all of which can adversely affect actual investment results. Historical data and analysis should not be taken as an indication or guarantee of any future performance. ii
Exantas Capital Corp. Overview Sponsor Experience . Extensive multi-cycle track record. . Full scale platform. . Management continuity. CRE Credit Expertise . Extensive multicycle investment expertise. . . Access to C-III’s differentiated data and local CRE credit focused REIT contacts. . NYSE: XAN . Ability to source and underwrite in non- . Externally managed by C-III primary markets. Capital Partners (“C-III”)1 . Headquarters: New York, NY Refocused Investment Strategy . Self-originated CRE loans. . Longer duration commercial real estate credit investments. Rejuvenated Business Plan . CRE credit focused. . Improved cost of capital. . Divesting non-core businesses and assets. 1. XAN is externally managed by Exantas Capital Manager Inc. (f/k/a Resource Capital Manager, Inc.), an indirect wholly-owned subsidiary of C-III. 1
Investment Philosophy . XAN leverages C-III’s capabilities and expertise to invest in CRE credit investments. – Identify opportunities across the capital stack of multiple asset classes. – Source through relationships and deal flow. – Underwrite using extensive asset management platform and portfolio of CRE services firms. . C-III provides XAN with unique insight into the dynamics of CRE markets where information is limited. Investment Leverage C-III’s Platform InvestmentResulting Opportunity of CRE Companies OpportunityInvestment Risk Adjusted Return Transitional and Credit Focused CRE Lending Structuring Due C-III Diligence/ Investment Longer Duration Underwriting Shaping Quality Sponsors CRE Credit and Investments Quality Tenants Improved Collateral Pool, Lower LTV, Higher DSCR1 1. “LTV” stands for loan to value and “DSCR” stands for debt service coverage ratio. 2
XAN Senior Leadership Andrew L. Farkas Robert C. Lieber Matthew J. Stern David J. Bryant Paul A. Hughson George E. Carleton Chairman Chief Executive Officer President Chief Financial Officer Head of Commercial Head of CMBS Real Estate Lending Investing . C-III Founder, . C-III Principal since . C-III Executive since . XAN CFO and Treasurer . C-III Principal since 2010. . C-III Principal since Chairman and CEO. 2010. 2010. since June 2006. . Head of C-III’s CRE equity 2010. . Served as Chairman . Served as Deputy . Served as Managing . XAN investment investment and CRE . Head of C-III’s CMBS and CEO of Insignia Mayor for Economic Director of the committee member for lending teams that are investment team which Financial Group, Inc. Development under investment banking last eight years. responsible for acquiring was responsible for (NYSE: IFS), a global New York City Mayor and corporate finance . Over 35 years of real over $3 billion of investing in CMBS real estate services Michael R. Bloomberg. groups at Centerline estate industry commercial real estate trusts with underlying company founded by . 23 year tenure with Capital Group (NYSE: experience with assets and originating $5 loan pools of more than Mr. Farkas in 1990 that Lehman Brothers, CNLH). responsibility for all billion of commercial real $240 billion since 2010. owned and/or Global Head of Real . Worked in the Global SEC reporting and tax estate loans, including . CRE securitization managed: Estate Investment Mergers & Acquisitions filings. agency referrals. investor since the early – 275,000 apartment Banking. Group of Lehman . Held several roles with . 15 year tenure with 1990s units. Brothers Holdings Inc. Pennsylvania Real Lehman Brothers Real . 12 year tenure with – 200 million square Estate Investment Estate Group, Head of Travelers Insurance, feet of commercial Trust. Global Credit multiple management space. Distribution. positions. >100 Investment Professionals Seasoned commercial real estate team with expertise developed through multiple cycles 3
Manager Overview 4
Leading CRE Asset Management and Services Firm1 Mortgage Origination ~240 Unique Platform Information Commercial Loan Offices Advantage Real Estate Network $10 billion Servicing Nationwide4 mortgage originations since inception 7,000 $240 billion real estate professionals named special servicing2, $20 billion resolved >$50 billion CRE transaction of defaulted loans3 volume annually Investment Investment Management Sales Property $1.9 trillion >1,000 Real 14 Office Combined AUM of Management aggregate transaction value since 1999 Estate Locations >$9 billion5 Professionals Nationwide6 >24,000 apartment units managed across US 1. Refers to C-III and its affiliate companies, including Exantas Capital Manager Inc. 2. Since inception. 3. As a named special servicer of CMBS trusts and CRE-CDO issuers. 4. Includes 225 NAI offices. 5. As of December 31, 2017, including C-III’s investments. Refer to page 7 for more information. 6. Over 1,000 real estate professionals nationwide includes employees of C-III and its affiliates and does not include the 7,000 members of NAI Global. 5
National Footprint Ability to utilize local market CRE professionals nationwide to source, diligence and underwrite investments. NAI Locations USRG Managed Properties C-III Affiliate-Sponsored Fund Owned Properties Metropolitan Statistical Areas Where C-III Has Resolved Assets C-III Offices As of December 31, 2017. 6
C-III’s Investment Management Platform C-III is a leading commercial real estate asset management firm with $9.3 billion of AUM.1 Real Estate Debt Real Estate Equity Private/Public Non-Traded Exantas Balance Sheet Private Funds Funds2 REITS Assets Under $1.9 Billion $1.7 Billion $0.5 Billion $3.1 Billion $2.1 Billion Management1 Investment Transitional CRE High Yield CMBS, Bridge Loans, Value-Add, Value-Add Focus Lending, Longer CRE-CDOs Legacy 1.0 CMBS Opportunistic Duration Credit (primarily for Investments Special Servicing Control) Investment CRE Whole Loans, CMBS, CRE-CDO CRE Whole loans CRE Equity CRE Equity Type3 Mezzanine Debt certificates and CMBS (incl. Pref. Equity), CMBS, Net Lease 1. Assets under management (AUM) as of December 31, 2017 plus CRE credit investments of C-III. 2. Includes investments by certain funds in (i) real estate oriented public and private investment vehicles, (ii) corporate credit and (iii) corporate credit oriented public and private investment vehicles. 3. Commercial real estate (“CRE”) generally consists of properties or debt secured by properties, including, but not limited to, multifamily, office, hospitality, retail, industrial and manufactured housing. 7
Path Forward 8
Investment Portfolio Transformation 3Q’16 Assets1 Target Assets2 5% 25%-35% 32% CRE Loans 63% Other CRE Investments 65%-75% Non-Core Assets Non-Core Assets Include: Target Asset Benefits Include: . Legacy CRE Loans . Commercial Finance Assets Investment Type Benefit . . Middle Market Loans . Other Non-Core Assets . CRE Loans Floating Rate . . Residential Mortgage Shorter Duration Loans . Other CRE . Fixed/Floating Rate Investments3 . Longer Duration . Capital Appreciation 1. Quarter in which Strategic Plan was initiated. 2. The target asset base set forth herein is for illustrative and informational purposes only and has been presented based on various assumptions made by Exantas in relation to its investment strategy, any of which may prove to be incorrect. Due to various risks, uncertainties and changes (including changes in economic, operational, political or other circumstances) beyond the control of Exantas, the actual results could differ materially from the target asset allocations set forth herein. No assurance, representation or warranty is made by any person that the target asset base will be achieved and undue reliance should not be put on it. Prior performance is not indicative of future results and there can be no guarantee that the company will achieve the target asset base. 3. Other CRE Investments may include CMBS and net lease properties. 9
Strategic Plan Execution The Strategic Plan executed by C-III beginning in November 2016 has transformed XAN into a stable CRE credit investment vehicle. Before Strategic Plan1 After Strategic Plan1 Annual G&A (2016 vs. Post Plan) $63M ~$21M-$24M Non-CRE Employees 169 0 Corp. Debt Balance & Rate2 $267M (6.8%) $287M (5.4%) Preferred Equity Balance & Rate2 $285M (8.4%) $120M (8.6%) Originations (2016 vs. 2017) $197M $600M CMBS Acquisitions (2016 vs. 2017)3 $11M $212M 1. Information presented herein is as of September 30, 2016 for “Before Strategic Plan” and June 30, 2018 for “After Strategic Plan”, except for Annual G&A which is for the year ended December 31, 2016 for “Before Strategic Plan.” 2. Corporate debt and preferred equity balances are presented at face amount. Corporate debt rate assumes that three-month LIBOR is constant at 2.3% for both periods. 3. CMBS acquisitions balances are presented at face amount. 10
Target Returns by Asset Class Asset Class Targeted Unlevered Yields1 Targeted Levered Yields1 CRE Whole Loans 5.0%-6.0% 9.0%-12.0% Mezzanine Debt 8.0%-11.0% 8.0%-11.0% Net Lease 5.5%-7.0% 8.0%-12.0% CMBS 4.0%-12.0% 9.0%-14.0% XAN Portfolio Total 9.0%-12.0% 1. The targeted yields set forth herein are for illustrative and informational purposes only and have been presented based on various assumptions made by Exantas in relation to its investment strategy, any of which may prove to be incorrect. Due to various risks, uncertainties and changes (including changes in economic, operational, political or other circumstances) beyond the control of Exantas, the actual results could differ materially from the targeted yields set forth herein. In addition, industry experts may disagree with the assumptions used in presenting the targeted yields. No assurance, representation or warranty is made by any person that the targeted yields will be achieved and undue reliance should not be put on them. Prior performance is not indicative of future results, and there can be no guarantee that the targeted yields will achieved. 11
Illustrative Earnings Profile1 (In millions, except share and per share data) Investable Corporate Capital Convertible Notes $219.5 Trust Preferred Securities2 50.0 Preferred Equity 116.0 Common Equity 439.9 Corporate Capital Base $825.4 Less: Working Capital (50.0) Investable Corporate Capital $775.4 Illustrative Return on Equity 10.0% 11.0% Commercial Real Estate Net Interest Income $77.5 $85.3 Less: General and Administrative (11.0) (11.0) Less: Base Management Fee3 (8.3) (8.3) Less: Corporate Interest4 (16.5) (16.5) Less: Preferred Dividends (10.4) (10.4) Core Earnings $31.3 $39.1 Fully Diluted Share Count5 31.4 31.4 Core Earnings Per Share6 $1.00 $1.24 1. This illustration is presented solely for demonstrating our capitalization model assuming varying degrees of return on equity, and should not be viewed as indicative of the results that will be achieved in any period. The illustration excludes incentive management fees that could potentially be earned by the Manager. Please refer to Hypothetical Performance note contained on page ii. 2. Excludes $2 million of XAN’s trust preferred securities held as an investment on XAN’s balance sheet. 3. XAN’s projected annualized base management fee beginning in the first quarter of 2019. 4. Excludes amortization of the non-cash GAAP discount associated with the convertible notes. 5. Fully diluted share count as of June 30, 2018. 6. See page 27 for a definition and reconciliation of Core Earnings to Net Income (Loss). 12
Deployment Progress Summary of 2Q’18 CRE Investment Portfolio1 ($ in Millions) +29% Loans 10 $1,736 $1,628 $1,496 Amount $195 Million $1,450 $1,349 Spread 3.45% Bonds 13 Face Amount $77 Million 2Q'17 3Q'17 4Q'17 1Q'18 2Q'18 Wtd. Avg. Coupon 4.15% CRE Loans Other CRE Investments 1. CRE investment portfolio excludes legacy CRE loans included in the Strategic Plan for all periods. 13
CRE Loan Origination 14
Leveraging Platform to Find Good Risk-Adjusted Returns XAN’s core investment strategy is to originate transitional CRE loans, which C-III enhances by: . Expanding XAN’s product type and structuring capabilities. . Broadening XAN’s spectrum of borrower relationships through the combined XAN and C-III origination team of almost 30 investment professionals. Due Diligence & Investment Asset Sourcing Underwriting Approval Management . 30+ year industry history . Network of over 7,000 local . Investment committee . Ongoing local market of C-III executive market real estate members have updates through C-III’s management team. professionals in the U.S. experience through platform of companies. . Historical XAN borrower providing real-time, “boots multiple market cycles. . Proactive management relationships. on the ground” credit data. . Investment committee of investment portfolio . . Borrowers from C-III’s Access to first-hand data members comprise stemming from C-III’s loan servicing platform. trends throughout the U.S., leadership of C-III’s special servicing including in secondary and different investment background. . C-III relationships with tertiary markets where verticals. borrowers and operating property information may partners. be limited to other lenders. . Issuers dating back to . “Bottom up" underwriting inception of CMBS. focused on specific market data, rather than simply relying on general market information provided by brokers. 15
XAN’s CRE Loan Portfolio Diversification XAN CRE Loan Balance by NCREIF U.S. Region1 XAN Loan Balance by Property Type1 Pacific 26.0% Northeast 6.4% West North Multifamily Retail Central 0.7% East North 55.2% 17.0% Central Mountain 4.3% 13.1% Mid Atlantic 9.8% Southeast 10.5% Southwest 29.2% Office Hotel 15.9% 8.4% Top State Concentration Metrics: . Texas represents 29.2% of the total . Florida and North Carolina represent loan pool. 7.8% and 5.5%, respectively, of the . Southern and Northern California total loan pool. Other2 represent 15.4% and 8.2%, . Arizona represents 6.1% of the total 3.5% respectively, of the total loan pool. loan pool. 1. At June 30, 2018; $1,446.0 million at carrying value, excludes loans classified as assets held for sale of $18.0 million. 2. Other property types include (i) industrial, 1.4%; (ii) manufactured housing, 1.3%; and (iii) self storage, 0.8% at June 30, 2018. 16
XAN’s Origination Platform Comprehensive % of loans Deals Screened1 origination, screened underwriting, due 100% diligence and ~$22.5B vetting process. Reviewed and Quoted1 25% ~$5.6B Underwritten1 8% ~$1.8B Deals Closed $600M 3% 1. Values are approximate and represent all calendar year 2017 activity for XAN. 17
Real Estate Credit Investment Opportunities: Duration and Diversification 18
Benefits of Longer Duration Investments . Transitional CRE lending remains XAN’s primary investment strategy. . As an open-ended, stable income-oriented investment vehicle, supplementing XAN’s loan portfolio with longer duration investments can enhance return on equity and could provide increased: – Earnings visibility; – Cash flow stability; and – Capital deployment consistency. . Select longer duration assets also have attractive portfolio diversification and tax attributes. 19
CMBS Investing . CMBS investments improve XAN’s portfolio diversification. ‒ CMBS collateral pools consist of numerous fixed-rate, stable income producing properties. . In-house CMBS expertise and trading flow position XAN to invest throughout the CMBS capital stack. . CMBS B-Piece investing provides the forum to “shape” the credit quality of CMBS collateral pools. ‒ CMBS B-Piece investment process can improve credit quality and enhance risk-adjusted returns for XAN. Initial Tape Final from Issuer Investment Improved DSCR Improved LTV Improved Credit 20
Applying Competitive Advantages to CMBS Ability to Re-Underwrite Assess Risk, Shape Credit, Invest Capital Every Loan in Pool at Any Risk/ Return Objective Principal & Interest Borrower & Lender Multiple Lenders Sell Master Servicer administers timely payment of principal and interest from Close 1st Mortgage 1st Mortgages to CMBS Trust Borrower to CMBS Trust, then from CMBS Trust to CMBS Tranches, sequentially. Property1 Capitalization2 CMBS Trust CMBS Tranches Industrial 1st Mortgage 1st Mortgage (60%) Office 1st AAA Mortgage Equity (40%) Retail 1st Mortgage AA Property1 Capitalization2 A BBB Multifamily 1st BB - NR Mortgage 1st Mortgage (60%) Equity Hotel 1st Mortgage Equity (40%) 1. Property photos are representative of generic commercial real estate assets. The properties pictured are not owned by XAN or any of its affiliates and may not be representative of the assets underlying the CMBS trusts in which XAN may invest in the future. 2. Capitalization is an illustrative CMBS trust. The mechanics and structure of any CMBS trust may differ materially from the example shown above. 21
Net Lease Investment Opportunity . Net lease investments provide a long duration supplement to XAN’s asset portfolio. – Single tenant office, industrial and retail properties. – Rated and unrated credit tenants. . Broad platform provides sourcing, due diligence, underwriting and credit capabilities necessary to identify attractive risk-adjusted investments. Due Diligence & Investment Sourcing Investment Underwriting Approval . Developer . CRE Credit . Attractive ROE Relationships . Corporate/ Tenant Opportunities . Broker Analysis . Desirable Tax Relationships Attributes . Operating Partners Value through CRE underwriting and tenant counterparty credit attributes 22
Summary 1 Executed Strategic Plan 2 Leverage C-III’s Sponsorship . Refocused Investment Strategy . Full Scale Platform . Rejuvenated Business Plan . Differentiated Data and Network . Created Path to Deliver Core Earnings . Experienced Management Team 3 XAN’s Investment Capabilities 4 Generate Long Term Shareholder Value . Experienced Originations Staff . Enhance Risk-Adjusted Returns . Deep Market Relationships . Increase Earnings Visibility . Expanded CRE Investment Mandate . Grow and Stabilize Core Earnings 23
Appendix 24
Consolidated Statements of Operations (In thousands, except share and per share data) For the Three Months Ended For the Six Months Ended Jun. 30, 2018 Jun. 30, 2017 Jun. 30, 2018 Jun. 30, 2017 Revenues Interest income $29,660 $23,635 $55,617 $49,106 Interest expense 16,159 14,347 30,543 28,601 Net interest income 13,501 9,288 25,074 20,505 Other revenue 152 964 57 1,892 Total revenues 13,653 10,252 25,131 22,397 Operating Expenses Management fees 2,812 2,638 5,625 5,318 Equity compensation 659 734 1,626 1,522 General and administrative 2,547 3,580 5,607 7,443 Depreciation and amortization 19 32 32 100 Impairment losses - - - 177 Provision for (recovery of) loan and lease losses, net - 131 (799) 1,130 Total operating expenses 6,037 7,115 12,091 15,690 Other Income (Expense) Equity in earnings (losses) of unconsolidated entities 69 (118) (223) 243 Net realized and unrealized gain on investment securities, loans & derivatives 990 9,428 343 16,123 Fair value adjustments on financial assets held for sale 9 79 (4,656) 58 Other income 506 17 517 85 Total other income (expense) 1,574 9,406 (4,019) 16,509 Income from Continuing Operations before Taxes 9,190 12,543 9,021 23,216 Income tax (expense) benefit (1) 25 31 (1,474) Net Income from Continuing Operations 9,189 12,568 9,052 21,742 Net (Loss) from Discontinued Operations, Net of Tax (450) (4,184) (203) (4,745) Net Income 8,739 8,384 8,849 16,997 Net income allocated to preferred shares (2,587) (6,015) (7,797) (12,029) Consideration paid in excess of carrying value of preferred shares - - (7,482) - Net loss allocable to non-controlling interest, net of taxes - 95 - 196 Net Income (Loss) Allocable to Common Shares $6,152 $2,464 ($6,430) $5,164 Net Income (Loss) Per Common Share - Basic and Diluted $0.20 $0.08 ($0.21) $0.17 Weighted Average Number of Common Shares Outstanding – Basic 31,215,598 30,820,442 31,163,859 30,786,527 Weighted Average Number of Common Shares Outstanding - Diluted 31,402,010 31,020,926 31,163,859 30,967,840 25
Consolidated Balance Sheets (In thousands, except share and per share data) Jun. 30, 2018 Dec. 31, 2017 Assets Cash and cash equivalents $80,191 $181,490 Restricted cash 10,070 22,874 Accrued interest receivable 7,157 6,859 CRE loans, net of allowances of $4,529 and $5,328 1,446,018 1,284,822 Investment securities available-for-sale 318,424 211,737 Investment securities, trading - 178 Loans held for sale - 13 Principal paydowns receivable - 76,129 Investments in unconsolidated entities 1,782 12,051 Derivatives, at fair value 2,273 602 Direct financing leases, net of allowances of $735 66 151 Other Assets 5,225 7,451 Assets held for sale (amounts include $18,000 and $61,841 of legacy CRE loans held for sale in continuing operations) 20,956 107,718 Total Assets $1,892,162 $1,912,075 Liabilities Accounts payable and other liabilities $3,335 $5,153 Management fee payable 938 1,035 Accrued interest payable 4,736 4,387 Borrowings 1,319,646 1,163,485 Distributions payable 4,891 5,581 Preferred stock redemption liability - 50,000 Derivatives, at fair value 67 76 Accrued tax liability 241 540 Liabilities held for sale 2,421 10,342 Total Liabilities 1,336,275 1,240,599 Stockholders’ Equity Preferred stock, par value $0.001: 10,000,000 shares authorized 8.25% Series B Cumulative Redeemable Preferred Stock, liquidation - 5 preference $25.00 per share; 0 and 4,613,596 shares issued and outstanding Preferred stock, par value $0.001: 10,000,000 shares authorized 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred 5 5 Stock, liquidation preference $25.00 per share; 4,800,000 and 4,800,000 shares issued and outstanding Common stock, par value $0.001: 125,000,000 shares authorized; 31,657,420 and 31,429,892 shares issued and outstanding (including 32 31 427,591 and 483,073 unvested restricted shares) Additional paid-in capital 1,081,586 1,187,911 Accumulated other comprehensive income 3,216 1,297 Distributions in excess of earnings (528,952) (517,773) Total Stockholders’ Equity 555,887 671,476 Total Liabilities and Stockholders’ Equity $1,892,162 $1,912,075 26
Core Earnings (Unaudited, in thousands, except share and per share data) Last Twelve For the Three Months Ended Months Ended Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30, 2018 2018 2017 2017 2018 Net income (loss) allocable to common shares – GAAP $6,152 ($12,582) ($12,131) $12,644 ($5,917) Reconciling items from continuing operations: Non-cash equity compensation expense 659 967 321 895 2,842 Non-cash (recovery of) provision for CRE loan losses - (799) 1,254 (612) (157) Litigation settlement expense - (2,167) 667 1,500 - Non-cash amortization of discounts or premiums associated with borrowings 796 778 780 2,450 4,804 Net loss from limited partnership interest owned at the initial measurement date - - - 703 703 Income tax expense (benefit) from non-core investments 1 (32) 674 4,464 5,107 Net realized (gain) loss on non-core assets (691) 215 (1,387) (39,230) (41,093) Net loss (income) from non-core assets 50 397 1,010 (1,432) 25 Reconciling items from discontinued operations and CRE assets: Net interest income on legacy CRE loans held for sale (339) (322) (71) (947) (1,679) Realized (gain) loss on liquidation of CRE loans (1,000) - 103 73 (824) Fair value adjustments on legacy CRE loans held for sale - 4,672 1,942 - 6,614 Operating expenses on legacy CRE loans 187 - - - 187 Net loss (income) from other non-CRE investments held for sale 28 478 (688) 13 (169) Loss (income) from discontinued operations, net of taxes 450 (247) 3,284 6,087 9,574 Core Earnings allocable to common shares $6,293 ($8,642) ($4,242) ($13,392) ($19,983) Core Earnings per common share $0.20 ($0.28) ($0.14) ($0.43) ($0.65) Reconciling items for nonrecurring activities: Loss on redemption of Series A and Series B Preferred Stock - 7,482 3,803 - 11,285 Loss on extinguishment of Convertible Notes - - - 8,509 8,509 Incentive management fee from non-core activities - - - 2,154 2,154 Litigation settlement expense - 2,167 - - 2,167 Core Earnings allocable to common shares, adjusted $6,293 $1,007 ($439) ($2,729) $4,132 Core Earnings per common share, adjusted $0.20 $0.03 ($0.01) ($0.09) $0.13 Weighted Average Number of Common Shares Outstanding 31,402,010 31,111,315 30,914,269 30,857,232 31,071,207 Core earnings is a non-GAAP financial measure that we use to evaluate our operating performance and we believe is useful to analysts, investors and other parties in the evaluations of REITs. Core Earnings exclude the effects of certain transactions and accounting principles generally accepted in the United States of America (“GAAP”), adjustments that we believe are not necessarily indicative of our current CRE loan portfolio and other CRE-related investments and operations. Core Earnings exclude income (loss) from all non- core assets such as commercial finance, middle market lending, residential mortgage lending, certain legacy CRE loans and other non-CRE assets designated as assets held for sale at the initial measurement date. Core Earnings, for reporting purposes, is defined as GAAP net income (loss) allocable to common shareholders, excluding (i) non-cash equity compensation expense, (ii) unrealized gains and losses, (iii) non-cash provisions for loan losses, (iv) non-cash impairments on securities, (v) non-cash amortization of discounts or premiums associated with borrowings, (vi) net income or loss from a limited partnership interest owned at the initial measurement date, (vii) net income or loss from non-core assets, (viii) real estate depreciation and amortization, (ix) foreign currency gains or losses and (x) income or loss from discontinued operations. Core Earnings may also be adjusted periodically to exclude certain one-time events pursuant to changes in GAAP and certain non-cash items. Pursuant to the Third Amended and Restated Management Agreement, we calculate incentive compensation using Core Earnings excluding incentive fees payable to the Manager beginning with the three months ended December 31, 2017. For reporting purposes, beginning with the three months and year ended December 31, 2017, we include incentive fees payable to the Manager in Core Earnings. 27
Capitalization and Liquidity at June 30, 2018 XAN Capitalization XAN Liquidity $2,000 $900 Item Amount Wghtd. Avg. Cost Item Cash/Availability $1,800 $800 Term & Repurchase $416 L + 2.18% $1,600 Facilities $700 Wells Fargo $308 CRE Facility $1,400 $600 $1,200 Securitizations $632 L + 1.18% $500 $1,000 $400 Barclays $250 $800 CRE Facility Convertible Notes $220 5.26% $300 $600 Trust Preferred Sec. $52 L + 3.95% Preferred Equity $116 8.63% $200 $400 Morgan Stanley $182 CRE Facility $200 Common Equity $440 $100 Cash1 $50 $0 $0 XAN Capitalization $1,876 XAN Cash & Availability $790 Modest leverage of 2.4x debt to equity. XAN has approximately $152.0 million of Note: Dollars in millions. Face amount of convertible notes and preferred equity are $235 million and $120 million, respectively. available liquidity from the financing of 1 1. At July 31, 2018, pursuant to 2Q 2018 earnings press release. unlevered CRE loans and CMBS. 28
Strategic Plan Progress $418.8 million of the Strategic Plan assets have been sold for proceeds of $418.2 million. Impairments and Impairments and Assets Monetized Identified Assets, Adjustments on Net Book Value Adjustments on through at Plan Inception Non-Monetized at June 30, 2018 Monetized Assets June 30, 2018 (in millions) Assets Discops and AHFS1 Legacy CRE Loans $162.2 ($11.5) ($17.5) ($115.2) $18.0 Middle Market Loans2 73.8 0.0 (17.7) (56.1) 0.0 Residential Mortgage 56.6 (2.2) (9.6) (43.7) 1.1 Lending Segment3 Other AHFS 5.9 0.0 3.8 (9.7) 0.0 Subtotal – Discops $298.5 ($13.7) ($41.0) ($224.7) $19.1 and AHFS Legacy CRE loans held 32.5 0.0 0.0 (4.2) 28.3 for investment4 Investments in Unconsolidated 86.6 0.0 38.3 (124.7) 0.2 Entities Commercial Finance 62.5 0.0 2.1 (64.6) 0.0 Assets Total $480.1 ($13.7) ($0.6) ($418.2) $47.6 1. “Discops” and “AHFS” are abbreviations for Discontinued Operations and Assets Held For Sale, respectively. 2. Middle Market Loans include pro forma adjustments of $2.1 million for proceeds received in July 2018. 3. Residential Mortgage Lending Segment includes $2.6 million of cash and cash equivalents at June 30, 2018. 4. Legacy CRE loans with $28.3 million of net book value were reclassified to CRE loans on the consolidated balance sheets at June 30, 2018 as it is now XAN’s intent to hold these loans to maturity. 29