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DATE

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

CALL PARTICIPANTS

  • Vice President of Operations - Kyle K. Brengel
  • President and Chief Executive Officer - Mark Steven Fogel
  • Chairman - Andrew Fentress
  • Chief Financial Officer - Eldron C. Blackwell

TAKEAWAYS

  • GAAP Net Loss -- $12.5 million or $1.87 per share, including $5.1 million of internalization transaction costs and $4 million of incremental compensation expense.
  • Earnings Available for Distribution (EAD) -- A loss of $0.74 per share, compared to an EAD gain of $0.02 per share in the first quarter of 2026.
  • Adjusted EAD -- $0.14 per share, when excluding $5.5 million in internalization transaction costs and $984,000 of accelerated deferred debt costs.
  • Net Interest Income -- $10.5 million, representing an increase of $1.3 million over the prior quarter driven by the full quarter's impact of a new CRE securitization.
  • Total Loan Portfolio -- $2.1 billion at par, following a net decrease of $74.9 million during the second quarter.
  • Loan Payoffs and Paydowns -- $92.7 million, offset by funded commitments of $17.8 million during the period.
  • GAAP Book Value -- $26.76 per share at June 30, 2026, compared to $29.98 per share at March 31, 2026.
  • Available Liquidity -- $83 million, comprising $41 million of unrestricted cash and $42 million of projected financing available on unlevered assets.
  • Leverage Ratio -- 3.2x at June 30, 2026, down from 3.4x at March 31, 2026, primarily due to net repayments on the CRE loan portfolio.
  • Weighted Average Risk Rating -- 2.6, an increase from 2.5 at March 31, 2026, indicating a slight shift in portfolio performance.
  • High-Risk Loans -- 10 loans rated 4 or 5 at the end of the second quarter, representing 14% of the portfolio's economic value.
  • Allowance for Credit Losses -- $21.1 million, representing 0.99% of the $2.1 billion loan portfolio at par.
  • CECL Reserve Change -- An increase of $1.7 million or $0.25 per share, driven primarily by a decline in projected macroeconomic factors.
  • Net Operating Loss (NOL) Carryforwards -- $94.1 million or approximately $6.30 per share of book value, which can be offset against future net income.
  • Net Growth Target -- $500 million for the REIT in 2026, as management stated the pipeline for new loan opportunities remains healthy.
  • Internalization Approval -- Approximately 99% of votes cast at the Annual Shareholders Meeting were in favor of the share issuance for the internalization transaction.
  • Post-Merger Ownership -- Pro forma for the closing of the transaction, company employees will own 40% or more of common stock.
  • Internalization Expenses -- Management expects additional transaction-related costs to be recognized in the third quarter of 2026, though these are projected to be lower than Q2 levels.
  • Real Estate Operations -- A net increase of $1.1 million in the performance of net real estate operations during the second quarter.
  • Deferred Debt Costs -- $984,000 recognized due to the acceleration of costs on one of the company's debt facilities.

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RISKS

  • Fogel stated, "it is difficult to sell the asset when yeah, you cannot project the expenses on a go forward basis for labor," regarding a hotel property in a market impacted by labor strikes.
  • Blackwell noted that the $1.7 million increase in CECL reserves was "primarily driven by a decline in projected macroeconomic factors," which may continue to impact future reserve levels.

SUMMARY

Management at ACRES Commercial Realty Corp. (ACR +3.63%) reported a quarterly loss primarily attributed to one-time costs associated with the pending internalization of the company's manager. The transition from an externally managed REIT to an internalized structure received overwhelming shareholder approval, with closing expected in short order. Despite the reported net loss, the company maintained a stable liquidity position and reduced its leverage ratio through loan repayments. Management emphasized that the underlying loan portfolio continues to perform with consistent underwriting, while the pipeline for new originations is at historically high levels. The company is transitioning its reporting to include fee-related revenues from new fund products and separate accounts following the merger.

  • CEO Fogel stated that the loan pipeline is "stronger than ever," noting that the company is seeing increased opportunities as market participants begin to sell assets and realize equity losses.
  • Chairman Fentress indicated that the internalized company will have two primary revenue sources, requiring a transition in financial reporting to include fee-related revenues alongside the REIT balance sheet.
  • The company continues to hold two REO properties, with one hotel remaining on the market since 2022 due to complications from labor strikes and the absence of a union contract.
  • CFO Blackwell noted that transaction costs for the internalization are expensed as incurred, which will lead to further, albeit lower, one-time charges in the third quarter of 2026.
  • Management confirmed its goal of achieving $500 million in net growth for the year by converting existing equity dollars in the portfolio into the loan book.
  • The internalization transaction will result in employees owning over 40% of the common stock, which Fentress stated ensures management is "directly aligned" with shareholders.
  • The company's $94.1 million in net operating loss carryforwards represents approximately $6.30 per share of book value available to offset future taxable income.

INDUSTRY GLOSSARY

  • CECL (Current Expected Credit Loss): An accounting standard that requires companies to estimate and reserve for expected credit losses over the life of a loan.
  • EAD (Earnings Available for Distribution): A non-GAAP financial measure used by REITs to assess the amount of capital available for dividends, excluding certain non-cash or one-time items.
  • Internalization: The process by which a REIT takes its management functions in-house, typically by merging with or acquiring its external manager.
  • NOL (Net Operating Loss) Carryforward: A tax provision that allows a company to use losses from previous years to offset future profits, thereby reducing tax liability.
  • REO (Real Estate Owned): A term used to describe a class of property owned by a lender, typically after an unsuccessful sale at a foreclosure auction.

Full Conference Call Transcript

Operator: Morning, ladies and gentlemen, and welcome to the Second Quarter 26 Acres Commercial Realty Corp. Earnings Call. And answer session with instructions to follow at that time. And as a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle K. Brengel, Vice President of Operations. Please go ahead, sir.

Kyle K. Brengel: Good morning, and thank you for joining our call. I would like to highlight that we have posted the second quarter 26 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. 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 8-Ks, 10 Q, and 10 ks. And in particular, the risk factor 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. A presentation of this information is not intended to be considered in isolation or 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 quarter. With me on the call today are Mark Steven Fogel, President and CEO; Andrew Fentress, Chairman of ACR and Eldron C. Blackwell, ACR's CFO. 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 financial statements, liquidity condition, book value, and operating results for the second quarter of 2026. Of course, we look forward to your questions at the end of our prepared remarks. The ACRES team continues to actively manage the portfolio and has seen operations improving on underperforming assets. We are selective on the opportunities we pursue and the loans we originate. We still anticipate meeting our target $500 million of net growth in the REIT for 2026.

We spoke to our Annual Shareholders Meeting last month at which time we proposed a share issuance in accordance with a merger agreement we entered into with our manager, the result of which will be the internalization of the management function of our manager. We are very pleased that approximately 99% of the votes cast on the proposal to issue shares as part of the internalization transaction were cast in favor of the proposal. The Acres team has been working hard on the internalization and anticipates that closing will take place in short order. We look forward to providing more updates as we complete the transaction.

Loan payoffs and paydowns during the period were $92.7 million and funded commitments during the quarter were $17.8 million producing a net decrease to the loan portfolio of $74.9 million Portfolio generally continues to perform demonstrating sound and consistent underwriting and proactive asset management. At June 30, our weighted average risk rating was 2.6, an increase from 2.5 at March 31 and the number of loans rated 4 or 5 was 10, the same as the end of the first quarter. The portion of our CRE loan portfolio rated 4 or 5 based on the company's economic value was 14% at both June 30 and March 31. We will now have ACR's CFO, Eldron C.

Blackwell, discuss the financial statements and operating results during the second quarter.

Eldron C. Blackwell: Thank you, and good morning, everyone. GAAP net loss allocable to common shares in the second quarter was $12.5 million or $1.87 per share. GAAP net loss for the quarter included $5.1 million of internalization transaction costs, $4 million of incremental compensation expense from the accelerated vesting of restricted stock in connection with the pending internalization transaction. Transaction costs for the pending internalization transaction are expensed as incurred in accordance with generally accepted accounting principles. As such, we expect additional transaction related costs to be recognized in the third quarter as we diligently work to close the deal.

GAAP net loss for the quarter also included $10.5 million in net interest income which was an increase of $1.3 million over the prior quarter. This increase in net interest income was primarily driven by the full quarter's impact of our new CRE securitization. GAAP net loss for the quarter also included $1.1 million of net increase in the performance of our net real estate operation. We saw an increase in current expected credit loss or CECL reserves of $1.7 million or $0.25 per share as compared to a decrease in CECL reserves during the first quarter of $1 million, which was primarily driven by a decline in projected macroeconomic factors.

The total allowance for credit losses at June 30 was $21.1 million, which represented 0.99% or 99 basis points on our $2.1 billion loan portfolio at par and was composed entirely of general credit reserves. EAD for the second quarter 26 was a loss of $0.74 per share as compared to an EAD gain of $0.02 per share for the first quarter. EAD loss was primarily driven by $5.5 million in internalization transaction costs recognized during the quarter and the recognition of $984 thousand of accelerated deferred debt costs on 1 of our debt facilities during the quarter. Without these costs, EAD would have been $0.14 for the quarter.

GAAP book value per share was $26.76 on June 30 versus $29.98 on March 31 driven by the vesting of restricted stock, transaction costs, and deferred debt costs this quarter. Available liquidity at June 30 was $83 million which comprised $41 million of unrestricted cash and $42 million of projected financing available on unlevered assets. Our GAAP debt to equity and leverage ratio decreased to 3.2x at June 30 from 3.4x at March 31, due to primarily net repayments on our CRE loan portfolio.

At June 30, 2026, the company had total gross net operating loss carry forwards of $94.1 million or approximately $6.30 Per share of book of value that can be offset against the future net income generating activities of the company. With that, I will now turn the call to Andrew Fentress for closing remarks.

Andrew Fentress: Thank you, Eldron and Mark. First, I want to thank all of our shareholders for voting in favor of the transaction this June. The entire team is highly motivated by your confidence, and we are committed to working to deliver on our goal of growing value for our shareholders over the long term. Pro forma for the closing of the transaction Acres employees will own 40-plus percent of ACR common stock. We are directly aligned with you.

As you are aware, the combined company will have 2 primary sources of revenue that we will continue to focus on as we go forward, and we intend to provide you with as much transparency around the key metrics as possible so that you know what we are focused on and that our efforts can be measured over time. We ask for your patience as we transition the reporting from simply a REIT balance sheet to 1 that also includes additional fee related revenues. Nothing about our business is changing. We will continue to originate, underwrite, and asset manage quality assets in quality markets with quality sponsors.

We do this by staying focused on serving our borrowers and delivering them the service and capital that they need. We chose this time for the transaction because we see ample opportunity to grow. Stay tuned as we expect to share more with you in the coming weeks about the progress of the transaction. Thank you for your continued support, and I look forward to speaking with all of you. This concludes our opening remarks. I will now turn the call back over to the operator for questions.

Operator: Thank you, Mr. Star 1. If you find that your question has been addressed, you may remove yourself from the queue by pressing 2. Once again, that is Star 1 for questions. We will go first this morning to Matthew Erdner of Jones Trading. Please go ahead.

Matthew Erdner: Hey. Good morning, guys. Thanks for taking the question. I would like to talk about the loan portfolio and kind of what you guys are seeing from the pipeline and kind of that path to that $500 million net growth that you talked about, where you guys kind of see that shaking out over the next couple of quarters?

Mark Steven Fogel: Thanks, Matthew. This is Mark. The pipeline is actually stronger than ever. there is a lot of opportunity out there and we are, you know, analyzing the best opportunities to put into the portfolio. I think that what we are seeing in the market today is a lot of capitulation. People are starting to sell assets, realizing that potentially they might not recover all of their equity. We are starting to see a lot of sales happening, acquisitions. And we are getting the benefit of a good look at some really quality opportunities with good sponsors.

Matthew Erdner: Awesome. that is good to know. And then I guess, looking into the internalization, are there any, I guess, 1-time expenses that you guys are expecting that we should kind of think about as this process continues or as you guys begin to integrate?

Mark Steven Fogel: Yeah. There are going to be some 1-time expenses. We incurred some of them in the quarter. As you probably are aware, GAAP requires us to record expenses as they get created, so that is why some of them showed up in Q2.

Analyst: There will be some additional expenses that show up in Q3.

Matthew Erdner: Got it. And then I guess from a modeling perspective, we kind of look at that as a similar to the second quarter?

Mark Steven Fogel: Sorry. Say that 1 again?

Matthew Erdner: From a modeling perspective, should we think about it? Are those 1-time expenses running similarly to what we saw this quarter?

Mark Steven Fogel: No. They will be lower in the third quarter. that is all. The 1-time transaction related. Charges from an expense standpoint. Yeah. Okay. Perfect. that is helpful there.

Matthew Erdner: And then last 1 for me. Could you talk a little bit about the bridge on slide 22 from you know, the externally managed to the 20 or 2.7 billion number. Is that largely from that warehouse financing that you guys are able to pull down right now and start issuing or originating on?

Mark Steven Fogel: No. That is largely a function of existing equity dollars that are in the portfolio or that are in the portfolio that are going to be sold and converted from equity into loan book.

Matthew Erdner: Got it. that is helpful. Thank you, guys.

Mark Steven Fogel: Thank you.

Operator: We will go next now to Christopher Muller of Citizens Capital Markets.

Christopher Muller: Hey, guys. Thanks for taking the questions. Maybe picking up on that last line of questioning.

Mark Steven Fogel: So I guess looking at the hypothetical EAD post merger, it looks like the AUM fees are the key between those different case scenarios there. I guess, what is the main driver behind the AUM fees that you guys would have control over to push it between case 1 up to case 3? Mark Steven Fogel: So this is AUM and fees related to a Evergreen Fund vehicle, separate accounts, and new fund products that are in our pipeline at Acres.

Analyst: So we have pretty good visibility on these numbers.

Christopher Muller: And what would push it towards that $48 million versus to the $73 million in those different case scenarios? Additional AUM growth in those products.

Mark Steven Fogel: So separate account open and closed end fund vehicles.

Christopher Muller: Got it. So it is just growing the AUM base. That makes sense? And I guess maybe changing gears a little bit.

Mark Steven Fogel: On the I think you have 2 REO properties left. and I guess 1, is there any updates on timing for potential sales you guys could share with us there?

Christopher Muller: And I guess, the other 1, 1 of the hotels looks like it is been held for sale since 2022. Has that been listed for sale in the market since 2022, or is that just the accounting treatment of the asset?

Mark Steven Fogel: It has been listed for sale and various reasons, including labor strikes, in that market. it is been difficult to sell. it is actually back on the market right now. And, again, we are being held up a little bit by not having a contract with a labor union, and it is difficult to sell the asset when yeah, you cannot project the expenses on a go forward basis for labor. So yes, we are actively trying to sell it, but it is difficult to find a buyer until there is some commitment on the side of the union.

Christopher Muller: Got it. Appreciate you guys taking the questions today, and I look forward to this internalization closing, hopefully, in the next couple weeks.

Mark Steven Fogel: Thank you, Christopher. Excellent.

Christopher Muller: Thank you very much.

Mark Steven Fogel: Thank you.

Operator: And just a quick reminder, ladies and gentlemen, any further questions this morning, please press 1 at this time. And we will pause for just 1 moment. And, gentlemen, it appears we have no further questions coming in this morning, Mr. Fentress. I would like to turn things back to you, sir, for any closing comments.

Andrew Fentress: Thank you, everyone, for the time today. We look forward to being in touch. As the transaction announcements continue to roll out over the next several weeks.

Operator: Thank you, gentlemen. Again, ladies and gentlemen, that will conclude today's Second Quarter 26 Acres Commercial Realty Corp. Earnings Call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.