Yahoo Finance ACRES Commercial Realty Corp. (NYSE:ACR) Q4 2023 Earnings Call Transcript
ACRES Commercial Realty Corp. (NYSE:ACR) Q4 2023 Earnings Call Transcript February 29, 2024
ACRES Commercial Realty Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you. Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2023 ACRES Commercial Realty Corporation Earnings Conference Call. [Operator Instructions] 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: Good morning, and thank you for joining our call. I would like to highlight that we have posted the fourth quarter 2023 earnings presentation to our website. This presentation contains summary and detailed information about the quarterly and annual 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 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 8-K, 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 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 Fogel, President and CEO; and Eldron Blackwell, ACR's CFO. Also available for Q&A is Andrew Fentress, Chairman of ACR. I will now turn the call over to Mark.
Mark Fogel: Good morning, everyone and thank you for joining our call. Today I will provide an overview of our loan originations, real estate investments and the health of the investment portfolio. While Eldron Blackwell will discuss the financial statements, liquidity condition, book value and operating results for the fourth quarter and full year 2023. Of course, we look forward to your questions at the end of our prepared remarks. ACRES team continues to execute on our business plan by selectively originating high-quality investments, actively managing the portfolio and continuing to focus on growing earnings and book value for our shareholders. Loan payoffs during the period were $98.3 million. We closed one new commitment of $29.7 million and net funded commitments during the quarter were $3.9 million, producing a net decrease to the loan portfolio of $64.7 million.
For the weighted average spread of the floating rate loans and the $1.9 billion commercial real estate loan portfolio is now 3.77% over the one month benchmark rates. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. The company ended the year with $1.9 billion of commercial real estate loans across 70 individual investments. At December 31, there were 11 loans rated four or five, which represented 16% of the par value of our portfolio, an increase of three loans and 8% of par value respectively, as compared to the end of the third quarter of 2023. Additionally the weighted average risk rating increased from 2.6 at September 30 to 2.7 at December 31. This increase in weighted average risk rating is attributable to a combination of some properties falling slightly behind on implementing underwritten business plans and/or overall capital market conditions.
We continue to manage several investments in real estate that we expect to monetize that gains in the future. These anticipated gains will be offset by NOL carryforwards and we expect to retain the equity and reinvest potential gains into our loan portfolio. 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 performing categories. We will now have ACRs CFO, Eldron Blackwell to discuss the financial statements and operating results during the fourth quarter.
Eldron Blackwell: Thank you and good morning, everyone. GAAP net income allocable to common shares in the fourth quarter was $1.7 million or $0.20 per share. Included in net income as an increase to current expected credit losses or CECL reserves of $1.1 million or $0.13 per share as compared to CECL reserves during the third quarter of $2 million. For Q4 increased to general CECL reserves is primarily driven by model increases and general portfolio credit risk from sustained elevated benchmark interest rates, offset by model improvement and expected macro and economic conditions affecting the general commercial real estate market. The total allowance for credit losses at December 31st was $28.8 million, which represents 1.54% or 154 basis points of the $1.9 billion loan portfolio at par and comprised $4.7 million in specific reserves and $24.1 billion in general credit reserves.
Turning to results from our real estate investments, net loss from real estate investments increased to approximately $800,000 in the fourth quarter from approximately $400,000 in the third quarter. This was primarily due to the seasonality of hotel operations. Included in the fourth quarter property operating loss was $1.2 million of non-cash, depreciation, and amortization. Earnings available for distribution or EAD, for the fourth quarter, was $0.55 per share as compared to $0.73 per share for the third quarter. The difference being a $0.15 decline in net interest income from net payoffs and the impact of two non-performing loans and 8% increase in G&A expenses, offset by a $0.05 reduction in management fees. GAAP book value per share was $26.65 on December 31st versus $25.07 on September 30th.
This increase was primarily due to our buyback program, which generated $1.32 of book value per share for the fourth quarter. We used $4.7 million of the share repurchase plan to redeem 601,000 common shares at an approximate 71% discount to book value at December 31st. At quarter end, there was approximately $9.8 million remaining on the Board approved program, which had been increased by $10 million by our Board during the fourth quarter. Available liquidity at December 31st was $108 million, which comprised $83 million of unrestricted cash and $25 million of projected financing available on unlevered assets. We completed the reinvestment window in both of our CRE securitizations during 2024. Any loan payoffs and the securitizations will now pay down notes going forward.
Our GAAP debt to equity leverage ratio slightly decreased to 3.8 times at December 31st from 3.9 times at September 30th. Our recourse debt leverage ratio also slightly decreased to 1.1 times at December 31st from 1.2 times at September 30th, primarily due to a reduction in our CRE loan book, offset by borrowings related to our development of a student housing project at Florida State University. With ,that I will now turn the call to Andrew Fentress for closing remarks.
Andrew Fentress: Thank you, Eldron. I think as we all know 2023 was a challenging year for the mortgage markets broadly. And looking into 2024, we see improvements as capital markets are reopening and asset level transactions are beginning again. As a firm, we remain focused on the credit quality of the portfolio. We're maximizing the value of our investments made to offset the company's NOLs and we're continuing to serve the needs of our borrower clients. This concludes our opening remarks and I'll turn the call back over to the operator for questions.
See also 11 Highest Paying Countries for Aerospace Engineers and 13 Highest Paying Countries for Marine Biologists.
To continue reading the Q&A session, please click here.
