ACRES Commercial Realty Corp. (ACR) Q2 2024 Earnings Call Transcript

ACRES Commercial Realty Corp. recently held its earnings call for the second quarter of 2024, providing insight into the company's performance, strategy, and outlook. The call was led by Kyle Brengel, Vice President of Operations, Mark Fogel, President and CEO, Eldron Blackwell, CFO, and Andrew Fentress, Chairman.

Loan Operations and Real Estate Investments

The call highlighted the company's loan operations and real estate investments, with a focus on selectively originating high-quality investments, actively managing the portfolio, and growing earnings and book value for shareholders. The company reported a decrease in the loan portfolio, with net funded commitments of $9.3 million and a weighted average spread of 3.75% over one-month term SOFR rates. This decrease reflects the company's efforts to maintain a high-quality investment portfolio, with a goal of improving credit quality and recycling capital into performing categories.

One of the notable highlights was the successful resolution of a $8 million whole loan on a retail property in Elizabeth, New Jersey, which had been in default since December 2021. The company was able to sell the asset above par value and recoup a majority of legal expenses, demonstrating their patience and expertise in navigating the legal process.

Financial Performance

Eldron Blackwell, CFO, discussed the financial statements and operating results for the second quarter. The GAAP net income allocable to common shares was $1.7 million or $0.21 per share, with an increase in current expected credit losses (CECL) reserves of $1.3 million or $0.17 per share. The total allowance for credit losses was $35 million, representing 2.04% or 204 basis points on the $1.7 billion loan portfolio. Earnings available for distribution (EAD) was $0.51 per share, reflecting a significant increase in real estate operations and a decline in G&A operating expenses.

Looking Ahead

Looking ahead, the company is focused on monetizing equity investments, returning capital to the loan portfolio, and actively seeking new origination opportunities. The team is working diligently with borrowers to create positive outcomes during this rate cycle and is in the process of selling several assets, including the student housing development at Florida State University. The company is also actively managing watch list loans, with a focus on resolving the two 5-rated loans.

In terms of capital deployment, the company is aiming for a 15% return on equity target, with a balance of share repurchases and loan book investments. The objective is to reinstate the dividend, once assets are sold and equity capital is redeployed back into the loan book, driving higher EAD and potentially closing the gap towards valuation of peers.

Conclusion

The ACRES Commercial Realty Corp. earnings call provided valuable insights into the company's loan operations, real estate investments, and financial performance. The call underscored the company's focus on selectively originating high-quality investments, actively managing the portfolio, and growing earnings and book value for shareholders. The successful resolution of a challenging loan and the company's strategic approach to managing its portfolio bode well for its future performance. As the company continues to execute on its business plan, it is poised to capitalize on new origination opportunities and monetize equity investments, while maintaining a strong focus on maintaining a high-quality investment portfolio.