ACRES Commercial Realty Corp. Q3 FY2025 earnings call

• The ACRES team focused on executing the business strategy, building a pipeline of high-quality investments, managing the portfolio, and growing earnings and book value. - In Q3, $106.4 million in new commitments were funded, offset by $153.2 million in payoffs, etc., resulting in a net decrease of $46.8 million in the loan portfolio. Expect substantial new loan closings in Q4 for full-year growth. - Portfolio generally performed well, with a weighted average risk rating of 3.0. - Sold one real estate investment for a $13.1 million gross capital gain, using capital loss carryforward to maximize shareholder value. - Closed a construction loan to convert an REO office property to a multifamily property, expected to open in Q3 2026. - GAAP net income allocable to common shares in Q3 was $9.8 million or $1.34 per share diluted. - CECL reserves decreased by $4 million, total allowance for credit losses was $26.4 million. - GAAP book value per share was $29.63 on September 30, up from $27.93 on June 30. - Repurchased 153,000 common shares at a 36% discount to book value, with $2.5 million remaining on the repurchase program. - Available liquidity at September 30 was $64 million.

The company's commercial real estate loan portfolio was $1.4 billion. In the third quarter, they funded new commitments of $106.4 million, offset by loan payoffs, sales, and paydowns of $153.2 million, resulting in a net decrease to the loan portfolio of $46.8 million. The weighted average spread of floating rate loans in the portfolio is 3.63% over 1-month term SOFR rates. They ended the quarter with $1.4 billion of commercial real estate loans across 46 individual investments. During the quarter, they sold one real estate investment for a gross capital gain of $13.1 million. A construction loan was closed to convert an REO office property in Chicago to a multifamily property, with expected grand opening in Q3 2026. Revenue contribution: Loan operations and real estate investments are the main segments, with the loan portfolio being the larger component at $1.4 billion.

• Expect substantial new loan closings in Q4 to produce positive growth in the portfolio for the full year. - Target net growth as previously laid out. - Book value target was approximately $30 per share, and they are creeping up on that objective with remaining properties. - Anticipate having sufficient collateral on warehouse by end of Q4/beginning of Q1 to execute a CLO transaction in Q1.

Certain statements are forward-looking and subject to trends, risks, and uncertainties that could cause actual results to differ materially from forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including the Risk Factors section of its Form 10-K. Listeners are cautioned not to place undue reliance on forward-looking statements.

Q: As it relates to asset-specific financing or reinvestment, what are you guys looking for in the market to go out with a CLO? Or is it just a matter of getting some originations out the door in the fourth quarter, get the portfolio a little bit bigger and then go into the market?

A: We're in the marketplace originating new loans currently. Expect by end of Q4/beginning of Q1 to have sufficient collateral on warehouse to execute a transaction sometime in Q1.

Q: Are you guys expecting any loans to pay off early? And if not, have you guys committed any capital loans quarter-to-date just to try and target kind of that 1.5 to 1.7 year-end target that you guys have laid out in the past?

A: We don't see anything significant with respect to payoffs at this juncture. And yes, we're still on the same target for net growth that we've laid out in the past.

Q: Do you have any thoughts of where book value could settle once the remaining properties get sold? Or maybe asked a little bit differently, should we expect further chunky increases to book value as those properties get sold?

A: Our target when we took over was approximately $30 a share. We're creeping up on that objective. There are really three properties that are remaining, and $30 is a reasonable objective.

Q: With the Fed now back on an easing cycle, have you guys seen a pickup in interest in those properties? And is there anything that you could share on potential timing of future sales?

A: On one of them, we've got reasonable visibility sometime in the next couple of quarters. The other operating businesses will probably benefit from a valuation as the Fed eases a little bit, but we'll rely more heavily on the operating metrics of the properties themselves.

Q: Is there anything that you can share on potential dividend and any timing around that?

A: Once we hit our book value objectives, and we think we've gone through the exercise of monetizing the assets and utilizing the tax gains or the tax losses of the gains we have that, that would be an appropriate time to begin paying a dividend again. And we're getting close, with really only one or two more to sell.