ACR Q1 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Thursday, April 30, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Mark Steven Fogel
• Chairman — Andrew Dodd Fentress
• Chief Financial Officer — Eldron C. Blackwell
• Managing Director — Kyle K. Brengel

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS

• Book Value Per Share -- $29.98 at the quarter-end, up 66% since 2020, driven by real estate gains, stock buybacks, and retained earnings.
• CRE Loan Portfolio Size -- $2.2 billion across 60 investments at period-end, with a weighted average spread of 3.29% over one-month SOFR.
• CRE Securitization -- Closed the $1 billion 2026-FL4 deal with 86.5% leverage at SOFR plus 1.68%, featuring a 30-month reinvestment period; full run-rate impact expected in the next quarter.
• GAAP Net Loss -- $1 million, or $0.16 per share, with net interest income of $9.3 million, reflecting a $1.4 million decrease sequentially due to CRE securitization ramp-up and lower loan payoff fees.
• New Loan Commitments -- $495.6 million committed in the quarter, offset by $121.2 million in loan payoffs and net unfunded commitments, resulting in $374.4 million net portfolio growth.
• EAD (Earnings Available for Distribution) -- $0.02 per share, improving from an EAD loss of $0.48 per share in the prior quarter.
• CECL Allowance -- Total allowance for credit losses was $19.4 million, or 0.88% of the CRE portfolio, comprising entirely general credit reserves.
• Risk Rating -- Weighted-average risk rating improved to 2.5 from 2.7 sequentially; loans rated 4 or 5 accounted for 14%, down from 17% of the portfolio.
• Liquidity -- $87 million available: $48 million in unrestricted cash plus $38 million in projected financing on unlevered assets (figures rounded, do not sum due to methodology).
• GAAP Leverage Ratio -- Increased to 3.4x from 2.8x sequentially, attributed to the new CRE securitization closing.
• Real Estate Investment Gain -- $3.3 million GAAP and EAD gain recognized from a property sale in Greater Philadelphia.
• Net Operating Loss Carryforwards -- $32.1 million outstanding, or about $4.89 per share, as of quarter-end.
• Internalization Merger -- Announced combination with a related company; shareholders to receive transaction consideration entirely in ACR shares at book value, leaving management and employees with over a 40% ownership stake.
• Dividend Implementation -- Management stated dividends will be paid as earnings are realized through EAD following transaction close.
• Asset Management Revenues -- Upon closing, fees from asset management activities will be recognized by the public company and included in EAD.
• Share Issuance Policy -- Fentress said, "By definition, that means issuing at or above book value going forward."
• Target Leverage -- Fentress stated management comfort at "around four turns" of leverage and projected dividend growth without increasing leverage due to non-balance-sheet earnings.

SUMMARY

The company reported significant loan growth and capital deployment, highlighted by the $1 billion 2026-FL4 CRE securitization and $374.4 million net loan portfolio expansion. Management announced an internalization merger, aligning shareholder and management interests through over 40% insider ownership, and indicated that asset management revenue streams will be consolidated under the public entity to support future dividend distributions. The quarter included a $3.3 million gain from a property sale, and book value per share ended at $29.98, supported by positive real estate and investment activity. EAD turned positive, reflecting operational stability following the ramp-up phase of the new securitization.

• Management stated dividends will be tied directly to EAD after merger close, indicating a policy shift from prior practices.
• Asset management business integration means non-balance-sheet-related fees will supplement distributable income, potentially boosting return capacity.
• Fentress highlighted intentions to issue equity only "at or above book value," emphasizing accretive capital-raising discipline for future growth.
• The risk rating improvement and reduction in lower-rated loans may indicate credit quality stabilization, as judged by management's internal measures.
• The company is targeting a sector-leading dividend yield with "modest leverage," supported by new fee streams and platform scale.

INDUSTRY GLOSSARY

• CRE: Commercial Real Estate; refers to income-producing property such as office buildings, retail centers, industrial properties, and multifamily apartment buildings.
• SOFR: Secured Overnight Financing Rate; a benchmark interest rate used for dollar-denominated derivatives and loans.
• CECL: Current Expected Credit Loss; an accounting standard for estimating credit loss allowances on financial assets.
• EAD: Earnings Available for Distribution; a non-GAAP performance metric used by REITs to assess dividend-paying capacity.

Full Conference Call Transcript

Kyle K. Brengel: 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 and 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 10-Q and 10-K, and in particular, the Risk Factors section of its Form 10-K. 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-GAAP financial measures may be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation as a substitute for the financial information presented in accordance with GAAP. Reconciliations of non-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 Steven Fogel, President and CEO; Andrew Dodd Fentress, Chairman of ACR; and Eldron C. Blackwell, ACR's CFO. I will now turn the call over to Mark.

Mark Steven Fogel: 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 Eldron C. Blackwell, our CFO, will discuss the financial statements, liquidity condition, book value, and operating results for 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 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 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 raised our book value by 66% since 2020 to $29.98 per share. We deployed the proceeds from sales back into our loan book, originating high-quality loans. This quarter we closed on our new CRE securitization.

ACR’s 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 $121.2 million, 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 and 60 investments as of March 31, and the spread is now 3.29% over one-month term SOFR rates. We now have over half of the portfolio at SOFR floors of over 3%, so 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 31, our weighted average risk rating was 2.5, a decrease from 2.7 at December 31, and the number of loans rated 4 or 5 was 10, no change from the end of the fourth quarter. The portion of our CRE loan portfolio rated 4 or 5 based on the company's economic interest was 14% at March 31, down from 17% at December 31. 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 GAAP and EAD gain of $3.3 million. We will now have ACR's CFO, Eldron C. Blackwell, discuss the financial statements and operating results during the first quarter.

Thank you, and good morning, everyone.

Eldron C. Blackwell: 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 will see the run-rate impact of the fully invested FL4 securitization during the second quarter.

GAAP 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 in the Philadelphia area. We saw a decrease in current expected credit losses, or CECL reserves, of $1 million, 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 $30.31 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 3.4x at March 31, from 2.8x 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 Dodd Fentress for closing remarks.

Andrew Dodd Fentress: Thank you, Eldron. Along with the entire ACRES team and board members of ACRES Commercial Realty Corp., I am 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 an 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 will keep this 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 Q1, we have 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. We will now open the call for questions.

Operator: If you would like to ask a question, please press 1 on your keypad. To leave the queue at any time, press 2. Once again, that is 1 to ask a question. We will pause for just a moment to allow everyone a chance to join the queue. We will take our first question from Matthew Erdner with JonesTrading. Your line is open.

Matthew Erdner: Good morning, and congratulations on all the continued progress and on the internalization announcement. I would like to touch on that first—the timing of it, why now, why you felt like it was a good time—and then the economic impact of that going forward, if this were to be approved?

Andrew Dodd Fentress: Sure. With respect to the timeline, the expectation is that this will be an item in our annual shareholder meeting, which is scheduled for June 22. If approved, we would expect to close shortly thereafter, most likely in the July time frame. With respect to why now, we feel like there is a great market opportunity. We have positive momentum as a firm and as a team, and we felt like the relative size of the two companies made sense to do it at this juncture, given our trajectory as well. On the economic impacts, we have outlined a lot of it in the deck that is available for shareholders.

The punch line is we expect to be able to drive 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. Regarding the $87 million in liquidity, today we would say that we are fully invested. Part of the strategy is, 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.

Matthew Erdner: Got it. Awesome. Appreciate the color. Thanks, guys.

Operator: Thank you. We will move on to Christopher Muller with Citizens Capital Markets. Your line is open. Please go ahead.

Christopher Muller: Thanks for taking the question, and great to see the merger and internalization announcement. Once the transaction closes, what will the combined company look like? Is it going to look like just a larger ACR with a servicing portfolio, or are there other complementary businesses that are going to be part of the combined company? And then on dividends, should we expect a dividend to be implemented in quick order once the transaction closes, or will you get everything integrated first and then address the dividend? Lastly, do you have an estimated pro forma book value for this transaction?

Andrew Dodd Fentress: The company will have an asset management component, so the public entity will be the registered investment adviser for an existing asset management business that resides inside of funds and SMA structures. Those fees will flow up to the public company and be available to be included in the EAD calculation on a go-forward basis. On dividends, our general view is we will pay them as we earn them. Once the companies combine, we will have a very clear picture of the earnings power of the company, and we expect to distribute those earnings through EAD as they are earned. On pro forma book value, not at this time.

Christopher Muller: Got it. I will look out for more filings so we can calculate that ourselves. Appreciate you taking the questions today.

Operator: Thank you. Once again, if you would like to ask a question, please press 1 on your telephone keypad now. We will move on to Gabe Poggi with Raymond James. Your line is open.

Gabe Poggi: Good morning, and 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 capital as you grow the business? And as a follow-up, regarding leverage and leverage to total capital versus leverage to common, where is your comfort level on total leverage to common, or do you think about it as total leverageable capital inclusive of the preferred and noncontrolling interest?

Andrew Dodd Fentress: We believe in doing things accretively for shareholders. We have demonstrated that by repurchasing shares at a discount, and as we expect to grow the company, we want to do it accretively as well. By definition, that means issuing at or above book value going forward. On leverage, we are very comfortable around four turns. One of the advantages of the transaction is that we can target a higher dividend without increasing leverage. Over time, that is one of the advantages of having essentially non-balance-sheet-related earnings, where you do not have to increase leverage to increase earnings available for distribution.

In our materials, we have shown three cases where we are basically all at roughly 3.5x leverage, with different assumptions for non-balance-sheet-related fees that drive to dividends that start in the mid-single digits and can move up into the mid-teens.

Gabe Poggi: Got it. That is helpful. Thank you.

Operator: And once again, that is 1 if you would like to ask a question. One moment while we queue. It appears that we have no further questions at this time. I would be happy to return the call to our hosts for any closing comments.

Andrew Dodd Fentress: Thank you all for attending the call this morning. We know there is a lot of information to digest in the presentation, so please follow up with us directly with any questions, and we look forward to the conversations. Thank you.

Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.