What ACRES Commercial Realty (ACR) Said on Its Q3 Earnings Call

Key Points

• ACRES reported a steep Q3 loss—$5.16 per diluted share on a GAAP basis and $2.64 per share in EAD—after $38.3 million in transaction-related charges tied to its merger and internalization. Management expects those accounting effects to ease in Q4.
• The company is targeting $2–$3 per share in run-rate EAD, with growth expected from investment management and insurance; executives did not provide specific fundraising or asset-growth guidance.
• ACRES ended the quarter with a $2.1 billion loan portfolio and stable overall credit ratings, while its credit-loss reserve rose to $29.4 million, primarily due to macroeconomic forecast assumptions.

ACRES Commercial Realty NYSE: ACR reported a third-quarter loss as it absorbed transaction-related charges following its merger and internalization, while executives outlined plans to grow earnings through investment management and insurance.

The company reported a GAAP net loss allocable to common shares of $5.16 per diluted share and an earnings available for distribution, or EAD, loss of $2.64 per diluted share. Book value was $16.81 per share, which President Mark Fogel said was generally consistent with pro forma financial statements issued with the transaction announcement.

Chairman Andrew Fentress said the merger and internalization of ACRES Capital Corp. with ACRES Commercial Realty closed Aug. 6. He said the transaction is intended to help the company grow earnings while reducing leverage by expanding revenue from its investment management and insurance subsidiaries.

Fogel said the quarter included $38.3 million in significant one-time accounting charges related to the transaction, including $13.7 million in noncash charges. He said much of the total was attributable to how the acquisition price was treated for accounting purposes. Management expects the reporting effects to subside in the fourth quarter, with a clearer picture emerging in 2027 under the new structure.

Portfolio and credit reserves

ACRES ended the quarter with a $2.1 billion commercial real estate loan portfolio comprising 56 loans, with an average size of $38.3 million. Nearly all of the portfolio was floating rate, with a weighted average spread of 321 basis points over SOFR.

The company closed one new loan commitment and funded $45 million during the quarter, including advances on existing loans. It received $36 million in payoffs across two loans, resulting in a net portfolio increase of $9 million.

Fogel said portfolio credit remained stable, with the weighted average risk rating unchanged from the prior quarter at 2.6. Ten loans were rated four or five and represented 14% of the portfolio, compared with 10 loans representing 17% at the prior year-end. He said the collateral properties backing those loans had achieved higher occupancy and better bottom-line results in aggregate.

The company’s current expected credit loss reserve rose to $29.4 million, or 137 basis points of the loan portfolio, from $21.1 million in the prior quarter. Fogel attributed the $8.3 million increase primarily to macroeconomic forecast inputs affecting commercial real estate and described the reserve as a forward-looking accounting estimate.

Property and financing activity

One real estate-owned property received a certificate of occupancy after its conversion from a Class B office building into 252 multifamily units. Fogel said the property was leasing at rents above initial projections and was expected to reach market occupancy by the third quarter of 2027. Once stabilized, the company plans to evaluate exit strategies that it expects could return its full investment basis and potentially generate additional profit.

During the question-and-answer session, Fogel identified the converted property as being in Chicago and said ACRES could monetize some or all of its investment in the coming year. He also said other real estate-owned assets were performing better, giving the company options to explore in the coming year.

ACRES recorded $8.4 million in depreciation and amortization, including $7.3 million on two assets moved back to held for investment from held for sale because of an ongoing labor negotiation. Fogel said the noncash charges did not reflect a decline in the assets’ underlying value.

The company refinanced corporate debt and extended maturities to 2031 and beyond, Fogel said. It also raised approximately $50 million through a preferred issuance and has a $5 million share repurchase authorization.

Earnings objective

Fentress said ACRES has set an objective of $2 to $3 per share in run-rate EAD and plans to update investors on balance-sheet returns, investment management fee growth and insurance contributions. He said the company would seek to pay dividends when earned.

Fentress said investment management asset growth is expected to contribute substantially to the objective, but he did not provide specific fundraising or asset-growth guidance. The business is at peak assets under management relative to its history and is raising capital for new fund and separately managed account offerings, he said.

Asked about a stabilized expense base, Chief Financial Officer Eldron Blackwell estimated a range of $29 million to $32 million, without specifying a period on the call. Fentress also said management and directors together own 45% of ACRES’ common shares.

About ACRES Commercial Realty (NYSE:ACR)

ACRES Commercial Realty Corp. NYSE: ACR is a real estate investment trust focused on originating and investing in commercial real estate mortgage loans and related investments. The company primarily provides financing for commercial properties, including transitional assets that may require renovation, repositioning, or other improvements before reaching stabilized operations.

Its investment activities are centered on loans secured by properties such as multifamily housing, office buildings, retail centers, industrial facilities, and lodging assets.

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