ACRES Commercial Realty Corp. Q2 FY2025 earnings call

• Closed $72 million new commitment with $1.2 million unfunded, funded $7.3 million in existing loan commitments, with loan payoffs/paydowns of $17.6 million, resulting in net increase to loan portfolio of $60.5 million.
• Portfolio generally performing well, weighted average risk rating 2.9. Number of loans rated 4 or 5 increased from 11 to 13.
• Expect to monetize real estate investments for gains in future, redeploy capital into attractive CRE loans.
• Net interest income increase due to lower financing costs and non-recurrence of accelerated deferred financing charges.
• Net real estate operations improved due to better operating performance of owned hotels.
• CECL reserves decreased driven by loan portfolio credit risk improvements, offset by macroeconomic factors.
• Used $5.1 million to repurchase shares at 33% discount to book value, with $5.4 million remaining on repurchase program.

The company's loan portfolio is $1.4 billion across 48 individual investments, with a weighted average spread of floating rate loans at 3.65% over 1-month term SOFR rates. GAAP net interest income was $8.6 million, up $3 million from prior quarter. Net real estate operations improved to a loss of $77,000, a $1.9 million improvement from prior quarter. Current expected credit losses (CECL) reserves decreased by $780,000. GAAP book value per share was $27.93 on June 30, down from $28.50 on March 31. $5.1 million was used to repurchase 272,000 common shares, with $5.4 million remaining on the repurchase program. Available liquidity was $65 million at June 30.

• Goal to grow portfolio by $300 million to $500 million through end of year, with capital from loan payoffs and REO sales.
• Believe there's opportunity to create overall spread for target ROE in various markets, including Class A multifamily.
• Think leverage can be increased to 3.5 to 4 turns using non-recourse CRE CLO financing, with plan to execute another CLO in back half of year.
• Earnings profile tied to monetizing assets and ramping portfolio to target numbers.

• General trends, risks, and uncertainties could cause actual results to differ from forward-looking statements, as discussed in SEC filings including Risk Factors section of Form 10-K. Macroeconomic factors could impact loan portfolio credit risk.

Q: Could you give more context around timing of payoffs, asset sales, and net new originations?

A: Goal is to grow portfolio by $300 million to $500 million by end of year, with capital from loan payoffs and REO sales, on target for previous guidance.

Q: Talk about market opportunities and spreads?

A: Market has compressed spreads in certain sectors like Class A multifamily, but active in those and other markets, believing target ROE is achievable by targeting assets outside overcrowded areas.

Q: Thoughts on leverage near term, REO financing, and leverage movement before REO sale?

A: Think leverage can be increased to 3.5 to 4 turns using non-recourse CRE CLO financing, REO properties are levered at asset level, and leverage can move higher before REO sale. Plan to execute another CLO, timing not specific but in the works. Reinstating dividend driven by monetizing assets and ramping portfolio to target numbers