ACRES Commercial Realty Corp. Q1 FY2025 earnings call

• Loan operations: Loan payoffs, new commitments, funding, net reduction, loan sales, spread, portfolio performance, risk ratings, and charge-off details.
• Financials: GAAP net loss allocable to common shares was $5.9 million or $0.80 per share diluted. Net interest income was $5.6 million, and net loss on real estate operations was $2 million. CECL reserves decreased by $1.7 million. GAAP book value per share was $28.50. Repurchased 220,000 common shares. Available liquidity was $87 million. Debt to equity leverage ratio slightly decreased, and recourse debt leverage ratio increased. Net operating loss carry-forwards were $32.1 million.
• Financing: Closed a $940 million financing facility with JPMorgan, incurring a nonrecurring charge of $1.5 million related to unamortized debt issuance cost at two CRE securitizations.

Loan operations: Loan payoffs during the period were $115.9 million. Closed one new commitment of $15 million and funded existing loan commitments of $12 million, resulting in a net reduction of the loan portfolio of $109.6 million. Sold two loans, including a $31.7 million proceeds from a held for sale loan. The weighted average spread of the floating rate loans in the $1.4 billion commercial real estate loan portfolio is 3.67% over 1-month term SOFA rates. The portfolio has 48 individual investments with a weighted average risk rating of 2.9. Number of loans rated 4 or 5 decreased from 12 to 11. Sold a $20.6 million loan at par and had a $700,000 charge-off. Real estate investments: Managing several real estate investments expected to be monetized at gains in the future, which will offset deferred tax assets.

• Q1 is expected to be a trough on the portfolio side. Plan to utilize capital from repayments, asset sales, and liquidity to ramp securitization in the second half of the year. Expect portfolio growth between $300 million and $500 million by the end of the year. Pipeline is strong despite market volatility, with active quoting of deals across various asset classes including multifamily, student housing, self-storage, and retail.

Forward-looking statements are subject to trends, risks, and uncertainties discussed in the company’s SEC filings, including Form 10-K Risk Factors. Non-GAAP financial measures may be discussed, and reconciliations to GAAP are in the earnings presentation.

Q: Could you talk a little bit about more of the portfolio and the payoffs that occurred during the quarter? Were those expected to come through or some of them are early?

A: No, those were expected to come through. Had five loan payoffs through refinancing into permanent vehicles, one asset sold, and two notes sold during the quarter, none were unexpected.

Q: Fully extended, it looks like there is $101 million for the remainder of the year. Should we expect a little more kind of maybe towards the back half some early payments, 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, and just kind of talk about where you would like to see the portfolio to get that securitization off?

A: Payoffs are good and show a healthy portfolio. Expect more payoffs throughout the year through refinancings or sales of assets. Expect to grow the portfolio despite payoffs, with net growth between $300 million and $500 million by end of year. Opportunities in multifamily, student housing, self-storage, and retail, with multifamily being the bulk going forward.

Q: 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.

A: The one was sold at par during the quarter. The other was on a non-performing hotel property, where we were offered $0.94 on the dollar and took a $700,000 loss on that asset.

Q: 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? 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?

A: The drag is seasonality issue with hotels. Expect Q2, Q3, and Q4 to flip to flat or positive numbers versus loss on REO operations. Actively in the market with several real estate investments, expecting to have more to report in the next quarter or following quarter.

Q: If I could just squeeze one more just on your comments for the last question, so I guess with the expectation of $300 million to $500 million of growth in 2025. How is the pipeline looking? And have you seen any impacts on the pipeline given some of the recent market volatility?

A: The pipeline has been stronger than ever. Volatility has caused some lenders to move to the sidelines, pushing more deals our way. Actively quoting three to four deals a day, and growth is not a problem