ACRES Commercial Realty Corp. (ACR)·Q3 2024 Earnings Summary

Executive Summary

• Q3 2024 delivered GAAP diluted EPS of $0.36, up both quarter-over-quarter and year-over-year, with net income allocable to common at $2.8M, supported by a $2.8M gain on conversion to REO and modest CECL reserve decrease; total revenues were $22.353M, down 6.9% YoY but up vs Q2 .
• Earnings Available for Distribution (EAD) fell to $0.24 per diluted share from $0.51 in Q2, driven by lower real estate operations (-$0.14), higher preferred dividend costs from Series C moving to floating (-$0.06), and lower net interest income (-$0.04) .
• Book value per share rose to $27.92 (from $27.20 in Q2), with $1.7M of buybacks (114K shares) executed at ~46% discount to book; $2.3M remains on the plan, and liquidity stood at $79.7M at quarter-end .
• Management is actively monetizing REO assets (FSU student housing opened at 95% occupancy; three additional sales in process) and is preparing for a new CRE CLO to re-lever and pursue mid- to high-teens ROEs; trajectory toward a “market-based dividend” over the next 12 months is a stated goal .

What Went Well and What Went Wrong

• What Went Well

  • GAAP EPS improved to $0.36; book value increased to $27.92, aided by REO conversion gains and buybacks at a large discount to book .
  • Portfolio performance remained stable: 94% of CRE loans current; WA risk rating held at 2.7; weighted average spread steady around BR + 3.73% .
  • Clear capital allocation roadmap: monetization of REO assets underway (FSU student housing at 95% occupancy) with intent to redeploy into originations and pursue new CLO financing to restore earnings power .

• What Went Wrong

  • EAD per share declined materially to $0.24 (from $0.51 in Q2), reflecting lower real estate operations, higher preferred dividends from Series C floating, and lower NII due to paydowns and deleveraging .
  • Revenues declined YoY to $22.353M from $24.006M amid portfolio runoff and lower net interest income vs prior year .
  • Liquidity decreased to $79.7M (from $98.4M in Q2), while CLO paydowns continued to delever the platform, pressuring near-term EAD until new financing is executed .

Financial Results

Segment-like portfolio composition (property type mix):

Key Performance Indicators:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We are proud of the diligent efforts of the ACRES team in maintaining a robust and high-quality investment portfolio. Our unwavering focus remains on identifying high-quality opportunities while steadfastly protecting and enhancing shareholder value.” — Mark Fogel, President & CEO (press release) .
• “Loan payoffs during the period were $118.1 million… producing a net decrease to the loan portfolio of $134.4 million… weighted average spread… 3.73% over 1-month term SOFR… we recorded a $2.8 million unrealized gain based on market offers for the [Austin] property.” — Mark Fogel (prepared remarks) .
• “GAAP net income allocable to common shares… $2.8 million or $0.36… we saw a decrease to CECL reserves of $291,000… EAD… $0.24 per share as compared to $0.51… primarily resulted from a $0.14 decrease in real estate operations, a $0.06 [increase in] preferred stock dividends… and a $0.04 run rate decline in net interest income.” — Eldron Blackwell, CFO .
• “We expect… over the next 2 quarters… much of that [REO monetization] work will be completed… directionally… book value per share… flat to better… [then] redeploy that capital back into the loan book… and drive to a market-based dividend over the forward 12 months.” — Andrew Fentress, Chairman .

Q&A Highlights

• Dividend trajectory: Management intends to monetize assets, re-lever, and “pay out of EAD a dividend” that grows as earnings normalize; CLO issuance is a key lever to restore earnings capacity .
• Buybacks: $1.7M used in Q3 to repurchase 114K shares at ~46% discount to book; ~$2.3M remains authorized .
• REO sales pipeline: Beyond FSU student housing, “three others” are in process with high certainty of execution over next two quarters .
• CLO economics: New deal spreads wider than legacy, but management targets mid- to high-teens ROE given collateral/pipeline, contingent on CLO market stability .
• EAD treatment: The unrealized gain from REO conversion will flow through EAD when monetized, improving distributable earnings on realization .
• Credit migration: A loan rated “4” converted to REO as borrower issues escalated; active management remains the remedy .

Estimates Context

• Wall Street consensus (S&P Global) for Q3 2024 EPS and Revenue was unavailable in this session due to API limits. As a result, we cannot formally classify beats/misses versus consensus at this time. Investors should focus on GAAP diluted EPS rising to $0.36 and EAD per share declining to $0.24, with management signaling near-term asset monetization and potential re-levering to restore earnings power .
• Expect analysts to adjust EAD forecasts lower near term (Series C floating dividend cost, deleveraging), with potential upward revisions contingent on successful REO monetization, redeployment into new originations, and timing of a new CLO .
• Note: Consensus estimates via S&P Global were not retrievable; please treat estimate comparisons as unavailable for this recap.

Key Takeaways for Investors

• Near-term earnings pressure: EAD fell to $0.24/share on higher preferred dividend cost, lower real estate contribution, and NII headwinds from portfolio paydowns; GAAP EPS benefited from a $2.8M REO conversion gain .
• Capital recycling catalyst: FSU student housing at 95% occupancy and three additional REO sales in process set up capital redeployment and possible realization of gains (to flow through EAD when monetized) .
• Book value accretion: Buybacks at ~46% discount to book and potential gains from monetizations support book value per share, which rose to $27.92 .
• Re-levering roadmap: Management is actively evaluating a new CRE CLO with targeted mid- to high-teens ROE; execution would be a key inflection for EAD and dividend capacity .
• Stable credit performance: 94% of loans current; WA risk rating steady at 2.7; CECL allowance $34.7M, with a small QoQ decrease, though reserve ratio cited at 2.19% .
• Liquidity tighter but adequate: Liquidity of $79.7M and leverage down to 3.3x; monetizations and financing execution are critical for rebuilding earnings while maintaining prudent liquidity .
• Trading implications: Shares remain sensitive to concrete updates on REO sales, CLO timing/terms, and dividend trajectory; confirmation of asset sales and financing could catalyze rerating, while delays could extend EAD softness .

Appendix: Additional Data Points

Book Value, Liquidity, Leverage:

Preferred Dividend Details (Series C reset):