Q3 2024 ACRES Commercial Realty Corp Earnings Call

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Speaker Change: Please stand by, we're about to begin.

If anyone requires assistance during the conference. Please press Star then zero on your Touchtone telephone.

As a reminder, this call is being recorded I would now like to introduce your host for today's conference Kyle Bringle Vice President of 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 2024 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 the call are not based on historical information and May constitute forward looking statements when using 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 our 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.

During the period, we foreclosed on two loan assets one asset is an office property in Austin, Texas.

Upon conversion, we recorded a $2 $8 million unrealized gain based on market offers for the property set.

The second asset is a $9 $3 million multifamily property in Memphis, Tennessee, We are working on a plan to bring this asset to stabilization and exit with a positive outcome.

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 performing assets.

We will now have acr's, CFO alder and black will 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 $2 8 million or <unk> 36 per share diluted.

GAAP net income for the quarter included $10 5 million in net interest income and net loss on real estate operations of $665000, which included depreciation of $1 3 million and as Mark previously mentioned a gain of $2 8 million or <unk> 35 per share, resulting from the conversion of a CRE.

Speaker Change: Loan to real estate owned.

We saw a decrease to current expected credit losses, or seasonal reserves of $291000 or <unk> <unk> per share as compared to an increase in seasonal reserves during the second quarter of $1 $3 million.

The decrease in the general seasonal reserves was primarily driven by a decrease in modeled credit risk, resulting from payoffs modifications and net improvements in property level performance offset by minor worsening of macroeconomic factors.

The total allowance for credit losses at September 30 was $34 7 million and represented 219% or 219 basis points on our $1 6 billion loan portfolio at par and comprised $4 $7 million in specific reserves and $30 million in general credit reserves.

Earnings available available for distribution or <unk> for the third quarter was 24 per share as compared to 51 per share for the second quarter. The difference primarily resulted from a 14th decrease in real estate operations and a 6% decrease in dividends on our preferred stock due to due to the series C stock converting.

From a fixed rate to a floating rate.

Lastly, we saw a <unk> run rate decline in net interest income, resulting from net payoffs that occurred during the quarter.

GAAP book value per share was $27 92 on September 30 versus $27 20 on June 30th.

During the third quarter, we used $1 $7 million to repurchase 114000 common shares at an approximate 46% discount to book value and there was approximately $2 $3 million remaining on the board approved program at quarter end.

Available liquidity at September 30 was $79 million, which comprised $70 million of unrestricted cash and $9 7 million of projected financing available on unlevered assets.

Speaker Change: Our GAAP debt to equity leverage ratio slightly decreased to three three times at September 30 from three six times at June 30, primarily as a result of payoffs and our two remaining CRE securitizations.

And our recourse debt leverage remained consistent at one one times at both September 30 and June 30.

With that I will turn the call to Andrew <unk> for closing remarks.

Thanks, Aaron and thanks, Mark and I appreciate everybody joining the call. This morning.

As we've talked about we're in the process of monetizing not just the assets that we proactively acquired over the last couple of years, but also some of the Oreo assets that have arisen. We've got two examples of having done that profitably recently and we expect that over the next two.

Quarters, the current fourth quarter and probably the calendar first that much of that work will be completed and we'll be able to report back to you on the results and how theyre going to impact.

Book value per share, but directionally, our projection is that is going to be flat to better than where it is today.

With those sales and monetization, we expect to redeploy that capital back into the loan book and really turn the page to focus on earnings and our ability to drive to a market based dividend over the forward.

<unk> months and.

So that's really where the team is organized and focused today and.

<unk>.

We will try to share as much specifics as we can with you during the Q&A.

<unk>.

And look forward to your questions. So with that operator, if you can open the lineup we will look forward to.

The first question.

Speaker Change: Ladies and gentlemen at this time, if you would like to ask a question simply press star one on your telephone keypad. If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.

Once again that is star one to signal for a question and start to turn maybe for yourself, we will pause for just a moment to allow questions to assemble.

We will hear first from Mathew <unk> with Jones trading. Please go ahead.

Hey, good morning, guys. Thanks for taking the question.

Mathew: So when it comes to monetizing these equity assets, an Oreo are you guys looking to fully clear this stuff off of your books before turning to originations are you guys open to kind of doing it hand in hand together.

Speaker Change: Youre disposing of assets.

Speaker Change: Originating at the same time.

It'll be the ladder. So as we monetize we will redeploy gradually we're not going to wait until they are all completed to begin that process.

Okay. That's helpful. There and then turning towards the dividend what are you guys looking for there to kind of get that back up and going is it.

Full monetization of the assets and getting X amount of capital deployed.

What are you guys looking for there as targets.

Speaker Change: We haven't set a specific target, but what we are.

Speaker Change: We're going to do is to continue to monetize the assets.

Speaker Change: <unk> and then payout of a dividend that we believe will be growing as we again re lever the balance sheet and get back to focusing on driving earnings.

As you are aware one of the things that were.

Fighting if you will on the EAA front is the deleveraging that's occurring as a result of the current silos.

Speaker Change: Being paid down and so the liquidity that gets created for monetization first goes to pay down the AAA tranches. So.

Speaker Change: We're going to have to flip at some point too.

Thinking about how to.

Issue a new one.

And that will impact our ability to drive earnings as well. So that's all in the in the near future for us.

Alright, that's helpful. There and then can you remind me.

How much you guys used for share repurchases. This quarter and then what's left I think I missed those two numbers I saw the 114000 shares but what was the amount there.

Sure we use one point. So this is eldon, we used $1 $7 million and we have about $2 $3 million left on the program.

Speaker Change: Okay, great. Thank you guys.

Speaker Change: Got it.

Thanks, Matt.

Next we'll hear from the line of Stephen laws with Raymond James. Please go ahead.

Hi, good morning.

Speaker Change: Okay.

The end of the year I want to congratulate you guys think your stocks doubled over the last year and that's performing mortgage rate year to date. So I know you guys have accomplished a lot and it seems like the next six months are going to be pretty exciting Andrew given your comments and so.

I wanted to follow up on that I think student housing with the FSU asset likely the first domino to fall or for sale can you talk about.

What are their assets you think are near term liquidations and how we should think about.

Speaker Change: The sales playing out over the next six months.

Speaker Change: Yes, without getting too specific Stephen because we want to report on the results rather than give projections on that but what I would say is in addition to the one that you mentioned there are.

Speaker Change: Okay.

Speaker Change: Or is that are in process now that we have.

A high degree of certainty on being executed over the next couple of quarters.

Great and then as you think about the turning the loan pipeline back on.

Speaker Change: How is that going are you re engaged.

There will you do loans on any of these assets to the buyer is the way to put some money to work on assets you already know kind of how do we think about ramping up the pipeline and then when we will start to see new originations close.

So it really is about.

Speaker Change: Liquidity, so as you've seen we've got about $80 million of liquidity available to the company right. Now so we want to be mindful of the appropriate amount of liquidity keep on the balance sheet and then as these assets again repay will.

We will be able to redeploy that because many of them are as you are aware not on a CLO and so it doesn't when they sell we don't have to pay down in bonds associated with it. So theyre just really its equity that becomes available to put on a warehouse and go and re originate to.

To give you also reminder acres as a platform.

Manages capital away from this REIT and so we are very much engaged with the marketplace, each and every day and originating.

Speaker Change: New loans.

Weekly and so we expect to just be able to move some of that flow into the REIT. Once the dollars are available so.

We have not been absent from the marketplace and so this will be just allocating some of the origination to this vehicle once liquidity profiles as appropriate.

Speaker Change: Great I appreciate you highlighting that.

Follow up on your comments around the Securitizations.

Given the filings to see exactly what the <unk>, one and two have paid down two but when you look at the blended financing cost of those how do they compare with kind of where the CLO markets are today I know a couple of other mortgage Reits have recently done deals that included both the ramp period in two to three year reinvest period.

How close are we to collapsing one of these vehicles and looking at doing a new deal and kind of how does the financing cost compare to where the CLO markets are today.

So as it relates to the S. One and two terms those were done obviously in a market environment that we're in.

Speaker Change: Particularly attractive.

So I'm not sure if we collapse these two and redeploy into a new one they are going to be at the same levels, but spreads are wider as well. So what we really focus on are the roes that the structure can deliver to the shareholders and we expect based upon what's happening in the current market with the CLO execute.

Speaker Change: <unk>.

It will be able to drive that kind of mid to high teens Roe outcome.

Based upon the collateral that we have.

Speaker Change: What we're warehousing what we see.

Speaker Change: Pipeline.

Assuming that the CRE CLO market.

Speaker Change: Stays at.

Approximate levels to where they are today.

So we're definitely.

Thinking about that and have developed plans for it.

Speaker Change: Great look forward to coming out once and I appreciate the comments this morning.

Speaker Change: Yes.

Steven: Thanks Steven.

As a reminder, ladies and gentlemen, it is star one on your telephone keypad to signal for a question. We will hear next from Chris Mueller citizens J P. M. Please go ahead.

Hey, guys. Thanks for taking my question. So I guess following up on some of the Oreo topic here.

I see and one of your footnotes in the DAC that valuations are as of the date you acquired it. So have you guys had any type of appraisal since then or just any general thoughts.

Directionally, I guess, where valuations could be today, given you felt some of those properties for a little while now.

So youre right that we hold these at cost.

Speaker Change: Or depreciated value, if they're if they're being on a depreciation schedule. So.

Speaker Change: We're not going to mark them until they actually get monetized, so when we actually sell the asset.

As part of our process, we will record the gains then.

Does that answer your question.

Speaker Change: Yes, and just any thoughts of what those gains could be I mean, its about $200 million of.

Assets on the balance sheet, there so is that like.

$300 million type number or is it just going to be some incremental gains on on top of that $200 million.

I would categorize it as the latter sort of incremental gains.

But we're not I don't want to be specific in terms of giving projections will give you the results when they actually get completed.

Speaker Change: And I think they're.

We're going to be positive gains, they're going to be gains net losses I'll put it in that category.

Got it got it and then I guess on a similar note just a quick housekeeping one so on that unrealized gain with the Oreo conversion once that is realized will that flow through.

That's correct that's correct.

And then when we when we monetize that asset and Youll see that as an adjustment to <unk>.

Got it got it and then just one last quick one here. So it looks like the four rated loans declined by one loan in the quarter was that one of the foreclosed loans or did that loan payoff or was it upgraded.

That's correct. It's this market was.

Speaker Change: Conversion to Oreo.

Speaker Change: Okay got it and I guess, just following up on that real quick so what drove it from going to a <unk> or was that something that was on your guy's radar.

Speaker Change: Just any color you could give on that would be helpful.

Yes, I mean, it was always on our radar it was a borrower that we had been working with the borrower essentially.

As other issues within this portfolio and kind of run out of steam and his ability to keep alone.

Speaker Change: Brent.

Speaker Change: And.

We went ahead with the foreclosure as our remedy in.

Speaker Change: In the quarter.

Got it thanks for taking my questions and look forward to seeing the story play out over the next couple of quarters.

Speaker Change: Thank you thanks, Chris.

And ladies and gentlemen, as just one final reminder, that is star one if you would like to signal for a question and then I'll pause for just a moment.

Speaker Change: It appears we have no further questions at this time I would like to turn the floor back over to management for any additional or closing comments.

Thank you everyone for joining the call everyone.

Everyone have a happy and safe Halloween.

Thank you once again, ladies and gentlemen that will conclude today's call. Thank you for your participation you may disconnect at this time.

Speaker Change: [music].

Speaker Change:

Speaker Change: Okay.

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