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DATE
Thursday, October 30, 2025 at 10 a.m. ET
CALL PARTICIPANTS
Chief Executive Officer and President — Mark Steven Fogel
Chief Financial Officer — Eldron C. Blackwell
Chairman — Andrew Dodd Fentress
Managing Director — Kyle K. Brengel
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TAKEAWAYS
Net Loan Portfolio Change -- Net loan portfolio decreased by $46.8 million in the third quarter, with $106.4 million in new loan commitments funded and $153.2 million in loan payoffs, sales, and paydowns.
Total Commercial Real Estate Loan Portfolio -- $1.4 billion in loans across 46 individual investments at quarter-end.
Weighted Average Spread -- Floating rate loans carried a 3.63% spread over one-month term SOFR rates at quarter-end.
Weighted Average Risk Rating -- Increased to 3.0 as of September 30, up from 2.9 as of June 30; The number of loans rated four or five remained unchanged during the quarter.
Real Estate Investment Sale -- Sale generated a gross capital gain of $13.1 million during the quarter, maximizing use of capital loss carryforwards per management's strategic plan.
Book Value Per Share -- Book value per share was $29.63 on September 30, up from $27.93 on June 30.
GAAP Net Income Allocable to Common Shares -- Net income allocable to common shares was $9.8 million for Q3 2025, Net income allocable to common shares in the third quarter was $1.34 per diluted share.
Earnings Available for Distribution (EAD) -- Earnings available for distribution for the third quarter was $1.01 per share, compared to $0.04 per share for the second quarter; Net EAD (non-GAAP) benefited from the real estate investment gain on sale during the quarter, offset by a $0.37 decline from real estate operations during the quarter.
CECL Reserve Release -- Current expected credit losses reserve decreased by $4 million during the quarter, attributed to improvements in portfolio credit risk and macroeconomic factors.
Total Allowance for Credit Losses -- $26.4 million, representing 1.89% of the loan portfolio as of September 30; composed of $4.7 million in specific reserves and $21.7 million in general reserves at quarter-end.
Liquidity -- $64 million in available liquidity as of September 30, with $41 million in unrestricted cash and $23 million in projected financing available on unlevered assets at quarter-end.
Share Repurchase -- $2.9 million used to repurchase 153,000 common shares at an approximate 36% discount to book value as of September 30; $2.5 million remained authorized at quarter-end.
Debt-to-Equity Leverage -- Debt-to-equity leverage decreased to 2.7x as of September 30, down from 3.0x as of June 30, driven by net loan repayments and asset-specific financing payoffs.
Net Operating Loss Carry Forward -- $32.1 million, or approximately $4.55 per share, at period-end.
CRE CLO Readiness -- Management expressed intent to execute a CRE CLO transaction, with sufficient collateral anticipated by Q1 2026.
Book Value Objective -- Chairman Andrew Dodd Fentress said, our target when we took over was approximately $30 a share. So we're creeping up on that objective.
Dividend Resumption Criteria -- Chairman Andrew Dodd Fentress said, once we hit our book value objectives and we think we've gone through the exercise of monetizing the assets and utilizing the tax gains, the tax losses or the gains we have, that that would be an appropriate time to begin paying a dividend again.
SUMMARY
Management reported a reduced net loan portfolio exposure during the quarter, driven by higher repayments and asset sales, with plans for increased originations in subsequent quarters. The company realized a $13.1 million capital gain from a targeted real estate asset sale during the quarter, directly supporting its strategy to optimize tax attributes for shareholder value. Book value per share rose $1.70 sequentially during the quarter, approaching the long-stated $30 objective and shaping expectations for future capital actions. Earnings available for distribution (non-GAAP) improved sharply during the quarter, reflecting both asset monetization and credit reserve releases, with liquidity and leverage metrics suggesting readiness for expanded loan deployment. No guidance was given for further increases in book value above the target, but the sale of three remaining properties may provide additional capital for redeployment.
Chairman Andrew Dodd Fentress confirmed only three real estate assets remain to be sold, with reasonable visibility on one and future value likely influenced by operating performance and market interest rate trends.
Management stated there are no significant loan payoffs expected in the near term and reiterated its commitment to a “net growth” target for the loan portfolio.
The company does not plan to provide construction financing within the REIT itself but expects future bridge loans to originate from current fund-managed construction projects, totaling $650 million to $700 million underway at quarter-end.
Chairman Andrew Dodd Fentress noted, we're getting close, to the resumption of dividends after book value objectives are achieved and monetization of selected assets is completed.
INDUSTRY GLOSSARY
SOFR (Secured Overnight Financing Rate): The benchmark interest rate for dollar-denominated derivatives and loans that replaced LIBOR, used in floating-rate loan pricing.
CRE CLO (Commercial Real Estate Collateralized Loan Obligation): A securitization vehicle pooling CRE loans, allowing lenders to finance and syndicate portfolios while managing risk exposure.
CECL (Current Expected Credit Loss): An accounting standard requiring timely recognition of expected credit losses over the life of a loan portfolio.
Book Value Per Share: Equity attributable to common shareholders divided by the number of outstanding shares, reflecting net asset value on a per-share basis.
EAD (Earnings Available for Distribution): A non-GAAP metric referencing distributable net income, often used by REITs to gauge cash flows available for dividends.
REO (Real Estate Owned): Property acquired through foreclosure by a lender or bank, pending disposition or redevelopment.
Full Conference Call Transcript
Kyle K. Brengel: I would like to highlight that we have posted the third quarter 2025 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 during this call are not based on historical information and may constitute forward-looking. When used in this conference call, the words believes, anticipates, expects, and similar expressions are intended to identify forward-looking.
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 8-K, 10-Q, and 10-K, and in particular, the risk factors section of Form 10-Ks. 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. A presentation of this information is not intended to be considered in isolation or as a substitute to 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, and Eldron C. Blackwell, ACR's CFO. I will now turn the call over to Mark Steven Fogel.
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, discusses the financial statements, liquidity condition, book value, and operating results for the third quarter 2025. Of course, we look forward to your questions at the end of our prepared remarks. The ACRES team remains focused on executing on our business strategy by building a pipeline of high-quality investments, actively managing the portfolio, and focusing on growth in both earnings and book value for our shareholders.
In the third quarter, we funded new commitments of $106.4 million offset by loan payoffs, sales, and paydowns of $153.2 million, producing a net decrease to the loan portfolio of $46.8 million. We expect a substantial number of new loan closings in the fourth quarter, which will produce positive growth in the portfolio for the full year. The weighted average spread of the floating rate loans in our $1.4 billion commercial real estate loan portfolio is now 3.63% over one-month term SOFR rates. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. The company ended the quarter with $1.4 billion of commercial real estate loans across 46 individual investments.
At September 30, our weighted average risk rating was 3.0, an increase from 2.9 at June 30, and the number of loans rated four or five was 13 both at the end of last quarter and the end of this quarter. During the quarter, we sold one of our real estate investments, which resulted in a gross capital gain of $13.1 million. This gain on sale represented a significant part of our strategic plan to use our capital loss carry forward to maximize shareholder value. During the quarter, we also closed on a construction loan with a third-party lender to convert an REO office property in Chicago to a class A 252-unit multifamily property.
The property had previously been contributed to a joint venture with a Chicago-based developer. We expect the grand opening of the property during Q3 2026. As we exit our real estate investments, and the loan portfolio continues to amortize, we expect to redeploy capital into attractive CRE loans. As always, we will seek to optimize our portfolio leverage in order to drive equity returns. In summary, the ACRES team continues to be focused on the overall quality of the investment portfolio, including investments in real estate, with the goal of improving credit quality and recycling capital into new investments to enhance shareholder value. We will now have ACR's CFO, Eldron C.
Blackwell, discuss the financial statements and operating results during the third quarter.
Eldron C. Blackwell: Thank you, and good morning, everyone. GAAP net income allocable to common shares in the third quarter was $9.8 million or $1.34 per share diluted. GAAP net income for the quarter included a $13.1 million gross gain on the sale of one of our real estate investments as Mark Steven Fogel discussed. Net real estate operations declined by $2.7 million over the prior quarter due to a loss of $2.8 million. Of that loss, $2.2 million was due to exit fees on the construction and PACE financing, and other accelerated costs on the balance sheet from the aforementioned real estate investment sale, and to a lesser extent from the operating performance of at our two hotels.
During the quarter, we saw a decrease in current expected credit losses or CECL reserves of $4 million or 54¢ per share as compared to a decrease in CECL reserves during the second quarter of $780,000, which was primarily driven by improvements in the model credit risk of our CRE loan portfolio and improvements in expected macroeconomic factors during the quarter. The total allowance for credit losses at September 30 was $26.4 million and represented 1.89% or 189 basis points on our $1.4 billion CRE loan portfolio. At par, and was composed of $4.7 million in specific reserves and $21.7 million in general credit reserves.
Earnings available for distribution or EAD for the third quarter 2025 was $1.01 per share, as compared to 4¢ per share for the second quarter. Quarter over quarter, EAD saw a net $1.30 increase due to the real estate investment gain on sale offset by a 37¢ decrease from real estate operations. The net EAD gain is our allocable portion of the gain based on our ownership percentage in the investment. GAAP book value per share was $29.63 on September 30 versus $27.93 on June 30. Additionally, during the quarter, we used $2.9 million to repurchase 153,000 common shares at an approximate 36% discount to book value at September 30.
There was approximately $2.5 million remaining on the board-approved program at quarter end. Available liquidity at September 30 was $64 million, which comprised $41 million of unrestricted cash, and $23 million of projected financing available on unlevered assets. Our GAAP debt to equity leverage ratio decreased to 2.7 times at September 30 from three times at June 30 from net repayments on our CRE loan portfolio and the payoff of asset-specific financing on the sold real estate investment. At the end of the third quarter 2025, the company's net operating loss carry forward was $32.1 million or approximately $4.55 per share. With that, I will turn the call to Andrew Dodd Fentress for closing remarks. Thank you, Eldron C. Blackwell.
Andrew Dodd Fentress: The third quarter showed progress on our stated goals of selling assets, redeploying the gains into new loans. We are nearly complete on this mission and are excited about the next steps. We have a full pipeline that will soon be available for securitization, and get the company on track to maximize income and EAD. This quarter marked the fifth anniversary since we assumed the role of manager for ACR. In this five-year period, book value has increased 12.7% per year and the stock has increased 41.8% per year. Excited for the next chapter in the company's evolution and look forward to your questions. I'll now turn the call back over to the operator. Thank you.
Operator: Thank you. At this time, we will open the floor for questions. If you would like to ask a question, you may press 1 on your touch-tone phone now. If you'd like to remove yourself from the queue, you may press 2. Again, that is 1 to ask a question. And we'll take our first question from Matthew Erdner with Jones Trading.
Matthew Erdner: Hey, good morning, guys. Thanks for taking the question. And congrats on a solid quarter there. As it relates to kind of the asset-specific financing or I guess the reinvestment there, what are you guys looking for in the market to kind of go out with a CLO? Or is it just a matter of getting some originations out the door in the fourth quarter, get the portfolio a little bit bigger and then go into the market?
Mark Steven Fogel: Yes. Thanks, Matt. It's really what you just said in the latter part of your question, which is we're in the marketplace originating new loans currently. We expect by the end of the fourth quarter, beginning of the first quarter to have sufficient collateral on warehouse to execute a transaction sometime in Q1.
Matthew Erdner: Got it. And then, yeah, as a follow-up to that, it looks like there's no fully extended maturities for the remainder of the year. Are you guys expecting any loans to pay off early? And if not, you know, have you guys committed any capital loans quarter to date just to try and target kind of that 1.5 to 1.7 year-end target that you guys have laid out in the past?
Mark Steven Fogel: Yeah. We do not see anything significant with respect to payoffs at this juncture. And yes, we're still on the same target for net growth that we've laid out in the past.
Matthew Erdner: Got it. That's helpful. And then you know, as it relates to those loans, do you expect to be more active on the construction side or you know, as a part of the bridge that you guys have done in the past also?
Mark Steven Fogel: In the REIT, we do not typically provide construction financing. On the other side of our business, and within our fund business, we do provide construction loans, which actually is a help to the REIT eventually as we provide bridge loans those construction loans to take those out. So we are active on the construction financing side, but on the fund part of our business, which will eventually benefit the REIT as those loans migrate into bridge loans.
Matthew Erdner: Got it. I'll just a couple of We'll put some numbers on that real quick. So right now, we in the portfolio on the fund side, there's about $650 to $700 million of construction that's underway. Expect some percentage of that over time to migrate the reinvestment periods of the CRE CLO. Got it. That makes sense. Helpful. Yep. For sure. Thank you guys for the comments.
Operator: We'll take our next question from Chris Muller with Citizens Capital Markets.
Chris Muller: Hey, guys. Thanks for taking the questions, and nice to see the market rewarding you guys, your stock up 10% this morning. So also great to see the REO sale and growth in book value and kudos to you guys for being patient and sticking to your strategy. Do you have any thoughts of where book value could settle once the remaining properties get sold? Or maybe asked a little bit differently, should we expect further chunky increases to book value as those properties get sold?
Andrew Dodd Fentress: This is Andrew. I think we've said our target when we took over was approximately $30 a share. So we're creeping up on that objective. I do not want to give guidance really too much ahead or above that. There are really three properties that are remaining, and I think with what we know about those, 30 is, you know, a reasonable objective.
Chris Muller: Got it. And then I guess, on property sales, following up on that a little bit. With the Fed now back on an easing cycle, have you guys seen a pickup in interest in those properties? And is there anything that you could share on potential timing of future sales? Is that like a 1Q type event? Or is it gonna come later in the '26?
Andrew Dodd Fentress: I think on one of them, we've got reasonable visibility. Sometime in the next couple of quarters. And the other are operating businesses that will probably benefit from evaluation as the Fed eases a little bit. But we'll really rely more heavily on the operating metrics at the properties themselves, less so on multiples.
Chris Muller: Got it. And just one more if I could throw it out there. And you guys get asked this question a lot, but I'm going throw it out there anyway. Is there anything that you can share on potential dividend and any timing around that?
Andrew Dodd Fentress: Yeah. We've stated pretty clearly that once we hit our book value objectives and we think we've gone through the exercise of monetizing the assets and utilizing the tax gains, the tax losses or the gains we have, that would be an appropriate time to begin paying a dividend again. And as I said, we're getting close. We've really only got one or two more to sell.
Chris Muller: Got it. Appreciate you guys taking the questions today, and congrats again on a really great quarter.
Andrew Dodd Fentress: Thanks. Appreciate it.
Operator: Thank you. And it looks like we have no additional questions at this time. I'd like to now turn it back to our speakers for any closing or additional remarks.
Andrew Dodd Fentress: Great. Thank you so much, operator, for hosting the call. We appreciate everybody's participation. If anybody has questions or follow-ups, we're always available. We look forward to talking to you again soon, +1 01 or at our next quarterly call. Thank you so much. Have a great holiday season, everybody.
Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect.