ACRES Commercial Realty Corp Aktie

Thank you. Good day, ladies and gentlemen, and welcome to the First Quarter 2026 ACRES Commercial Realty Corp. Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brengel, Vice President, Operations. You may begin.

Good morning and thank you for joining our call. I would like to highlight that we have posted the first quarter 2026 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. Although the company believes 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 the forward-looking statements.

These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of its Form 10-K. 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. Our presentation of this information is not intended to be considered in isolation or as a substitute for 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 Fogel, President and CEO; Andrew Fentress, Chairman of ACR; and Eldron Blackwell, ACR's CFO. I will now turn the call over to Mark.

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 Eldron Blackwell, our CFO, will discuss the financial statements, liquidity condition, book value, and operating results for the first quarter of 2026. Of course, we look forward to your questions at the end of our prepared remarks.

Since acquiring the ACR management contract in 2020, we have executed on our strategy to drive book value by originating high-quality loans, aggressively managing the portfolio, repurchasing our stock and creatively using tax assets available to the company. As part of that strategy, this quarter, we sold another of our real estate investments and realized a $3.3 million GAAP and EAD gain.

This sale, coupled with the sale of an office building in 2024 and our development and sale of the student housing project in Florida and other projects were key components to our real estate investment strategy. The gains on the real estate investments, stock repurchases and retained earnings raised our book value by 66% since 2020, $29.98 per share. We deployed the proceeds from sales back into our loan book, originating high-quality loans and this quarter closed on our new CRE securitization. ACRES 2026-FL4 is a $1 billion CRE securitization that has leverage of 86.5% at SOFR plus 1.68%, and includes a 30-month reinvestment period. We completed the ramp-up period investments during the first quarter of 2026, and we'll see the full run rate benefit of the transaction in the second quarter.

This is the fourth securitization transaction that we have completed at the REIT. We were able to increase our GAAP leverage from 2.8x at December 31 to 3.4x at March 31, which was a stated objective we had last year to increase portfolio leverage and the size of the CRE loan portfolio. In the first quarter of 2026, we closed new commitments of $495.6 million, offset by loan payoffs and net unfunded commitments totaling $121.2 million, producing a net increase to the loan portfolio of $374.4 million. The weighted average spread on newly originated loans is 3.09%.

We have increased the loan portfolio to $2.2 billion and 60 investments as of March 31, and the spread is now 3.29% over 1-month term SOFR rates. We now have over half of the portfolio at SOFR floors of over 3%, so we have yield protection in a declining base rate environment. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. At March 31, our weighted average risk rating was 2.5, a decrease from 2.7 at December 31, and the number of loans rated 4 or 5 was 10, no change from the end of the fourth quarter. The portion of our CRE loan portfolio rated 4 or 5 based on the company's economic interest was 14% at March 31, down from 17% at December 31.

As noted earlier, we are excited to announce that we sold one of our real estate investments in the Greater Philadelphia area this quarter, which resulted in a GAAP and EAD gain of $3.3 million. We will now have ACR's CFO, Eldron Blackwell, discuss the financial statements and operating results during the first quarter.

Thank you, and good morning, everyone. GAAP net loss allocable to common shares in the first quarter was $1 million or $0.16 per share. GAAP net loss for the quarter included $9.3 million in net interest income, which was a decrease of $1.4 million over the prior quarter. This decrease in net interest income was primarily driven by the ramp-up period of our new CRE securitization, combined with lower fee recognition from loan payoffs. As Mark noted, we'll see the run rate impact of the fully invested FL4 securitization during the second quarter. GAAP net loss for the quarter also included a $1.3 million net decrease in the performance of our net real estate operations to a net loss of $1.2 million and a $3.3 million net gain on the sale of the previously mentioned land sale in the Philadelphia area.

We saw a decrease in current expected CECL losses or CECL reserves of $1 million or $0.15 per share as compared to a decrease in CECL reserves during the fourth quarter of $1.3 million, which was primarily driven by improvements in projected macroeconomic factors during the quarter, offset by an increase in the model credit risk of the company's loan portfolio. The total allowance for credit losses at March 31 was $19.4 million and represented 0.88% or 88 basis points on our $2.2 billion loan portfolio at par, and was composed entirely of general credit reserves. EAD for the first quarter of 2026 was $0.02 per share as compared to an EAD loss of $0.48 per share for the fourth quarter.

GAAP book value per share was $29.98 on March 31 versus $30.01 on December 31. Available liquidity at March 31 was $87 million, which comprised $48 million of unrestricted cash and $38 million of projected financing available on unlevered assets. Our GAAP debt-to-equity leverage ratio increased to 3.4x at March 31 from 2.8x at December 31, primarily from the closing of the securitization. At the end of the first quarter 2026, the company's net operating loss carryforwards were $32.1 million or approximately $4.89 per share. And with that, I will turn the call to Andrew Fentress for closing remarks.

Thank you, Eldron. Along with the entire ACRES team and Board members of ACRES Commercial Realty, I'm thrilled to announce the internalization combination of these two companies. The logic for the combination is simple: to be the best resource possible for our middle market customers. To be the best partner, we have to offer creative solutions, competitive, flexible capital and exceptional customer experience. Today, ACRES provides a complete dirt-to-perm financing solution program. As we continue to grow this roughly $5 billion platform, our offering and service will only improve, further driving value for all of our stakeholders. Post the merger, the ACRES employees and board members will be the largest shareholders in the company with over a 40% interest. This will keep us directly aligned with our other shareholders and focused on credit, customers and costs.

Over time, we want to deliver a sector-leading return profile defined by consistent above-market dividends while employing modest leverage with complete transparency. Management will remain in place. All the ACRES owners and employees received 100% of their consideration for this transaction in ACR shares at book value, signaling our belief in the long-term success of this company. While we humbly recognize the challenges in our market, ACRES is front-footed and growing. We love to compete each day and look forward to working with each of you in the coming years. In addition to our regular shareholder presentation for the Q1, we've also added a short presentation to help further explain the merit of the transaction. Both can be found on our website. This concludes our opening remarks. I'll now turn the call back to the operator for questions.

[Operator Instructions]

We'll take our first question from Matthew Erdner with JonesTrading.

Congrats on all the continued progress and on the internalization announcement. I'd like to kind of touch on that first as to just the timing of it, why now, why you felt like it was a good time? And then I guess, the economic impact of that going forward if this were to be approved.

Sure. So with respect to the timeline, -- the expectation is that this will be obviously an item in our Annual Shareholder Meeting, which is scheduled for June 23 -- excuse me, June 22. And then we would expect it to close shortly thereafter, most likely in the July time frame. With respect to why now, listen, we feel like there's a great market opportunity. We have positive momentum as a firm, as a team. And we felt like the rough size of the two companies made sense to do it at this juncture in our trajectory as well. And then on economic impacts, we've outlined a lot of it in the deck that's in the -- that's available for shareholders. But look, the punchline is we expect to be able to drive non-balance sheet-related revenues from our asset management activities and other operations that exist inside of ACRES today that will all flow up and be available to pay higher and increasing EAD.

Got it. That's helpful. I appreciate that. And then as it relates to the $87 million in liquidity, would you guys say you're close to fully invested from a loan portfolio size? How should we think about that and just capital deployment going forward?

Yes. I would say today, we would say that we're fully invested. And look, part of the strategy is as we expect to drive a dividend, that will get us to a place where we hope to be able to issue and grow from there.

We'll move on to Chris Muller with Citizens Capital Markets.

So really great to see the merger and internalization announcement. I guess once the transaction closes, what will the combined company look like? And apologies if this is in the deck, I haven't had a chance to go through that yet. Is it going to look like just a larger ACR with the servicing portfolio? Or are there other complementary businesses that are part of ACC that are going to be part of this combined company?

Sure. So the company will have an asset management component. So the public entity will be the registered investment adviser for an existing asset management business that resides inside of funds and SMA structures. Those fees will flow up to the public company and be available to be included in the EAD calculation on a go-forward basis.

Got it. Got it. And then I see you guys mentioned that EAD supporting a common dividend in the press release there. Should we expect a dividend to be implemented in quick order once the transaction closes? Or is it kind of just getting everything integrated together and then you'll address the dividend down the road?

So our general view on dividends is we will pay them as we earn them. And that we expect that once the companies combine, that we'll have a very clear picture on exactly the earnings power of the company, and then we expect to distribute those earnings through EAD as they're earned.

Got it. Very fair. And just last housekeeping one, if I could. Do you guys have an estimated pro forma book value for this transaction?

Not at this time.

We'll move on to Gabe Poggi with Raymond James.

With the internalization happening at book value and management being aligned at book, is book value the bogey for any fresh kind of capital as you guys see going forward as you grow the business?

Yes, Gabe, we believe in doing things accretively for shareholders. I think we've demonstrated that by repurchasing shares at a discount. I think as we expect to grow the company, we want to do it accretively as well. So by definition, that means we're issuing at or above book value going forward.

Got it. And then a follow-up. Just as it pertains to leverage and then leverage to total capital leverage to common, I know you guys have the slide, the usual, kind of, base bull case for where you want to get the loan book to be. Where is your comfort level on a total leverage to common? Or do you really talk about this at this size, you just think about it as total leverageable capital, obviously, inclusive of the preferred and non-controlling interest, et cetera.

Yes. Look, I think four turns, we expect we're very comfortable. I think one of the advantages of the transaction is that we can target a higher dividend without increasing leverage. And so over time, that's one of the advantages of having essentially non-balance sheet-related earnings where you don't have to increase leverage to increase earnings available for distribution. So that's one of the things that we like about the profile of the company on a pro forma basis. But I think what we've put out is that we've shown three cases where we're basically all at 3.5x leverage with different assumptions for non-balance sheet-related fees that drive to dividends that start the mid-single digits on up into the mid-teens.

And it appears that we have no further questions at this time. I'd be happy to return the call to our hosts for any closing comments.

Great. Well, thank you all for attending the call this morning. We know there's a lot of information to digest in the presentation. So please follow up with us directly with any questions going forward, and we look forward to all the conversations. Thank you.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2025 ACRES Commercial Realty Corp. Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Kyle Brengel, Vice President, Operations. You may begin.

Good morning, and thank you for joining our call. I would like to highlight that we have posted the fourth quarter 2025 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. Although the company believes 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 the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of its Form 10-K.

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. 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 Fogel, President and CEO; Andrew Fentress, Chairman of ACR; and Eldron Blackwell, ACR's CFO.

I will now turn the call over to Mark.

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 Eldron Blackwell, our CFO, will discuss the financial statements, liquidity condition, book value and operating results for the fourth quarter 2025.

Of course, we look forward to your questions at the end of our prepared remarks. The ACRES team remains focused on executing on our business strategy by investing in high-quality CRE loans, actively managing the portfolio and growing earnings for our shareholders. In the fourth quarter of 2025, we closed new commitments of $571 million, offset by loan payoffs and net unfunded commitments totaling $127.2 million, producing a net increase to the loan portfolio of $443.8 million. The weighted average spread on newly originated loans is 2.83%. New loan production in the fourth quarter of 2025 and in the first quarter of 2026, put us in a position to structure and price a new CRE securitization in January.

On February 12, we closed ACRES 2026 FL4, a $1 billion deal that has leverage of 86.5% and a weighted average debt spread of 1.68%. The weighted average spread of the floating rate loans in our $1.8 billion commercial real estate loan portfolio is now 3.35% over 1-month term SOFR rates. Portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. The company ended the quarter with $1.8 billion of commercial real estate loans across 53 individual investments.

At December 31, our weighted average risk rating was 2.7, a decrease from 3.0 at September 30, and the number of loans rated 4 or 5 was 10, down from 13 at the end of the third quarter. Portion of our CRE loan portfolio rated 4 or 5 based on the company's economic interest was 17% at December 31, down from 32% at September 30.

During the quarter, another 4-rated loan paid off at par, highlighting again that the vast majority of our 4 and 5 rated loans do not suffer principal losses. Looking back through our history, when ACRES assumed the management contract of ACR in 2020, the company had 23 loans with a par balance of $411 million or 24% of the portfolio, risk-rated either 4 or 5. As of December 31, 2025, only 2 of those 4 or 5 loans remain unresolved in the portfolio.

Our exceptional asset management team created sponsor-specific solutions to successfully resolve 21 of those loans or $368 million of par value, recognizing a loss of only $4.8 million on those resolutions, or just 1.3% of the par balance of those loans. We expect the same or better results on the remaining 4 or 5 rated assets in our portfolio as we work actively and strategically with our sponsors to create positive resolutions.

The majority of these assets have manageable, stabilized LTVs of 80% or less. To further highlight this point, as a firm since inception 12 years ago, ACRES has incurred minimal realized losses on almost $8 billion of invested capital. We are also excited to announce that we sold one of our REO assets collateralized by an office property in Austin, Texas this quarter, which resulted in an earnings available for distribution or EAD gain of $1.3 million.

During the quarter, we charged off a legacy $4.7 million mezzanine loan that was originated prior to ACRES management in 2018 and whose loss was fully reserved for and recognized in both GAAP and book value in 2022. We recognized the EAD impact this quarter in connection with settlement of that loan.

We will now have ACR's CFO, Eldron Blackwell, to discuss the financial statements and operating results during the fourth quarter.

Thank you, and good morning, everyone. GAAP net loss allocable to common shares in the fourth quarter was $3 million or $0.43 per share. GAAP net loss for the quarter included $10.7 million in net interest income, which was an increase of $2.3 million over the prior quarter. This increase in net interest income was driven by net loan originations of $443.8 million and corresponding facility draws during the quarter.

GAAP net loss for the quarter also included a $3 million net increase in the performance of our net real estate operations to net income of $156,000 and a $1.5 million net loss on the sale of the previously mentioned office property in Austin, Texas. We saw a decrease in current expected credit losses, or CECL reserves of $1.3 million, or $0.19 per share as compared to a decrease in CECL reserves during the third quarter of $4 million, which was primarily driven by loan payoffs and net improvements in the model credit risk of our CRE portfolio, offset by a general decline in projected macroeconomic factors during the quarter.

Also, as previously mentioned, ACR recorded a charge-off of $4.7 million on a mezzanine loan that was fully reserved for in 2022. The total allowance for credit losses at December 31 was $20.4 million and represented 1.11% or 111 basis points on our $1.8 billion loan portfolio at par and was composed entirely of general credit reserves.

Excluding the loss for the mezzanine loan that was fully reserved for in 2022, EAD for the fourth quarter 2025 was $0.20 per share. When the mezzanine loan is included, the company reported an EAD loss of $0.48 per share as compared to earnings of $1.01 per share for the third quarter.

GAAP book value per share was $30.01 on December 31 versus $29.63 on September 30. Additionally, during the quarter, we used $10 million to repurchase 493,000 common shares at an approximate 33% discount to book value at December 31. In December 2025, the authorized amount was fully utilized, and since November 2020, the company has repurchased 5.3 million shares at an average discount to book value of 49%. Available liquidity at December 31 was $108 million, which comprised $84 million of unrestricted cash and $24 million of projected financing available on unlevered assets.

Our GAAP debt to equity leverage ratio increased to 2.8x at December 31, from 2.7x at September 30 from net originations on our CRE loan portfolio. At the end of the fourth quarter 2025, the company's net operating loss carryforward was $32.1 million, or approximately $4.89 per share.

With that, I will now turn the call to Andrew Fentress for closing remarks.

Thank you, Eldron. We're pleased to -- we're pleased with the continued execution of our plan to drive shareholder value. In the fourth quarter, we originated $571 million of new loans. We repurchased shares at accretive levels, sold an REO asset, improved the credit quality of the portfolio and positioned the company to resume paying a dividend to common shareholders.

Since assuming the role of manager in July of 2020, ACR book value has increased a total of 66%. All the team here at ACRES is energized by the opportunity set we see in front of us, both in the asset class and the competitive landscape. We will continue to deploy capital through careful underwriting, and then manage each investment to the optimal outcome for shareholders.

We greatly appreciate your continued support and investment in ACR, and we look forward to your questions. This concludes our opening remarks. I'll now turn the call back to the operator for questions.

[Operator Instructions] Our first question comes from Matthew Erdner with JonesTrading.

Could you touch a little bit more on the loans that you guys completed this quarter? It's a really impressive number in terms of net loan growth. I heard you mentioned the $283 spread there, but could you give any additional kind of color on that? And then as well, what the current pipeline looks like?

Sure, Matt. This is Mark. The color on that portfolio is it was mostly multifamily type execution. The average loan size was probably about $40 million to $50 million. Spreads range between 250 and 325. And it was purposely focused our origination effort on multifamily this quarter and the next quarter in that we were in the process of looking to execute a new CLO and CLO execution was extremely dependent on a significant amount of multifamily. On the bright side, our CLO execution includes reinvestment opportunity to do up to 40% of our assets outside of multifamily.

Got it. And then how long is that reinvestment period? Is it 24 months?

30 months.

Got it. Awesome. And then with the additional kind of equity investments, Page 11 of the deck. What's your plan for that? And then would we -- or should we expect an exit from any of those assets as we go through the year?

I think about one of them right now, you can expect an exit of one of the smaller land deals that we have. We're actually under LOI right now to sell that asset. One of the other assets is out on the market right now. We expect that we'll get some offers during the year, and we'll make a decision based on where those offers come in.

Got it. That's helpful. And then last one for me. Just I noticed something on the balance sheet. Noncontrolling interest jumped up to that $130 million, call it, from about 1. I was just curious what that was?

Sure. This is Andrew. So the company sold a position or a portion of its previously issued financing arrangement with JPMorgan, and so that interest is recorded as an NCI.

We'll now move on to Chris Muller with Citizens Capital Markets.

Nice to see originations come in really strong. And based on your illustrative earnings slide, it looks like there's some at least capacity to grow the portfolio and push leverage a little bit. Could we see this pace of deployment we saw in the fourth quarter in the near term? Or was that mostly due to the CLO execution in January?

No, Chris. We expect we'll see a decent amount of additional deployment significantly -- a significant amount of it had occurred in the first quarter of 2026, but we're projecting net growth in the portfolio of $500 million to $700 million in 2026.

Got it. That's great to hear. And I guess turning gears a little bit. I believe the capital loss carryforwards expired at the end of the year. So thinking about potential upside to book value, would any future gains on REO be fully taxed going forward? Or are there any other offsets that would apply?

This is Eldron. No, we -- well, let me start with we have. We still have remaining NOLs $32.1 million at the QRS. So that's available to us. That's an if, not a -- a when, not an if. But as long as we continue to have depreciation, some of our normal operating expenses, I don't expect in the future that any gains on those capital items would be taxable. We also have tax. We also have NOLs in our TRS. So any activity down there is also protected.

Got it. Got it. So there's still a little bit that will flow through. I guess just a quick clarifying one. The $3.4 million of realized losses on core activities, was that just the mezzanine loan write-off that you guys talked about? Or is there something else in there?

That was a big chunk of it. We recorded a $4.7 million EAD loss attributable to this mezzanine loan that we inherited as part of our taking control of the REIT, and we recorded a specific reserve for that back in 2022.

And the specific -- or the CECL reserve release in the quarter, that was a specific reserve release related to this asset. Is that right?

Part of it was the specific reserve, the $4.7 million. The other $1.3 million was just improvement in net credit of the portfolio on our general reserves.

[Operator Instructions] We'll move on to Gabe Poggi with Raymond James.

I've got a couple. For year-to-date originations, has there been any change in spreads, has there been any mix shift away from multifamily? Just anything you could provide there would be helpful.

In 2026, originations to date have mostly been multifamily. As I said, we've been geared towards -- we were geared towards ramping up for our CLO. Spreads overall in that portfolio are about 2.83%. We're seeing spreads come down on the multifamily side for sure across the boards, but as I said, we're looking at other asset classes for reinvestment activity. And going forward, you'll see a different type of mix within our portfolio. We're pretty heavily weighted towards multifamily right now, and I would expect that some of that will start to fall off over the course of 2026.

Got it. So is the goal there to kind of maintain that 2.80% over spread while mixing out to other asset classes? Or do you just want to -- are you content to kind of have asset yields bleed a little bit lower just because of the competitive nature of the market?

No. Our intent is to be above and beyond 2.83%. There are certainly a lot of opportunities in other asset classes where spreads are better, some more risk-reward opportunity in self-storage and office and retail. Historically, our portfolio has been only 60% to 65% multifamily, and that's where we expect it to get back to.

Okay. A question on repayments in '26. You've got about $400 million update there. Obviously, the CECL reserve has come down. Do you expect just a normal cadence of repay activity for '26? Anything in there that we should be aware of?

No, we expect that repayments in '26 will be healthy. We're projecting about $500 million of repayments in '26, mostly older vintage assets. And importantly, what that does for us, if you mix in new originations in '26, is it brings down our older vintage, call it, '23 and older type assets down to about only 15% of the portfolio.

And then one more, and this is kind of a high-level question. But as you guys think about ramping the portfolio, right, in Slide 14 in the deck, and taking total leverage to 3.5% because of the capital structure and pref versus common, you tilt more to a higher leverage ratio on the common level. Where is the comfort level as you think about leverage to the common, and where do you want to max out there in that ramp? And I see the current state, the mid, and then the full tilt. But just how do you think about that in the bigger macro environment, where the comfort level is leveraged to the common equity?

Yes, Gabe, it's Andrew. I think what we show is we're inside of our comfort level at that inside of 4 turns. And I don't think you'll see us go above that.

Got it. So inside of 4 on total my words, leverageable capital, we think could push the leverage on the common higher, but total leverageable capital inside of 4.

At this time, there are no further questions in queue. I will now turn the meeting back to our presenters.

Thank you, everyone. We appreciate your support, and we look forward to reconnecting with all of you in the coming weeks. If you have any questions, please reach out to myself or Eldron. Have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, ladies and gentlemen, and welcome to the Third Quarter 2025 ACRES Commercial Realty Corp. Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would like to now introduce your host for today's conference, Kyle Brengel, Vice President, Operations. You may begin.

Good morning, and thank you for joining our call. I would like to highlight that we have posted the third quarter 2025 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. Although the company believes 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 the forward-looking statements.

These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of its Form 10-K. 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. 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 Fogel, President and CEO; and Eldron Blackwell, ACR's CFO. I will now turn the call over to Mark.

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 Eldron Blackwell, our CFO, will discuss the financial statements, liquidity condition, book value and operating results for the third quarter 2025. Of course, we look forward to your questions at the end of our prepared remarks.

The ACRES team remains focused on executing on our business strategy by building a pipeline of high-quality investments, actively managing the portfolio and focusing on growth in both earnings and book value for our shareholders. In the third quarter, we funded new commitments of $106.4 million, offset by loan payoffs, sales and paydowns of $153.2 million, producing a net decrease to the loan portfolio of $46.8 million. We expect a substantial number of new loan closings in the fourth quarter, which will produce positive growth in the portfolio for the full year.

The weighted average spread of the floating rate loans in our $1.4 billion commercial real estate loan portfolio is now 3.63% over 1-month term SOFR rates. Portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. The company ended the quarter with $1.4 billion of commercial real estate loans across 46 individual investments.

At September 30, our weighted average risk rating was 3.0, an increase from 2.9 at June 30, and the number of loans rated 4 or 5 was 13, both at the end of last quarter and the end of this quarter.

During the quarter, we sold one of our real estate investments, which resulted in a gross capital gain of $13.1 million. This gain on sale represented a significant part of our strategic plan to use our capital loss carryforward to maximize shareholder value.

During the quarter, we also closed on a construction loan with a third-party lender to convert an REO office property in Chicago to a Class A 252-unit multifamily property. The property had previously been contributed to a joint venture with a Chicago-based developer. We expect the grand opening of the property during Q3 2026.

As we exit our real estate investments and the loan portfolio continues to amortize, we expect to redeploy capital into attractive CRE loans. As always, we will seek to optimize our portfolio leverage in order to drive equity returns.

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, Eldron Blackwell, discuss the financial statements and operating results during the third quarter.

Thank you, and good morning, everyone. GAAP net income allocable to common shares in the third quarter was $9.8 million or $1.34 per share diluted. GAAP net income for the quarter included a $13.1 million gross gain on the sale of one of our real estate investments, as Mark discussed.

Net real estate operations declined by $2.7 million over the prior quarter due to a loss of $2.8 million. Of that loss, $2 million was due to exit fees on the construction and [ PACE ] financing and other accelerated costs on the balance sheet from the aforementioned real estate investment sale and to a lesser extent, from the operating performance at our two hotels.

During the quarter, we saw a decrease in current expected credit losses or CECL reserves of $4 million or $0.54 per share as compared to a decrease in CECL reserves during the second quarter of $780,000, which was primarily driven by improvements in the modeled credit risk of our CRE loan portfolio and improvements in expected macroeconomic factors during the quarter. The total allowance for credit losses at September 30 was $26.4 million and represented 1.89% or 189 basis points on our $1.4 billion CRE loan portfolio at par and was composed of $4.7 million in specific reserves and $21.7 million in general credit reserves.

Earnings available for distribution, or EAD, for the third quarter 2025 was $1.01 per share as compared to $0.04 per share for the second quarter. Quarter-over-quarter, EAD saw a net $1.30 increase due to the real estate investment gain on sale, offset by a $0.37 decrease from real estate operations. The net EAD gain is our allocable portion of the gain based on our ownership percentage in the investment.

GAAP book value per share was $29.63 on September 30 versus $27.93 on June 30. Additionally, during the quarter, we used $2.9 million to repurchase 153,000 common shares at an approximate 36% discount to book value at September 30. There was approximately $2.5 million remaining on the Board-approved program at quarter end.

Available liquidity at September 30 was $64 million, which comprised $41 million of unrestricted cash and $23 million of projected financing available on unlevered assets. Our GAAP debt-to-equity leverage ratio decreased to 2.7x at September 30 from 3x at June 30 from net repayments on our CRE loan portfolio and the payoff of asset-specific financing on the sold real estate investment. At the end of the third quarter 2025, the company's net operating loss carryforward was $32.1 million or approximately $4.55 per share.

With that, I will turn the call to Andrew Fentress for closing remarks.

Thank you, Eldron. The third quarter showed progress on our stated goals of selling assets, redeploying the gains into new loans. We're nearly complete on this mission and are excited about the next steps. We have a full pipeline that will soon be available for securitization and get the company on track to maximize income in EAD.

This quarter marked the fifth anniversary since we assumed the role of manager for ACR. In this 5-year period, book value has increased 12.7% per year, and the stock has increased 41.8% per year. We're excited for the next chapter in the company's evolution and look forward to your questions.

I'll now turn the call back over to the operator. Thank you.

[Operator Instructions] And we'll take our first question from Matthew Erdner with JonesTrading.

Congrats on a solid quarter there. As it relates to kind of the asset-specific financing or I guess, the reinvestment there, what are you guys looking for in the market to kind of 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?

Yes. Thanks, Matt. It's really what you just said in the latter part of your question, which is we're in the marketplace, originating new loans currently. We expect by the end of the fourth quarter, beginning of the first quarter to have sufficient collateral on warehouse to execute a transaction sometime in Q1.

Got it. And then as a follow-up to that, it looks like there's no fully extended maturities for the remainder of the year. 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?

Yes. 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.

Got it. That's helpful. And then as it relates to those loans, do you expect to be more active on the construction side or as a part of the bridge that you guys have done in the past also?

In the REIT, we do not typically provide construction financing. On the other side of our business, within our fund business, we do provide construction loans, which actually is a help to the REIT eventually as we provide bridge loans to those construction loans to take those out. So we are active on the construction financing side, but on the fund part of our business, which will eventually benefit the REIT as those loans migrate into bridge loans.

We'll put some numbers on that real quick. So right now, in the portfolio on the fund side, there's about $650 million to $700 million of construction that's underway. And as Mark said, we expect some percentage of that over time to migrate into the REIT through the reinvestment periods of the CRE CLO.

[Operator Instructions] We'll take our next question from Chris Muller with Citizens Capital Markets.

Nice to see the market rewarding you guys with your stock up 10% this morning. So -- also, great to see the REO sale and growth in book value. And kudos to you guys for being patient and sticking to your strategy. 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?

This is Andrew. I think we've said our target when we took over was approximately $30 a share. So we're creeping up on that objective. I don't want to give guidance really too much ahead or above that. There are really three properties that are remaining, and I think with what we know about those, the $30 is a reasonable objective.

Got it. And then I guess on property sales, following up on that a little bit. 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? Is that like a 1Q type event? Or is it going to come later in the back half of '26?

I think on one of them, we've got reasonable visibility sometime in the next couple of quarters. And the other are operating businesses that will probably benefit from a valuation as the Fed eases a little bit, but we'll really rely more heavily on the operating metrics of the properties themselves, less so on multiples.

Got it. And just one more, if I could throw it out there. And you guys get asked this question a lot, but I'm going to throw it out there anyway. Is there anything that you can share on potential dividend and any timing around that?

Yes. We've stated pretty clearly that 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 as I said, we're getting close. We really only got one or two more to sell.

Congrats again on a really great quarter.

[Operator Instructions] And it looks like we have no additional questions at this time. I'd like to now turn it back to our speakers for any closing or additional remarks.

Great. Thank you so much, operator, for hosting the call. We appreciate everybody's participation. If anybody has questions or follow-ups, we're always available. We look forward to talking to you again soon, one-on-one or at our next quarterly call. Thank you so much. Have a great holiday season, everybody.

Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.

Thank you. Good day, ladies and gentlemen, and welcome to the Second Quarter 2025 ACRES Commercial Realty Corp. Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Kyle Brengel, Vice President, Operations. You may begin.

Good morning, and thank you for joining our call. I would like to highlight that we have posted the second quarter 2025 earnings presentation to our website.

The 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.

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 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of its Form 10-K. 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. 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 Fogel, President and CEO; and Eldron Blackwell, ACR's CFO.

I will now turn the call over to Mark.

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 Eldron Blackwell, our CFO, will discuss the financial statements, liquidity condition, book value and operating results for the second quarter of 2025. Of course, we look forward to your questions at the end of our prepared remarks.

The ACRES team remains focused on executing on our business strategy by building a pipeline of high-quality investments, actively managing the portfolio and focusing on growth in both earnings and book value for our shareholders.

We closed one new commitment of $72 million with an unfunded commitment of $1.2 million, funded existing loan commitments during the quarter of $7.3 million, offset by loan payoffs and paydowns of $17.6 million, producing a net increase to the loan portfolio of $60.5 million.

The weighted average spread of the floating rate loans in our $1.4 billion commercial real estate loan portfolio is now 3.65% over 1-month term SOFR rates.

The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. The company ended the quarter with $1.4 billion of commercial real estate loans across 48 individual investments. Our weighted average risk rating was 2.9 at the end of both Q2 2025 and Q1 2025. And the number of loans rated 4 or 5 increased by 2 from 11 at the end of last quarter to 13 at the end of this quarter.

We 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. As always, we will seek to optimize our portfolio leverage in order to drive equity returns.

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, Eldron Blackwell, to discuss the financial statements and operating results during the second quarter.

Thank you, and good morning, everyone. GAAP net loss allocable to common shares in the second quarter was $732,000 or a loss of $0.10 per share diluted. GAAP net loss for the quarter included $8.6 million in net interest income, which was an increase of $3 million over the prior quarter. The increase in net interest income was driven by the lower cost of financing of our new financing facility, which produced savings of approximately $1 million and the non-recurrence of accelerated deferred financing charges of $1.5 million recognized in the prior quarter related to the liquidation of our prior two securitization vehicles.

Net real estate operations improved by $1.9 million over the prior quarter or to a loss of $77,000, which included depreciation of $1.2 million and was largely due to improved operating performance of our owned hotels.

We saw a decrease in current expected credit losses or CECL reserves of $780,000 or $0.11 per share as compared to a decrease in CECL reserves during the first quarter of $1.7 million, which was primarily driven by improvements in the modeled credit risk of our loan portfolio, offset by a general worsening in macroeconomic factors during the quarter.

The total allowance for credit losses at June 30 was $30.3 million and represented 2.18% or 218 basis points on our $1.4 billion loan portfolio at par and comprised $4.7 million in specific reserves and $25.6 million in general credit reserves.

Earnings available for distribution, or EAD, for the second quarter 2025 was $0.04 per share as compared to a loss of $0.86 per share for the first quarter. Quarter-over-quarter, EAD saw a $0.40 increase in net interest income, as previously discussed, a $0.26 increase from real estate operations and a $0.09 increase from the non-recurrence of realized losses recorded in Q1 2025.

GAAP book value per share was $27.93 on June 30 versus $28.50 on March 31. Additionally, during the quarter, we used $5.1 million to repurchase 272,000 common shares at an approximate 33% discount to book value on June 30. There were approximately $5.4 million remaining on the Board-approved program at quarter end.

Available liquidity at June 30 was $65 million and comprised $43 million of unrestricted cash and $22 million of projected financing available on unlevered assets. Our GAAP debt-to-equity leverage ratio slightly increased to 3x at June 30 from 2.9x at March 31, and our recourse debt leverage ratio increased to 3x at June 30 from 2.9x at March 31, primarily resulting from the financing of our new loan origination.

At the end of the second quarter 2025, the company's net operating loss carryforward was $32.1 million or approximately $4.45 per share.

And with that, I will now turn the call to Andrew Fentress for closing remarks.

Thank you, Eldron. The second quarter marked a turn as the portfolio increased in size once again. We expect to continue redeploying equity capital from the sale of our investments into new loans. The ACRES platform is active in the marketplace and working closely with our sponsors to provide them the value-add capital they need for success. We remain vigilant managing the portfolio and see a stable credit picture.

We look forward to your questions and speaking with you over the coming weeks. This concludes our opening remarks, and I'll now turn the call back to the operator for questions.

[Operator Instructions] We'll take our first question from Matthew Erdner with JonesTrading.

So could you give a little more context around timing of what you guys are expecting for payoffs, maybe asset sales for the remainder of the year to kind of get that capital redeployed or maybe look to hit the CLO market with net new originations as you guys kind of turn that machine on over the next couple of quarters?

Matt, this is Mark. As I've said in the past couple of quarters, our goal is to grow the portfolio by $300 million to $500 million through the end of the year. So that will include the payoff -- the capital for that will come from the payoffs of loans as well as the sale of some of the REO properties. But we're on target for exactly what we've said for the past couple of quarters, which is the growth of $300 million to $500 million.

That's helpful. And then could you talk a little bit about the opportunities that you guys are seeing in the marketplace? We've seen spreads kind of come in on multifamily over the past quarter or so pretty tightly. So I guess what are you guys seeing out there? And then any guidance for spreads that you guys are achieving would be great.

Look, the market is seeing compressed spreads in certain sectors, particularly Class A multifamily. We are active in that market as well as other markets. And we feel like there's enough opportunity for us to create an overall spread that works well for the ROE that we're targeting. And so we do believe that if we continue to target certain assets that are outside of where all the money is going sporadically that the target ROE is definitely achievable.

[Operator Instructions] We'll go next to Chris Muller with Citizens Capital Markets.

So I like the slide you guys have in the deck on the potential earnings profile. I guess on the leverage piece of that, how are you guys thinking about leverage in the near term? And can you remind me if the REO has financing against it or if it's unlevered? And I guess what I'm trying to get at is, can leverage move higher before that REO gets sold?

Yes. This is Andrew. I appreciate the question. I'll give you a little thinking on the leverage point. So we think we can get leverage up to the kind of 3.5, perhaps 4 turns, comfortably using mostly, obviously, non-recourse CRE CLO financing. And in doing so, get the book to where it's generating the earnings necessary to hit the numbers that are on the slide that you referenced. So that's the objective.

And as Mark talked about adding to the loan book, that's how we get there. With respect to the properties that are being sold, yes, they are currently levered, not inside of the facilities that we have, but at the asset level. So upon the sale, you'll see on our balance sheet, they're referenced the mortgages. And then as the asset gets sold, obviously, the mortgages leave the balance sheet as well.

Got it. So there would be a slight pickup on leverage there, but nothing too dramatic. Are you guys thinking about a CLO in the back half of the year? Is that something you're looking at?

We're definitely going to execute on another one. I don't think we can give you a specific timing if it's Q4, Q1, but that's the ZIP code.

Got it. And I guess the other question I have, are there any updated thoughts you guys can give on reinstating the dividend? And I know you can't give any specifics on timing and it's a Board decision there. But I guess, is there anything that we can keep an eye on like REO sales or EAD growth that you would like to accomplish prior to reinstating that dividend?

Yes, it's really driven by what we just talked about. So first step is monetizing the assets. Second step is getting the portfolio ramped to the target number that Mark described. And then the result of those two exercises will drive EAD to a place where we'll begin to pay it out.

This does conclude today's question-and-answer session. I will now turn the program back over to Andrew Fentress for any additional or closing remarks.

Thank you, everyone, for joining the call. We greatly appreciate your time. And again, please reach out directly to us if you have any questions. We look forward to speaking with each of you. Have a great rest of the day and a good weekend.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.