ACRES Commercial Realty (NYSE:ACR) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

General Motors Financial Company Inc reported a $3.3 million gain from a real estate sale, part of its ongoing strategy to enhance book value through high-quality loan origination and strategic asset management.

The company closed its fourth CRE securitization, Acres 2026 FL4, a $1 billion transaction with an 86.5% leverage rate at SOFR plus 1.68%, expected to boost financial performance in the coming quarter.

GAAP net loss was reported at $1 million, driven by decreased net interest income due to the ramp-up period of the new securitization, with liquidity standing at $87 million.

A significant strategic move was announced with the internalization of Acres, aimed at enhancing resources for middle-market customers and aligning management interests with shareholders, expected to close by July.

Management emphasized the company's focus on maintaining sound underwriting, proactive asset management, and achieving sector-leading returns through modest leverage and transparent management.

Full Transcript

OPERATOR

Thank you. Good day ladies and gentlemen and welcome to the first quarter 2026 earnings call for Acres Commercial Realty Corp. Earnings Conference call. Currently 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 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 Brengel, Vice President Operations. You may begin.

Kyle Brengel (Vice President Operations)

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 or 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 10K. 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 Generally Accepted Accounting Principles (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 Generally Accepted Accounting Principles (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 Aldrin Blackwell, ACR cfo. I will now turn the call over to Mark.

Mark Fogel (President and CEO)

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 Eldrin Blackwell, our CFO will discuss the financial statements, liquidity, condition, book value and operating results for the first quarter 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 Economic Activity Dividend (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 raise 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 2026 and will 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 2026 we closed new commitments of $495.6 million offset by loan payoffs and net unfunded commitments totaling 121, 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 60 investments as of March 31 and the spread is now 3.29% over one month term SOFA rates. We now have over half of the portfolio at sofa floors of over 3% and though 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 31st our weighted average risk rating was 2.5, a decrease from 2.7 at December 31st and the number of loans rated 405 was 10, no change from the end of the fourth quarter. The portion of our CRE loan portfolio rated 4 or 5 is based on the company's economic interest was 14% at March 31st, down from 17% at December 31st. 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 gap and ead gain of $3.3 million. We will now have ACRs CFO Eldren Blackwell discuss the financial statements and operating results during the first quarter.

Eldren Blackwell

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. Gap 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 $1,000,000 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 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 3.4 times at March 31 from 2.8 times 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.

Andrew Fentress (Chairman)

Thank you, Eldren. 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-merger, the Acres employees and board members will be the largest shareholders in the company with over a 40% interest. We'll 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 merits 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

Thank you. If you'd like to ask a question, please press Star one on your keypad. To leave the queue at any time, press Star two. Once again, that is Star one to ask a question and we'll pause for just a moment to allow everyone a chance to join the queue. Thank you. We'll take our first question from Matthew Erdner with Jones Trading. Your line is open.

Matthew Erdner (Equity Analyst)

Hey, good morning guys. 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 economics impact, economic impact of that going forward, , if this is 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 22nd. 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 the economic impacts, you know, 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? Yeah, I would say today we would say that we're fully invested. And look, part of the strategy is, you know, as we can, 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. Got it. Awesome. Appreciate the color. Thanks guys. Thank you.

OPERATOR

Thank you. We'll move on to Chris Muller with Citizens Capital Markets. Your line is open. Please go ahead.

Chris Muller (Equity Analyst)

Hey guys, thanks for taking the question. 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 a servicing portfolio or are there other complementary businesses that are part of ACC that are going to be part of the combined company? 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 a dividend down the road. 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. Got it. Well, I'll look out for more filings so we can calculate that ourselves. Appreciate you guys taking the questions today.

OPERATOR

Great, thank you. And once again, if you would like to ask a question, please press star then one on your telephone keypad. Now we'll move on to Gabe Poggi with Raymond James. Your line is open.

Gabe Poggi (Equity Analyst)

Hey, good morning. Thanks for taking the questions. 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? 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 baseball case for where you want to get the loan book to be. Where's your comfort level on a total leverage to common or do you really think about this at this size? You just think about it as total leverageable capital, obviously inclusive of the press and non controlling interest, et cetera. Got it. That's helpful. Thank you.

OPERATOR

Thank you. And once again, that is Star One. If you would like to ask a question. One moment while we queue. 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.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.