Earnings call transcript: Acres Commercial Realty Q2 2025 misses EPS forecast

Acres Commercial Realty Corp (ACR) reported its second-quarter 2025 earnings, revealing a significant miss on earnings per share (EPS) compared to market expectations. The company posted an EPS of -$0.10, far below the forecasted $0.18, resulting in a negative surprise of 155.56%. Despite this, the stock price remained relatively stable, closing at $19.11, a 1.49% increase during regular trading hours. According to InvestingPro data, ACR’s stock has shown impressive momentum with a 33.45% return over the past year and currently trades below its Fair Value, suggesting potential upside opportunity. For detailed valuation metrics and more insights, visit our Most Undervalued Stocks list.

Key Takeaways

• Acres Commercial Realty reported a net loss of $732,000 for Q2 2025.
• Interest income increased by $3 million, reaching $8.6 million.
• The company’s liquidity remains robust with $65 million available.
• The stock saw a modest increase of 1.49% despite the earnings miss.
• The book value per share decreased from $28.50 to $27.93.

Company Performance

Acres Commercial Realty experienced a challenging quarter with a net loss of $732,000, translating to a loss of $0.10 per diluted share. While the company managed to increase its interest income by $3 million, this was not enough to offset the overall loss. The company’s focus on maintaining portfolio quality and strategic asset selection continues, despite the financial setback.

Financial Highlights

• Revenue: $20.32 million, meeting the forecast.
• Earnings per share: -$0.10, missing the forecast by a significant margin.
• Interest income: $8.6 million, up by $3 million from the previous quarter.
• GAAP book value per share: $27.93, down from $28.50 in Q1.

Earnings vs. Forecast

Acres Commercial Realty’s EPS of -$0.10 was a stark contrast to the expected $0.18, marking a significant earnings miss. This negative surprise of 155.56% is substantial and raises questions about the company’s earnings potential in the near term.

Market Reaction

Following the earnings announcement, Acres Commercial Realty’s stock closed at $19.11, reflecting a 1.49% increase during regular trading hours. This movement suggests that investors may have anticipated the earnings miss or are focusing on the company’s longer-term strategy and liquidity position.

Outlook & Guidance

Looking ahead, Acres Commercial Realty aims to grow its portfolio by $300 million to $500 million by the end of the year. The company is considering increasing its leverage to 3.5–4.0x and plans to execute another collateralized loan obligation (CLO) in the coming quarters. The potential for dividend reinstatement remains contingent on asset monetization and portfolio growth.

Executive Commentary

"Our goal is to grow the portfolio by $300,000,000 to $500,000,000 through the end of the year," stated Mark Vogel, President and CEO. Andrew Fentress added, "We think we can get leverage up to the kind of 3.5, perhaps four turns comfortably." These comments reflect the company’s strategic focus on growth and leverage optimization.

Risks and Challenges

• The significant EPS miss raises concerns about future earnings stability.
• A decrease in book value per share may affect investor confidence.
• Increasing leverage could pose risks if market conditions deteriorate.
• The competitive landscape in the commercial real estate sector remains challenging.
• Macroeconomic pressures and interest rate fluctuations could impact financial performance.

Q&A

During the earnings call, analysts questioned the company’s portfolio growth strategy, leverage potential, and timing for the next CLO execution. The potential for dividend reinstatement also garnered attention, highlighting investor interest in the company’s capital return plans.

Full transcript - Acres Commercial Realty Corp (ACR) Q2 2025:

Conference Operator: Good day, ladies and gentlemen, and welcome to the Second Quarter twenty twenty five ACRES Commercial Realty Corp Earnings Conference Call. Currently, all participants are in a listen only mode. Later, we will conduct a question and answer session with instructions to follow at that time.

As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Kyle Brengel, Vice President, Operations. You may begin.

Kyle Brengel, Vice President, Operations, ACRES Commercial Realty Corp: Good morning, and thank you for joining our call. I would like to highlight that we have posted the second quarter twenty twenty five earnings presentation to our website. The 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 are intended to identify forward looking statements.

Although the company believes that 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 forward looking statements. These risks and uncertainties are discussed in the company’s reports filed with the SEC, including its reports on Forms eight ks, 10 Q, and 10 ks, and in particular, Risk Factors section of its 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 Vogel, President and CEO and Eldon Blackwell, ACR’s CFO. I will now turn the call over to Mark.

Mark Vogel, President and CEO, ACRES Commercial Realty Corp: 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 Eldon Blackwell, our CFO, will discuss the financial statements, liquidity condition, book value and operating results for the second quarter twenty twenty five. 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. We closed one new commitment of $72,000,000 with an unfunded commitment of $1,200,000 funded existing loan commitments during the quarter of $7,300,000 offset by loan payoffs and paydowns of 17,600,000 producing a net increase to the loan portfolio of $60,500,000 The weighted average spread of the floating rate loans in our $1,400,000,000 commercial real estate loan portfolio is now 3.65% 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 $1,400,000,000 of commercial real estate loans across 48 individual investments. Our weighted average risk rating was 2.9 at the end of both Q2 twenty twenty five and Q1 twenty twenty five, and the number of loans rated four or five increased by two from 11 at the end of last quarter to 13 at the end of this quarter. We continue to manage several investments in real estate that we expect to monetize at gains in the future. These anticipated gains will be offset by deferred tax assets.

We will provide updates in future quarters on the monetization of these assets. 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, Eldrin Blackwell, discuss the financial statements and operating results during the second quarter.

Eldon Blackwell, CFO, ACRES Commercial Realty Corp: Thank you and good morning everyone. GAAP net loss allocable to common shares in the second quarter was $732,000 or a loss of $0.10 per share diluted. GAAP net loss for the quarter included $8,600,000 in interest income, which was an increase of $3,000,000 over the prior quarter. The increase in net interest income was driven by the lower cost of financing of our new financing facility, which produced savings of approximately $1,000,000 and a non recurrence of accelerated deferred financing charges of $1,500,000 recognized in the prior quarter related to the liquidation of our prior two securitization vehicles. Net real estate operations improved by $1,900,000 over the prior quarter or to a loss of $77,000 which included depreciation of $1,200,000 and was largely due to improved operating performance of our owned hotels.

We saw a decrease in current expected credit losses or CECL reserves of $780,000 or $0.11 per share as compared to a decrease in CECL reserves during the first quarter of $1,700,000 which was primarily driven by improvements in the modeled credit risk of our loan portfolio offset by a general worsening in macroeconomic factors during the quarter. The total allowance for credit losses at June 30 was $30,300,000 and represented 2.18 or two eighteen basis points on our $1,400,000,000, loan portfolio at par and comprised $4,700,000 in specific reserves and $25,600,000 in general credit reserves. Earnings available for distribution or EAD for the second quarter twenty twenty five was $04 per share as compared to a loss of $0.86 per share for the first quarter. Quarter over quarter EAD saw a $0.40 increase in net interest income as previously discussed, a $0.26 increase from real estate operations and a $09 increase from the non recurrence of realized losses recorded in Q1 twenty twenty five. GAAP book value per share was $27.93 on June 30 versus $28.5 on March 31.

Additionally, during the quarter, we used $5,100,000 to repurchase 272,000 common shares at an approximate 33% discount to book value on June 30. There were approximately $5,400,000 remaining on the board approved program at quarter end. Available liquidity at June 30 was $65,000,000 and comprised $43,000,000 of unrestricted cash and $22,000,000 of projected financing available on unlevered assets. Our GAAP debt to equity leverage ratio slightly increased to three times at June 30 from 2.9 times at March 31 and our recourse debt leverage ratio increased to three times at June 30 from 2.9 times at March 31, primarily resulting from the financing of our new loan origination. At the end of the second quarter twenty twenty five, the company’s net operating loss carryforward was $32,100,000 or approximately $4.45 per share.

And with that, I will now turn the call to Andrew Fentress for closing remarks.

Andrew Fentress, ACRES Commercial Realty Corp: Thank you, Eldrin. The second quarter marked a turn as the portfolio increased in size once again. We expect to continue redeploying equity capital from the sale of our investments into new loans. The ACRES platform is active in the marketplace and working closely with our sponsors to provide them the value add capital they need for success. We remain vigilant managing the portfolio and see a stable credit picture.

We look forward to your questions and speaking with you over the coming weeks. This concludes our opening remarks, and I’ll now turn the call back to the operator for questions.

Conference Operator: We’ll take our first question from Matthew Erdner with Jones Trading. Your line is open. Please go ahead.

Matthew Erdner, Analyst, Jones Trading: Hey, good morning guys. Thanks for taking the question. So could you give a little more context around timing of what you guys are expecting for payoffs, maybe asset sales the remainder of the year to kind of get that capital redeployed or maybe look to hit the CLO market with net new originations as you guys kind of turn that machine on over the next couple of quarters?

Mark Vogel, President and CEO, ACRES Commercial Realty Corp: Hey Matt, this is Mark. As I’ve said in the past couple of quarters, our goal is to grow the portfolio by $300,000,000 to $500,000,000 through the end of the year. So that’ll include the payoff, the capital for that will come from the payoffs of loans as well as the sale of some of the REO properties, but we’re on target for exactly what we’ve said for the past couple of quarters which is the growth of 300 to $500,000,000.

Matthew Erdner, Analyst, Jones Trading: That’s helpful. Thanks for that. And then, could you talk a little bit about the opportunities that you guys are seeing in the marketplace? We’ve seen spreads kind of come in on multifamily over the past quarter or so pretty tightly. So I guess what are you guys seeing out there?

And then any guidance for spreads that you guys are achieving would be great. Thanks.

Mark Vogel, President and CEO, ACRES Commercial Realty Corp: Look, market is seeing compressed spreads in certain sectors, particularly Class A multifamily. You know, we are active in that market as well as other markets and we feel like there’s enough opportunity for us to create an overall spread that works well for the ROE that we’re targeting. And so we do believe that if we continue to target certain assets that are outside of where all the money is going sporadically that the target ROE is definitely achievable.

Matthew Erdner, Analyst, Jones Trading: Great, thank you guys.

Conference Operator: We’ll go next to Chris Moeller with Citizens Capital Markets. Your line is open. Please go ahead.

Chris Moeller, Analyst, Citizens Capital Markets: Hey, guys. Thanks for taking the questions. So I like the slide you guys have in the deck on the potential earnings profile. I guess on the leverage piece of that, how are you guys thinking about leverage in the near term? And can you remind me if the REO has financing against it or if it’s unlevered?

And I guess what I’m trying to get at is can leverage move higher before that REO gets sold?

Andrew Fentress, ACRES Commercial Realty Corp: Yeah. Hey, this is Andrew. Appreciate the question. I’ll give you a little thinking on the leverage point. So we think we can get leverage up to the kind of 3.5, perhaps four turns comfortably using mostly, obviously, non recourse CRE CLO financing.

And in doing so, you know, get the book to where it’s generating the earnings necessary to hit the numbers that are on the slide that you referenced. So that’s the objective and as Mark talked about adding to the loan book, that’s, you know, that’s how we get there. With respect to the properties that are being sold, yes, they are currently levered, not inside of the the facilities that we have, but at the asset level. So upon the sale, you’ll see on our balance sheet, they’re referenced the mortgages. And then as the asset gets sold, obviously, the mortgages leave the balance sheet as well.

Chris Moeller, Analyst, Citizens Capital Markets: Got it. So there would be a slight pickup on leverage there, but not nothing too dramatic. Are you guys thinking about a a CLO in the the back half of the year? Is that something you’re looking at?

Andrew Fentress, ACRES Commercial Realty Corp: We’re definitely gonna execute on another one. I don’t think we can give you a specific timing if it’s Q4, Q1, but that’s the ZIP code.

Chris Moeller, Analyst, Citizens Capital Markets: Got it. And I guess the other question I have, are there any updated thoughts you guys can give, on reinstating the dividend? And I know you can’t give any specifics on timing and it’s a Board decision there. But I guess, is there anything that we can keep an eye on like REO sales or EAD growth that you would like to accomplish prior to reinstating that dividend?

Andrew Fentress, ACRES Commercial Realty Corp: Yeah, it’s really driven by what we just talked about. So first step is monetizing the assets. Second step is getting the portfolio ramped to the target number that Mark described. And then the result of those two exercises will drive EAD to a place where we’ll begin to pay it out. Got it, thanks for taking my questions.

Conference Operator: Thank you. This does conclude today’s question and answer session. I will now turn the program back over to Andrew Fentress for any additional or closing remarks.

Andrew Fentress, ACRES Commercial Realty Corp: Thank you, everyone, for joining the call. We greatly appreciate your time. And again, please reach out directly to us if you have questions. We look forward to speaking with each of you. Have a great rest of the day and, a good weekend.

This

Conference Operator: does conclude today’s program. Thank you for your participation. You may disconnect at any time.

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