Q3 2024 Summary
Updated Jan 7, 2025, 3:05 AM UTC- ACR plans to monetize several REO assets over the next two quarters, which is expected to improve book value per share and provide capital to reinvest into their loan portfolio.
- Management is focusing on growing earnings and reinstating dividends, indicating confidence in future profitability and commitment to shareholder returns.
- Analysts have highlighted that ACR's stock has doubled over the last year, making it the best-performing mortgage REIT year-to-date, reflecting positive market sentiment towards the company.
- ACRES is experiencing deleveraging due to paydowns on existing CLOs, negatively impacting Earnings Available for Distribution and hindering the company's ability to drive earnings and reinstate dividends.
- The company's liquidity is constrained, with only $80 million available, limiting its capacity to originate new loans and grow the loan portfolio, potentially affecting future earnings growth.
- Future financing costs may increase as current CLO market conditions are less favorable, potentially resulting in higher costs and lower returns for shareholders.
-
Asset Monetization and REO Sales
Q: What REO assets are you selling in the next 6 months?
A: We are in the process of selling the student housing asset at FSU and have three other assets that we are highly certain will be executed over the next couple of quarters. -
Dividend Resumption
Q: What is needed to resume and grow the dividend?
A: We will continue to monetize assets and drive EAD, paying a dividend out of EAD that we believe will be growing as we re-lever the balance sheet and focus on driving earnings. -
Loan Pipeline and Originations
Q: How is the loan pipeline ramping up for new originations?
A: With about $80 million of liquidity, we plan to redeploy funds as assets repay, especially since many are not in a CLO and proceeds can be used for re-originations. ACRES is actively engaged in the marketplace, originating new loans weekly, and we expect to allocate some of this flow to the REIT when liquidity allows. -
Financing Costs and CLOs
Q: How do your current CLOs compare to today's market, and plans for new deals?
A: Our existing CLOs (FL1 and FL2) were executed in particularly attractive markets. While new CLOs might not match those terms due to wider spreads, we focus on the ROEs the structure can deliver. Based on current CRE CLO markets, we expect to drive mid- to high-teens ROE outcomes, assuming market conditions remain similar. -
Loan Ratings and Foreclosure
Q: What caused the decline in 4-rated loans this quarter?
A: The decline was due to a conversion to REO. The borrower had issues within his portfolio and couldn't keep the loan current, so we proceeded with foreclosure during the quarter. -
REO Asset Valuations and Gains
Q: Have you appraised REO assets, and what gains are expected?
A: We hold REO assets at cost or depreciated value and don't mark them until monetized. While we won't provide specific projections, we expect incremental gains upon sale, which will be positive rather than losses. These gains will flow through EAD when realized. -
Share Repurchase Program Update
Q: How much was used for share repurchases, and what's left?
A: We used $1.7 million for share repurchases this quarter and have about $2.3 million remaining in the program.