ACRES Commercial Realty Q1 2025 Earnings Report

ACRES Commercial Realty EPS Results

• Actual EPS: -$0.97
• Consensus EPS: $0.18
• Beat/Miss: Missed by -$1.15
• One Year Ago EPS: N/A

ACRES Commercial Realty Revenue Results

• Actual Revenue: $5.60 million
• Expected Revenue: $19.89 million
• Beat/Miss: Missed by -$14.29 million
• YoY Revenue Growth: N/A

ACRES Commercial Realty Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 10:00AM ET

ACRES Commercial Realty (NYSE:ACR), a real estate investment trust (REIT), focuses on the origination, holding, and management of commercial real estate mortgage loans and equity investments in commercial real estate property in the United States. It invests in commercial real estate-related assets, including floating-rate first mortgage loans, first priority interests in first mortgage loans, subordinated interests in first mortgage loans, mezzanine financing, preferred equity investments, and commercial mortgage-backed securities. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was formerly known as Exantas Capital Corp. and changed its name to ACRES Commercial Realty Corp. in February 2021. ACRES Commercial Realty Corp. was incorporated in 2005 and is based in Uniondale, New York.

ACRES Commercial Realty Q1 2025 Earnings Call Transcript

Key Takeaways

• The company reported a GAAP net loss of $5.9 million (−$0.80/share) and an EAD loss of $0.86/share versus EAD earnings of $0.48/share in Q4, driven by loan payoffs, lower SOFR rates, accelerated DDI charges from securitization refinancings, and seasonal real-estate operations.
• Loan payoffs of $115.9 million, new commitments of $15 million, and loan sales reduced the CRE loan portfolio by $109.6 million to $1.4 billion, with a weighted average spread of 3.67% over 1-month SOFR, though management expects net portfolio growth of $300–$500 million by year-end on a robust pipeline.
• Credit quality remained strong with a 2.26% allowance for credit losses ($31.1 million), a stable weighted average risk rating of 2.9, and a $1.7 million reversal in CECL reserves primarily from loan payoffs.
• ACR closed a new $940 million financing facility with JPMorgan, featuring a two-year reinvestment period that refinanced existing securitizations and warehouse lines, incurring a one-time $1.5 million charge for unamortized debt issuance costs.
• At quarter end, GAAP book value was $28.50/share, debt-to-equity was 2.9x, and liquidity totaled $87 million (including $66 million cash), while the company repurchased 220,000 shares at a ~30% discount to book value.

Presentation

[Operator]

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brinjal, Vice President, Operations. You may go ahead.

[Kyle Brengel, Vice President of Operations at ACRES Commercial Realty]

Good morning, and thank you for joining our call. I would like to highlight that we have posted the first quarter twenty twenty five earnings presentation to our website. This presentation contains summary and detailed information about the quarterly results of the company. Before we begin, I want to remind everyone that certain statements made during 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.

[Kyle Brengel, Vice President of Operations at ACRES Commercial Realty]

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 and are subject to several trends, risks, and uncertainties that could cause actual results to differ materially from those contained in forward looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms eight ks, 10 Q, and 10 ks, and in particular the Risk Factors section of its Form 10 ks. Listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward looking statements. Furthermore, certain non GAAP financial measures may be discussed on this conference call.

[Kyle Brengel, Vice President of Operations at ACRES Commercial Realty]

Our presentation of this information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of non GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles are contained in the earnings presentation for the past quarter. With me on the call today are Mark Vogel, President and CEO and Elgin Blackwell, ACR's CFO. Also available for Q and A is Andrew Fentress, Chairman of ACR. I will now turn the call over to Mark.

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

Good morning, everyone, and thank you for joining our call. Today, I will provide an overview of our loan operations, real estate investments, and the health of the investment portfolio, while Eldon Blackwell will discuss the financial statements, liquidity condition, book value, and operating results for the first quarter twenty twenty five. Of course, we look forward to your questions at the end of our prepared remarks. The ACRES team continues to execute on our business plan by developing a pipeline of high quality investments, actively managing the portfolio, and focusing on growing earnings and book value for our shareholders. Loan payoffs during the period were $115,900,000 We closed one new commitment of $15,000,000 and funded existing loan commitments during the quarter of $12,000,000 producing a net reduction of the loan portfolio of 109,600,000 In addition, we sold two loans during the period, including a loan reported as held for sale at 12/31/2024 for $31,700,000 in proceeds.

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

The weighted average spread of the floating rate loans in our $1,400,000,000 commercial real estate loan portfolio is now 3.67% over one month term SOFR rates. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. Company ended the quarter with $1,400,000,000 of commercial real estate loans across 48 individual investments. Our weighted average risk rating was 2.9 at the end of both Q1 twenty twenty five and Q4 twenty twenty four, and the number of loans rated four zero five decreased by one from 12 at the end of last year to 11 at the end of this quarter. In March, we sold a $20,600,000 loan at par on an underperforming sub storage facility in Miami that had a poor risk rating.

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

This quarter, we also had a charge off to EAD of $700,000 or $0.10 per share related to a loan we sold on an underperforming hotel in Orlando that was held for sale at December 31. Continue to manage several investments in real estate that we expect to monetize at gains in the future. These anticipated gains will be offset by deferred tax assets. We will provide updates in future quarters on the monetization of these assets. As we exit our real estate investments and the loan portfolio continues to amortize, we expect to redeploy capital into attractive CRE loans.

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

As always, we will seek to optimize our portfolio leverage in order to drive equity returns. During the quarter, we closed a new $940,000,000 financing facility with JPMorgan. The facility includes a two year reinvestment period that will provide for reinvestment of principal proceeds from asset repayments into qualifying replacement assets. Facility allowed us to refinance collateral from our two twenty twenty one CRE securitizations, pay off a majority of the balances on our warehouse lines. As a result of the financing, we incurred a non recurring charge of $1,500,000 or $0.20 per share related to unamortized debt issuance costs at the two CRE securitizations.

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

In summary, the ACRES team continues to be focused on the overall quality of the investment portfolio, including investments in real estate, with the goal of improving credit quality and recycling capital into new investments to enhance shareholder value. We will now have ACR's CFO, Eldrin Blackwell, discuss the financial statements and operating results during the quarter.

[Eldron Blackwell, Senior VP, CFO & Treasurer at ACRES Commercial Realty]

Thank you, and good morning, everyone. GAAP net loss allocable to common shares in the first quarter was $5,900,000 or $0.80 per share diluted. GAAP net loss for the quarter included $5,600,000 in net interest income and net loss on real estate operations of $2,000,000 which included depreciation of $1,000,000 We saw a decrease in current expected credit losses or CECL reserves of $1,700,000 or zero two three dollars per share as compared to a decrease in CECL reserves during the fourth quarter of $1,200,000 The first quarter twenty twenty five reversal in CECL of $1,700,000 was primarily driven by loan payoffs. The total allowance for credit losses at March 31 was $31,100,000 and represented 2.26% or two twenty six basis points on our $1,400,000,000 loan portfolio at par and comprised $4,700,000 in specific reserves and $26,400,000 in general reserves. Earnings available for distribution or EAD for the quarter for the first quarter of twenty twenty five was a loss of $0.86 per share as compared to earnings of $0.48 per share for the fourth quarter.

[Eldron Blackwell, Senior VP, CFO & Treasurer at ACRES Commercial Realty]

Quarter over quarter, EAD saw a $0.41 decrease in net interest income, a $0.10 decrease from the realized loss on a loan held for sale, and a $09 decrease from real estate operation. The decreases in net interest income were driven by loan payoffs, SOFR declines, and the aforementioned DDI accelerations related to the refinancing of our two CRE securitization. The decreases in real estate operations are primarily due to seasonality in operation. GAAP book value per share was $28.5 on March 31 versus $28.87 on December 31. Additionally, during the quarter, we used $4,400,000 to repurchase 220,000 common shares at an approximate 30% discount to book value on March 30 approximately $426,000 remaining on the board approved program at quarter end.

[Eldron Blackwell, Senior VP, CFO & Treasurer at ACRES Commercial Realty]

Available liquidity at March 31 was $87,000,000 which comprised $66,000,000 of unrestricted cash and $21,000,000 of projected financing available on unlevered assets. Our GAAP debt to equity leverage ratio slightly decreased to 2.9 times at March 31 from three times at December 31, primarily resulting from loan payoffs. And our recourse debt leverage ratio increased to 2.9 times at March 31 from 1.1 times at December 31, primarily as a result of the liquidation of our two CRE securitizations and the closing of our new financing facility. At the end of Q1, the company's net operating loss carryforwards were $32,100,000 or approximately $4.44 per share. And with that, I will now turn the call to Andrew Fentress for closing remarks.

[Andrew Fentress, Chairman at ACRES Commercial Realty]

Thank you, Eldrin. As previously discussed, the smaller portfolio size, seasonal expenses, onetime DDI charges related to the recent refinancing of FL1, FL2 securitizations, and seasonally slow hospitality drove negative performance in the quarter. We expect Q1 to represent a trough on the portfolio size. Our plan is to utilize capital from recent loan repayments, proceeds from asset sales and available liquidity from our lending partners to ramp the securitization in the second half of the year. The investment landscape is attractive.

[Andrew Fentress, Chairman at ACRES Commercial Realty]

We're actively closing new loans across the Acres platform. As has been the foundation of our philosophy, credit quality of the current portfolio remains strong, and we continue to monitor each of the names for any changes to our underwriting. We look forward to your questions and speaking with you over the coming weeks. This concludes our opening remarks. I'll now turn the call back over to the operator for questions.

[Operator]

Thank you. Our first question will come from Matthew Erdner with Jones Trading. Your line is open.

[Matthew Erdner, Research Associate at Jones Trading]

Hey, good morning guys. Thanks for taking the question. Could you talk a little bit about the more of the portfolio and the payoffs that occurred during the quarter? Know, were those expected to come through or some of them early?

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

Hey Matt, this is Mark. No, those were expected to come through. We had five loan payoffs, for through refinancing into permanent vehicles. One of them was an asset that was sold. And then as we indicated, we had one note that we sold, actually two notes that we sold during the quarter and that really represents the entire amount of the payoffs, but none were not expected.

[Matthew Erdner, Research Associate at Jones Trading]

Got it, and then as kind of a follow-up to that, fully extended, it looks there's 101,000,000 for the remainder of the year. Should we expect a little more kind of maybe towards the back half, some early payments, I guess, so to speak? And then as that occurs, what should we expect in terms of portfolio growth? Because spreads kind of tighten there in terms of, I guess, multifamily lending. So I guess, what are the opportunities you guys are seeing now?

[Matthew Erdner, Research Associate at Jones Trading]

And just kind of talk about where you'd like to see the portfolio to get that securitization off?

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

Yeah, great question. Look, think payoffs are good, it shows that we have a healthy portfolio and we do expect that there will be more payoffs throughout the year through refinancings or sales of assets. You know, the multi family market is very healthy and I think because of that you're going to see sales and refinancings across the board with all lenders. We expect to grow the portfolio though despite the payoffs, as I indicated last quarter, our expectation is that through the end of the year we'll have net growth in the portfolio somewhere between 300,000,000 and 500,000,000. There's certainly opportunity in multi family, but we don't limit ourselves to just that asset class, we are looking across the board at assets like student housing and self storage and retail, but multi family will continue to be the bulk of what we do on a go forward basis.

[Matthew Erdner, Research Associate at Jones Trading]

Got it, that's helpful, thank you guys.

[Operator]

Thank you, our next question will come from Chris Muller with Citizens Capital Markets. Your line is open.

[Chris Muller, Director - Equity Research at Citizens JMP]

Hey guys, thanks for taking the questions. So I wanted to start on the loan sales and I think I heard Mark, I think you said that one of the loans was sold at par, but I didn't catch the other loan. So was that sold below par and just any details you could give us would be helpful.

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

Yes, yes. The one was sold at par during the quarter. The other one was on a non performing hotel property where we were offered 94¢ on the dollar. We took a $700,000 loss on that asset and it was, in my view, the right thing to do as opposed to letting the asset continue to not perform within our portfolio.

[Chris Muller, Director - Equity Research at Citizens JMP]

Got it. That's helpful. And then I guess looking at the income statement, you guys touched on this a little bit in your prepared remarks, but it looks like the real estate expenses jumped and REO was kind of a drag on first quarter earnings. Can you talk us through that dynamic? Is it mostly seasonality?

[Chris Muller, Director - Equity Research at Citizens JMP]

And then just a second part of that question, should we expect to see any REO sales in 2025 or is that looking too far ahead?

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

Yeah, the drag is, in Q1 I think if you went back to last year, you'd see the same dynamic. It's a seasonality issue with respect to the hotels that we own. You'll see, I think as we go forward in Q2, Q3 and Q4, that that will flip over to sort of a flat or positive number versus a loss on REO operations. As far as sales of assets go, we are actively in the market with several of our real estate investments. I don't have anything to report right now, but my expectation is that in the next quarter or maybe the following quarter we will have something more to report.

[Chris Muller, Director - Equity Research at Citizens JMP]

Got it, very helpful. If I could just squeeze one more just on your comments for the last question. So I guess with the expectations of 300 to $500,000,000 of growth in 2025, how's the pipeline looking and have you seen any impacts on the pipeline given some of the recent market volatility?

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

No, in fact, the pipeline has been stronger than ever. Think there's a lot of opportunities out there. We are quoting deals more so than ever at this point. Think, in fact the volatility has caused some of the lenders to move to the sidelines and wait which is pushing a lot more deals our way in the ways of those that are continuing to be active. We see a lot of really good opportunities and we are absolutely quoting three to four deals a day and I expect that growth will not be a problem along the lines of what I mentioned earlier.

[Chris Muller, Director - Equity Research at Citizens JMP]

Yeah, that's great to hear. Look forward to seeing the story play out this year and thanks for taking the questions.

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

Thank you.

[Operator]

It appears we have no further questions at this time. I'll now turn the program back over to our presenters for any additional or closing remarks.

[Mark Fogel, President, CEO & Director at ACRES Commercial Realty]

Thank you everyone for joining our call. We look forward to gathering again in Q2.

[Operator]

Thank you ladies and gentlemen. This concludes today's event. You may now disconnect.

Participants

Executives

• Kyle Brengel, Vice President of Operations
• Mark Fogel, President, CEO & Director
• Eldron Blackwell, Senior VP, CFO & Treasurer
• Andrew Fentress, Chairman

Analysts

• Matthew Erdner, Research Associate at Jones Trading
• Chris Muller, Director - Equity Research at Citizens JMP