Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ACRES Commercial Realty Corp (ACR, Financial) reported a GAAP net income of $2.8 million, or $0.36 per share, for the third quarter.
- The company successfully managed a student housing development near Florida State University, achieving 95% occupancy.
- ACR recorded a $2.8 million unrealized gain from the conversion of a loan to real estate owned (REO) in Austin, Texas.
- The company ended the quarter with $1.6 billion in commercial real estate loans across 56 investments, demonstrating a strong portfolio.
- ACR's GAAP book value per share increased to $27.92 from $27.20 in the previous quarter, indicating growth in shareholder value.
Negative Points
- The loan portfolio experienced a net decrease of $134.4 million due to loan payoffs and foreclosures.
- Earnings available for distribution (EAD) decreased to $0.24 per share from $0.51 per share in the previous quarter.
- The company foreclosed on two loan assets, indicating challenges in asset management.
- ACR's total allowance for credit losses was $34.7 million, representing 2.19% of the loan portfolio, highlighting credit risk concerns.
- The company's debt to equity leverage ratio slightly decreased, but remains high at 3.3 times, indicating significant leverage.
Q & A Highlights
Q: Are you planning to clear equity assets and REO from your books before starting new originations, or will you handle both simultaneously?
A: We will handle both simultaneously. As we monetize assets, we will gradually redeploy capital without waiting for all assets to be cleared before beginning new originations. - Andrew Fentress, Chairman of the Board
Q: What are the targets for reinstating the dividend? Is it dependent on full monetization of assets?
A: We haven't set a specific target. We aim to monetize assets, drive earnings available for distribution (EAD), and pay dividends from EAD. This will grow as we relever the balance sheet and focus on earnings. - Andrew Fentress, Chairman of the Board
Q: How much was used for share repurchases this quarter, and what's left?
A: We used $1.7 million for share repurchases, and approximately $2.3 million remains on the program. - Eldron Blackwell, CFO
Q: Can you discuss the near-term liquidation of assets, particularly student housing near Florida State University?
A: In addition to the student housing, there are three other assets in process with a high degree of certainty for execution over the next couple of quarters. - Andrew Fentress, Chairman of the Board
Q: How are you planning to ramp up the loan pipeline, and will you offer loans to buyers of your assets?
A: We are actively engaged in the market and will allocate some origination to the REIT once liquidity is appropriate. We have about $80 million in liquidity and will redeploy as assets repay. - Andrew Fentress, Chairman of the Board
Q: How do the financing costs of your current securitizations compare to the current CLO market?
A: The current CLO market spreads are wider, but we focus on the ROEs that the structure can deliver. We expect to achieve mid to high 10s ROE outcomes based on current market conditions. - Andrew Fentress, Chairman of the Board
Q: Have you had any appraisals on REO properties since acquisition, and what are your expectations for gains?
A: We hold these at cost or depreciated value and will record gains upon sale. We expect incremental gains, not losses, but will provide specifics once sales are completed. - Andrew Fentress, Chairman of the Board
Q: Will the unrealized gain from REO conversion flow through EAD once realized?
A: Yes, when we monetize the asset, it will be adjusted in EAD. - Eldron Blackwell, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
