Q3 2023 ACRES Commercial Realty Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the third quarter 2022 acres of commercial Realty Corp Earnings Conference call.
All participants are in a listen only mode. Later, we will conduct a question and answer session with instructions to follow at that time.
If anyone requires assistance during the conference. Please press Star then CEO on Gotta catch turned out a fun.
As a reminder, this call is being recorded.
I would now like to introduce your host for today's conference Jaclyn Jesper Chief Legal Officer, you may begin.
Good morning, and thank you for joining our call I would like to highlight that we have posted the third quarter 2023 earnings presentation to our website.
This presentation contains summary, and detailed information about the quarter and he runs all 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 believe anticipate expect 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 these forward looking statements.
These risks and uncertainties are discussed in the Companys 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 and.
The company undertakes no obligation to update any of these forward looking statements.
Are there more 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 <unk>, President and CEO, and Dave Bryant ACR as CFO.
Also available for Q&A, Andrew franchise Chairman at ACR.
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 originations real estate investments and the health of the investment portfolio, While day, Brian will discuss the financial statements liquidity condition book value and the operating results for the third quarter of <unk>.
We look forward to your questions at the end of our prepared remarks.
The acres team continues to execute on our business plan by selectively originating high quality investments actively managing the portfolio and continuing to focus on growing earnings and book value for our shareholders.
And following this business plan, we chose not to originate any new investments in the current quarter.
Loan payoffs during the period were $53 $4 million and net funded commitments during the quarter were $8 $1 million producing a net decrease to the portfolio of $45 $3 million.
The weighted average spread of the floating rate loans and a 1.9 billion dollar commercial real estate loan portfolio is now 3.91% over the one month benchmark rates.
We expect to maintain our commercial real estate investment portfolio, including our loan book and real estate properties of $2 billion to $2 $3 billion through 2023.
The portfolio generally continues to perform demonstrating sound and consistent underwriting and proactive asset management.
The company ended the quarter was $1.9 billion of commercial real estate loans across 75 individual investments.
September 30th there were eight loans rated four or five which represented eight 4% of the par value of our portfolio.
Five of these loans, we're also rated four or five at June 30th.
Included in these eight loans were five loans not current on contractual payments three of which were also not current on contractual payments at June 30th.
Additionally, the weighted average risk rating increased from 2.4 at June 32.6 at September 30th.
This increase in weighted average risk rating is attributable to a combination of some properties falling slightly behind on implementing underwritten business plans and to work capital market conditions.
We continue to manage several investments in real estate that we expect to monetize our gains in the future.
As anticipated gains will be offset by NOL carryforwards, and we expect to retain the equity and reinvest potential games into our loan portfolio.
In summary, the acres team is pleased with the quality of the investment portfolio, including investments in real estate, along with the improved balance sheet profile and the prospects for new originations and capital appreciation going forward.
This quarter, we released an updated earnings presentation that includes a revamped design.
<unk> financial highlights along with increased disclosures on Cecil and risk ratings we.
We feel that the new earnings presentation communicates, our financial position and a more effective manner. We hope you have appreciated this refresh presentation.
We will now have ACR CFO day, Brian discuss the financial statements and operating results during the third quarter.
Thank you and good morning.
GAAP net income allocable to common shares in the third quarter was $2 9 million or 43 cents per share.
Included in that in college and increased your Cecil reserves of $2 million or 23 cents per share as compared to traditional new jobs during the second quarter of 2.7 million.
She saw reserves. This quarter are comprised of only general reserve increases while the second quarter was comprised of 1.8 million General reserve increases.
They charge off a lighthearted 48000 pounds, taking the deed in lieu of foreclosure wanted office property in Chicago.
The third quarter increased two general seasonal reserves, primarily driven by model the increases in general portfolio credit risk.
Compounded by ongoing uncertainty around the commercial real estate markets current macro economic outlook, which has affected our borrowers business plan execution and general market liquidity.
The total allowance for credit losses at September 30 was $27.6 million.
Which represents 1.43% or 143 basis points.
The 1.9 billion loan portfolio at par and comprised $4 7 million in specific reserves.
$22 9 million in general credit reserves.
E D for the third quarter was 73 cents per share, which compared favorably to 60 cents per share in the second quarter.
GAAP book value per share was $25.07 for September 30th versus $24.50 on June 30th.
Yeah.
Available liquidity at September 30th was 104 million, which comprised 64 million of unrestricted cash and $5 million of projected financing available on unlevered assets and 35 million of reinvestment cash available and one she already.
A securitization.
Our GAAP debt to equity leverage ratio remained steady at three nine times at September 30th.
Our recourse debt leverage ratio also remained steady at one two times on September 30th.
Turning to results from real estate investments.
Net loss from real estate and basketball decreased to 400000 in the fourth quarter from one 6 million in the second quarter.
This decrease was primarily due to 1 million property tax arrearages on an asset that we acquired via a deed in lieu of foreclosure in the second quarter.
Included in the third quarter property operating loss was approximately 930000 now.
Noncash depreciation and amortization.
Jason.
Focusing on G&A.
Third quarter expense of $2 2 million versus second quarter expenses $2 3 million.
Reflects the low point was seasonality and quarterly G&A.
Our annual G&A expense projection remains unchanged.
Regarding share repurchases during the third quarter, we used 727000 of the share repurchase plan to redeem 83000 shares at an approximate 65% discount to book value per share at September 30, yes.
There was approximately $4 5 million remaining on the board approved program at quarter end.
We now expect GAAP EPS for calendar year, 2023, and a range of 25% to 55 search which largely depends on the size of the Cecil loan reserves at year end 2023.
With respect to E. D. We expect a range of 50 to 60 cents per share.
In the fourth quarter, 2023, which gets us to $2 35 to $2 45 per share for year end 2023.
It's paid as a cash dividend.
This would represent a 9% to 10% of book value at September 30th approximately in line with our peer group.
Now I will turn the call to Andrew Stein Trish for closing remarks.
Thanks, Dave Good morning, everybody instead of my normal commentary summarizing the quarter, what I'd like to do is just to take a few minutes to focus on the announcement that we made last night as part of our reporting and in the 8-K that David Brian Who's been the CFO of it.
Of acres and its predecessor names has announced his retirement.
He is going to be moving on to take on some more personal initiatives, but we're not going to let them go to easily we're gonna kicking around acres.
As best we can I also want to make sure that we introduce our elder and Blackwell who's gonna be assuming the role of Chief financial officers was made in the announcement I'll bring you Wanna say hi to everybody.
[laughter] elder and has worked with Dave for many years and this will be a very smooth transition and we're excited about welcoming eldon.
The calls into the Investor group.
So I'm going to turn it over to Dave I know you wanted to say a few things, but personally it's been a pleasure working with Dave are all of US here at acres are going to wish him well in his new initiatives and I know all the stakeholders shareholders bondholders and everybody else along the acres system I appreciate your time and energy as well. Thank you.
Andrew.
As I near the end of my career here at acres.
Acres as the CFO.
I wanted to say the acres, where Andy acres capital bloggers.
And Andrew and Marty.
So the opportunity to help them.
That's a strategy to grow book value and provide a.
Strong return to the shareholders.
I also want to congratulate alginate.
There's always deserved promotion for him.
Well positions to to work as the CFO and to protect.
Protect the shareholders' interests and I I would also say that the entire acres team is very knowledgeable and talented in the real estate space and.
I truly believe the acres shareholders' interest would benefit from that knowledge.
Thank you Andrew.
Yes.
Now we will gladly take any questions that you may have regarding our results.
Operator.
Thank you.
We'll now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing the keys.
It's like any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Chris Miller with JMP. Please go ahead.
Hey, guys I'm on for Steve today, Thanks for taking the question. So congrats on a nice quarter in a challenging commercial real estate environment.
Congrats to Dave on your retirement and welcome to the Altra and <unk>.
So I wanted to start on CLO. So we saw CLO get done by one of the Cra's recently.
I guess from where you guys said how does the CLO market look to you guys is cielo a possibility in 2024 and can you just remind me what the remaining reinvestment period is on your currency Airlines.
Yeah, Hi, it's Andrew.
Reinvestment period for our F. L. One has closed that occurred in the second quarter. The reinvestment period for F. L. Two closes at the end of this current quarter.
With respect to our plans for an additional CLO I would say, we're ramping our warehouse lines as assets are naturally amortize.
And we put new names onto the different warehouse lines that we have.
And at some point.
Through the natural amortization as you as you do the math and the deleveraging process.
There becomes a point, where you want to call that CLO and print. Another one we obviously want to do it to the extent we can so that were R. O a neutral.
And we think that.
To the extent from a timing perspective that probably puts us at the end of 2024.
Or earlier, if collateral begins to pay faster than what the stated maturity dates are.
So I think that's the timeline that we have in our head. We're certainly encouraged by the fact that the market seems to be opening.
As you pointed out there was a transaction recently completed by one of our peers.
And.
We're in close touch with the various banks on the street who are.
What lines of of aggregating and issuing so we're paying close attention to it but that's our that's our plan in terms of time and what how we think about it from an OE standpoint.
Does that answer your question.
Very helpful. Thank you.
And then just the other one I have here. So you guys have bought properties in the past to help utilize some of those tax loss carry forwards given some of the distress. We're seeing in commercial real estate out there are there opportunities that you guys are either seeing or would be interested in acquiring additional properties. I guess, just how are you guys thinking about that.
The short answer is no we acquired the properties that are in the portfolio very specifically to take.
Take advantage of the Nols that you highlighted.
We're now in a place where we believe those assets are going to begin to get monetized and the gains will be.
Utilized through.
Through those Nols to increase book value.
And then we'll be deploying additional capital.
And we will get it created through amortization or gains back into the loan book.
Where we are again targeting mid teens return on equity I think in the current quarter, we were a little bit better than a 14% Roe.
We think if we can deliver those types of returns.
To our shareholders, we think we're doing.
A pretty good a pretty good job.
Yeah, I don't think anyone's going to complain about mid teens ROE. So I. Appreciate you guys, taking the questions and congrats again on our next quarter.
Thank you.
Again, if you have a question. Please press star then one can be joined into the queue.
Our next question comes from Donald J, Paul It with great data.
Please go ahead.
Thank you for taking my call.
Adnan.
I'd like to see dividends.
Give some color.
When you might see it.
Dividends.
Yeah. Thank you John for the question.
It's tied our timing on paying dividends is tied to utilizing the net operating losses, we have.
In the portfolio.
You as a shareholder and all the shareholders should recognize that in lieu of actually receiving a cash dividend. The same amount of cash is accruing to increasing book value per share. So.
You as a shareholder or receiving the same rate of return Youre just receiving it in a slightly different form through the increase in book value, but we are mindful that there will come a time when we believe we've gotten book value to the appropriate level and then that return will be shifted and delivered to the shareholders in the form of dividend.
Yeah.
Okay.
Okay. Thank you.
Okay.
Right.
Yeah.
Let's say you have no further questions. The conference has now concluded and thank you for attending today's presentation. You may all now disconnect.
Okay.
Yeah.