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ACRES Commercial Realty Corp (ACR) Q1 2024 Earnings Call Transcript Highlights: Strategic Moves ...

GuruFocus Research
·4 min read

  • GAAP Net Income: $556,000 or $0.07 per share.

  • Loan Portfolio: Ended with $1.8 billion across 66 investments.

  • Net Funded Commitments: $11.4 million during the quarter.

  • Loan Payoffs: $80.8 million during the period.

  • Weighted Average Spread: 3.78% over one-month benchmark rates.

  • Real Estate Gain: Recognized a $5.8 million gain on conversion of a foreclosed property.

  • CECL Reserves: Increased by $4.9 million, totaling $33.7 million.

  • Earnings Available for Distribution (EAD): $0.16 per share.

  • GAAP Book Value per Share: Increased to $27.25 from $26.65.

  • Share Repurchase: $2.1 million used to repurchase 195,000 common shares.

  • Debt to Equity Leverage Ratio: Decreased slightly to 3.7 times.

  • Available Liquidity: $92.1 million as of March 31.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • ACRES Commercial Realty Corp successfully executed its business plan by selectively originating high-quality investments and actively managing its portfolio.

  • The company recognized a $5.8 million gain from converting an office property in Chicago through a deed in lieu of foreclosure, demonstrating effective asset management and value realization.

  • ACRES Commercial Realty Corp's loan portfolio ended the quarter with $1.8 billion across 66 individual investments, maintaining robust portfolio health.

  • The company's GAAP net income allocable to common shares was $556,000, or $0.07 per share, indicating positive earnings.

  • ACRES Commercial Realty Corp's book value per share increased from $26.65 at the end of the previous quarter to $27.25, aided by a strategic buyback program.

Negative Points

  • The company experienced a net decrease in the loan portfolio of $69.4 million due to high loan payoffs during the quarter.

  • ACRES Commercial Realty Corp reported an increase in CECL reserves to $4.9 million due to worsening macroeconomic factors and increased credit risk, reflecting potential future credit losses.

  • Earnings available for distribution (EAD) decreased to $0.16 per share from $0.55 in the previous quarter, showing a significant drop in distributable earnings.

  • Real estate operations income declined by 16% due to seasonality, impacting the overall financial performance.

  • The company's operating metrics at hotel properties were below expectations, which could indicate challenges in the hospitality segment of their portfolio.

Q & A Highlights

Q: Can you discuss the impact of expiring interest rate caps on your portfolio performance and how you are managing new cap acquisitions with sponsors and borrowers? A: Mark Fogel, President and CEO, explained that their asset management team proactively manages expiring caps by requiring borrowers to acquire new caps well in advance of any extensions. They have not faced any issues to date and maintain a good control over the situation months ahead.

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Q: What is your outlook on achieving a 10% return on book or EAD, and how do you plan to reach this target? A: An unidentified company representative stated that achieving a 10% EAD yield on book value is their target. The timing depends on the pace of asset sales and reinvestment into the loan book, as well as managing portfolio leverage.

Q: How do you foresee the pace of asset sales impacting the use of NOLs and the timing for reinstating dividends? A: The company is actively working on asset sales and does not have exact visibility on timing. The process will dictate the pace at which they can return to full dividend distributions, but they continue to return capital to shareholders through stock buybacks in the interim.

Q: Regarding the $1.7 million drop in real estate income from Q4, is this primarily due to seasonality? A: Eldron Blackwell, CFO, confirmed that the majority of the decline was due to seasonal effects, particularly at their hotel properties, with a slight market softening at one location.

Q: With the reinvestment periods of both CLOs expired, do you anticipate initiating a new CLO in the near future? A: Mark Fogel mentioned that the possibility of a new CLO depends on the amount of product they can contribute and market conditions. They are monitoring the situation but do not expect a new CLO in the immediate future.

Q: Would you accelerate the process of real estate sales if it allowed for rapid capital deployment into attractive investments? A: An unidentified company representative indicated that they are not delaying asset sales and are motivated by both the attractive investment opportunities in the market and a desire to normalize company operations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.