ACRES Commercial Realty Corp. (NYSE:ACR) Q3 2023 Earnings Conference Call November 2, 2023 11:00 AM ET Company Participants Jaclyn Jesberger - Chief Legal Officer Mark Fogel - President and Chief Executive Officer Dave Bryant - Chief Financial Officer Andrew Fentress - Chairman Eldron Blackwell - Chief Accounting Officer Conference Call Participants Chris Muller - JMP Operator Good day, ladies, and gentlemen, and welcome to the Third Quarter 2023 ACRES Commercial Realty Corp. Earnings Conference Call. [Oper ...

THIRD QUARTER 2023 EARNINGS PRESENTATION DISCLAIMER Forward-Looking Statements This presentation contains forward-looking statements within the meaning of federal securities laws. These forward-looking statements are not historical facts but rather are based on ACRES Commercial Realty Corp.’s (“ACR’s” or the “Company’s”) current beliefs, assumptions and expectations. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to ACR or ar ...

Part I - Financial Information [Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) The company's financial statements for the period ended June 30, 2023, show a decrease in total assets to $2.27 billion from $2.38 billion at year-end 2022, primarily due to a reduction in CRE loans [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets were $2.27 billion, a decrease from $2.38 billion at December 31, 2022, mainly driven by a reduction in CRE loans Consolidated Balance Sheet Summary | Account | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets (in thousands)** | **$2,266,656** | **$2,376,652** | | CRE loans, net (in thousands) | $1,938,089 | $2,038,787 | | Cash and cash equivalents (in thousands) | $57,112 | $66,232 | | **Total Liabilities (in thousands)** | **$1,822,655** | **$1,935,338** | | Borrowings (in thousands) | $1,749,199 | $1,867,033 | | **Total Equity (in thousands)** | **$444,001** | **$441,314** | - The allowance for credit losses increased from **$18.8 million** at the end of 2022 to **$25.7 million** as of June 30, 2023, reflecting a more cautious outlook on loan performance[12](index=12&type=chunk) - Assets of consolidated Variable Interest Entities (VIEs), primarily CRE loans pledged as collateral, totaled approximately **$1.5 billion** at both June 30, 2023, and December 31, 2022[13](index=13&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) For Q2 2023, net income was $5.6 million, up from $5.5 million in Q2 2022, driven by higher net interest income despite increased provision for credit losses Consolidated Statements of Operations Summary | Metric (in thousands) | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $47,148 | $27,019 | $92,477 | $49,695 | | Net Interest Income | $14,706 | $11,274 | $28,660 | $19,043 | | Provision for credit losses | $2,700 | $524 | $7,796 | $(1,278) | | **Net Income** | **$5,558** | **$5,522** | **$7,851** | **$7,606** | | Net Income (Loss) to Common | $817 | $690 | $(1,599) | $(2,081) | | **EPS - Diluted** | **$0.10** | **$0.08** | **$(0.19)** | **$(0.23)** | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly increased to $24.5 million for the first six months of 2023, while investing activities reversed to a cash inflow, and financing activities used cash Consolidated Statements of Cash Flows Summary | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $24,469 | $13,717 | | Net cash provided by (used in) investing activities | $73,652 | $(247,927) | | Net cash (used in) provided by financing activities | $(130,568) | $10,516 | | **Net Decrease in Cash (in thousands)** | **$(32,447)** | **$(223,694)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including the transition to SOFR, the $1.94 billion CRE loan portfolio, increased allowance for credit losses, and common stock repurchases - The company has transitioned its entire **$1.9 billion** floating-rate whole loan portfolio to SOFR-based interest rates. Of its **$1.6 billion** in floating-rate borrowings, **96.8%** are tied to SOFR, with the remainder expected to be converted in 2023[49](index=49&type=chunk)[50](index=50&type=chunk) - The CRE loan portfolio's carrying value decreased to **$1.94 billion** as of June 30, 2023, from **$2.04 billion** at year-end 2022. Multifamily properties represent the largest collateral type at **75.4%** of the portfolio[73](index=73&type=chunk)[76](index=76&type=chunk) - The allowance for credit losses increased to **$25.7 million** from **$18.8 million** at year-end 2022, with a provision of **$7.8 million** recorded in the first six months of 2023, primarily due to the negative macroeconomic outlook[78](index=78&type=chunk)[81](index=81&type=chunk) - During the first six months of 2023, the company repurchased **215,160 shares** of its common stock for **$2.0 million**. **$5.3 million** remains available under the current repurchase plan[154](index=154&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the impact of rising interest rates and inflation on the CRE market, noting risks to borrowers' debt service ability and the company's increased CECL allowance [Overview](index=44&type=section&id=Overview) The company, a REIT focused on CRE mortgage loans, navigated a challenging macroeconomic environment, resulting in a net portfolio decrease and an increased CECL allowance - The company is actively managing its operations in response to market pressures including inflation, rising interest rates, and disruptions in the credit markets[216](index=216&type=chunk)[217](index=217&type=chunk) Loan Portfolio Activity | Activity (Six Months Ended June 30, 2023) | Amount (in millions) | | :--- | :--- | | Floating-rate CRE whole loan originations | $38.5 | | Loan payoffs | $141.4 | | Net funded commitments | $28.5 | | **Net decrease to portfolio** | **$(74.4)** | - The CECL allowance for credit losses stood at **$25.7 million** (**1.3%** of the loan portfolio) at June 30, 2023, up from **$18.8 million** (**0.9%**) at December 31, 2022, due to a worsening macroeconomic outlook[233](index=233&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) Net income allocable to common shares increased in Q2 2023 due to higher net interest income from rising benchmark rates, partially offset by increased provision for credit losses Key Financial Metric Changes | Metric (in thousands) | Q2 2023 vs Q2 2022 Change | Six Months 2023 vs 2022 Change | | :--- | :--- | :--- | | Net Interest Income | $3,432 | $9,617 | | Real Estate Income | $102 | $4,035 | | Provision for credit losses | $2,176 | $9,074 | | Total Operating Expenses | $3,449 | $14,177 | - The increase in aggregate interest income for the three and six months ended June 30, 2023 (**$20.1M** and **$42.8M**, respectively) was primarily attributable to the increase in benchmark interest rates[247](index=247&type=chunk) - The increase in aggregate interest expense for the three and six months ended June 30, 2023 (**$16.7M** and **$33.2M**, respectively) was also primarily driven by the rise in benchmark rates on securitized borrowings and warehouse facilities[247](index=247&type=chunk) [Financial Condition](index=57&type=section&id=Financial%20Condition) The company's investment portfolio decreased to $2.13 billion, with an increased CECL allowance and a shift in loan credit quality towards lagging expectations Loan Risk Rating Distribution | Loan Risk Rating (Amortized Cost in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Rating 2 (Performing as expected) | $1,353,353 | $1,635,376 | | Rating 3 (Lags expectations) | $514,179 | $309,491 | | Rating 4 (Significantly lags) | $63,344 | $85,226 | | Rating 5 (Default likely) | $32,864 | $27,497 | | **Total (in thousands)** | **$1,963,740** | **$2,057,590** | - As of June 30, 2023, two CRE whole loans with total amortized costs of **$28.2 million** and one mezzanine loan of **$4.7 million** were in payment default[299](index=299&type=chunk) - Common stock book value per share decreased by **$0.04** during the first six months of 2023, from **$24.54** to **$24.50**. The decrease was mainly due to the net loss allocable to common shares, partially offset by accretive stock repurchases[330](index=330&type=chunk) [Liquidity and Capital Resources](index=71&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through cash, debt financing, and equity, with a decreased leverage ratio of 3.9x and no common stock dividends paid to preserve liquidity - At June 30, 2023, the company had **$57.1 million** of unrestricted cash and cash equivalents[345](index=345&type=chunk)[360](index=360&type=chunk) - The company's leverage ratio decreased to **3.9x** at June 30, 2023, from **4.2x** at December 31, 2022, due to a net decrease in borrowings and a net increase in total equity[361](index=361&type=chunk) - No common share distributions were paid during the first six months of 2023 as the company focused on retaining liquidity and utilizing its significant Net Operating Loss (NOL) carryforwards[365](index=365&type=chunk) - The company has unfunded commitments of **$128.7 million** on its CRE loans and **$4.1 million** on a construction loan as of June 30, 2023[368](index=368&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=74&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include credit and interest rate risk, with 94.5% of the loan portfolio having interest rate caps to mitigate rising rate impacts - The company mitigates credit risk from rising interest rates by requiring borrowers to purchase interest rate caps. As of June 30, 2023, **94.5%** of the CRE loan portfolio's par value had interest rate caps in place[378](index=378&type=chunk) Interest Rate Sensitivity Analysis | Scenario | Impact on Annual Net Interest Income (in thousands) | Impact on Annual Net Interest Income Per Share | | :--- | :--- | :--- | | 100 Basis Point Decrease | $(924) | $(0.11) | | 100 Basis Point Increase | $943 | $0.11 | [Controls and Procedures](index=75&type=section&id=Item%204%3A%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[389](index=389&type=chunk) - No material changes were made to the company's internal control over financial reporting during the second quarter of 2023[390](index=390&type=chunk) Part II - Other Information [Legal Proceedings](index=76&type=section&id=Item%201%3A%20Legal%20Proceedings) The company's subsidiary, Primary Capital Mortgage, LLC (PCM), maintains a $1.1 million reserve for potential mortgage repurchase and indemnification claims, with no outstanding litigation demands - A reserve of **$1.1 million** was held as of June 30, 2023, for potential mortgage repurchase and indemnification claims related to the subsidiary Primary Capital Mortgage, LLC (PCM), although no litigation demands were outstanding[394](index=394&type=chunk) [Risk Factors](index=76&type=section&id=Item%201A%3A%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - The company reports no material changes to its risk factors from those presented in its 2022 Form 10-K[395](index=395&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company continued its common stock repurchase program, repurchasing 215,160 shares in the first half of 2023, with $5.3 million remaining available Common Stock Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2023 | 9,822 | $9.78 | | Feb 2023 | 24,754 | $9.48 | | Mar 2023 | 45,168 | $9.39 | | Apr 2023 | 45,645 | $9.48 | | May 2023 | 62,001 | $8.61 | | Jun 2023 | 27,770 | $8.41 | - As of June 30, 2023, approximately **$5.3 million** remained available under the company's stock repurchase program[396](index=396&type=chunk) [Other Information](index=76&type=section&id=Item%205%3A%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the second quarter of 2023 - No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the three months ended June 30, 2023[397](index=397&type=chunk) [Exhibits](index=77&type=section&id=Item%206%3A%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and various agreements related to financing and management

ACRES Commercial Realty Corp. (NYSE:ACR) Q2 2023 Earnings Conference Call August 3, 2023 11:00 AM ET Company Participants Kyle Brengel - Investor Relations Mark Fogel - President and Chief Executive Officer Dave Bryant - Chief Financial Officer Andrew Fentress - Chairman Conference Call Participants Chris Muller - JMP Securities Operator Good day, and welcome to the ACRES Commercial Realty Corp. Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. ...

Financial Performance - The company's Earnings Available for Distribution (EAD) for Q2 2023 was $0.60 per share[9, 10] - GAAP net income per share for Q2 2023 was $0.10, including a $(0.31) impact from a $2.7 million provision for CECL reserves[9, 10] - The company's book value was $24.50, a year-over-year increase of $0.02, and an annual increase of 12.9% since the ACRES acquisition in Q3 2020[9, 11] Loan Portfolio - The company's CRE loan portfolio totaled $2.0 billion, comprising 78 loans with a weighted average LTV of 74%[11] - The company had $22.5 million in CRE loan production and $47.3 million in loan repayments during the quarter[11] - Multifamily-focused CRE loans represent 75% of the loan portfolio[9] - 98% of the par value of the CRE loan portfolio is current on payments, with 5% rated 4 or 5[11] - Net CRE loan payoffs for the second quarter were $10 million[9] Capitalization and Liquidity - The company's total liquidity at June 30, 2023, was $91.2 million[9, 11] - Non-recourse, non-mark-to-market CLO financings comprised 80% of asset-specific borrowings[11, 34] Real Estate Investments - The company has $161.9 million of net investments in real estate and properties held for sale[11, 28] Loan Portfolio Composition - Texas represents 23.6% of the company's top state concentration, followed by Florida at 15.1% and Arizona at 8.9%[17]

Part I - Financial Information [Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) The company reported total assets of $2.32 billion as of March 31, 2023, with Q1 2023 net income of $2.3 million, driven by increased net interest income, reducing net loss per common share to ($0.28) Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$2,321,559** | **$2,376,652** | | CRE loans, net | $1,970,891 | $2,038,787 | | Cash and cash equivalents | $87,314 | $66,232 | | **Total Liabilities** | **$1,879,774** | **$1,935,338** | | Borrowings | $1,810,767 | $1,867,033 | | **Total Equity** | **$441,785** | **$441,314** | Consolidated Statement of Operations Summary (in thousands, except per share data) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total Interest Income | $45,329 | $22,676 | | Net Interest Income | $13,954 | $7,769 | | Total Revenues | $21,058 | $10,923 | | Total Operating Expenses | $19,625 | $8,897 | | Provision for (reversal of) credit losses, net | $5,096 | $(1,802) | | **Net Income** | **$2,293** | **$2,084** | | **Net Loss Allocable to Common Shares** | **$(2,416)** | **$(2,771)** | | **Net Loss Per Common Share - Basic & Diluted** | **$(0.28)** | **$(0.30)** | - Cash flow from operating activities was **$9.1 million** for Q1 2023, a significant increase from **$1.6 million** in Q1 2022[28](index=28&type=chunk) - Net cash provided by investing activities was **$70.0 million**, primarily due to **$94.1 million** in principal payments received on loans[28](index=28&type=chunk) - Net cash used in financing activities was **$62.6 million**, driven by payments on borrowings[28](index=28&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including the transition of its $2.0 billion CRE loan portfolio to SOFR, with a $23.9 million allowance for credit losses and total borrowings of $1.81 billion - The company is a **REIT** focused on originating, holding, and managing CRE mortgage loans and equity investments, with ACRES Capital, LLC as its manager[31](index=31&type=chunk) - As of March 31, 2023, all of the company's **$2.0 billion** floating-rate loans have transitioned to SOFR[46](index=46&type=chunk) - However, **78%** (**$1.3 billion**) of its **$1.7 billion** floating-rate borrowings are still tied to LIBOR, with the conversion expected to be completed in **2023**[47](index=47&type=chunk) Allowance for Credit Losses Activity (in thousands) | Period | Beginning Balance | Provision for Credit Losses | Charge Offs | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | **Q1 2023** | **$18,803** | **$5,096** | **$0** | **$23,899** | Borrowings Summary (in thousands) | Borrowing Type | Principal Outstanding (Mar 31, 2023) | Weighted Avg. Rate | | :--- | :--- | :--- | | ACR 2021-FL1 Senior Notes | $675,223 | 6.20% | | ACR 2021-FL2 Senior Notes | $567,000 | 6.51% | | Senior secured financing facility | $53,336 | 8.54% | | CRE - term warehouse financing facilities | $313,493 | 7.32% | | 5.75% Senior Unsecured Notes | $150,000 | 5.75% | | Unsecured junior subordinated debentures | $51,548 | 8.93% | | **Total** | **$1,829,310** | **6.62%** | - During Q1 2023, the company repurchased **79,744 shares** of its common stock for **$0.756 million**[155](index=155&type=chunk) - As of March 31, 2023, **$6.5 million** remains available under the repurchase plan[155](index=155&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes improved Q1 2023 results, including a reduced net loss per share of ($0.28) and EAD of $0.52 per share, to increased net interest income, with the CRE loan portfolio at $2.0 billion and CECL allowance at $23.9 million - In Q1 2023, the company originated one floating-rate CRE whole loan with a commitment of **$16.0 million**[217](index=217&type=chunk) - Loan payoffs were **$94.1 million**, resulting in a net portfolio decrease of **$64.4 million**[217](index=217&type=chunk) - The CECL allowance for the CRE loan portfolio was **$23.9 million** (**1.2%** of the portfolio) at March 31, 2023[231](index=231&type=chunk) - This is up from **$18.8 million** (**0.9%**) at year-end 2022, reflecting increased credit risk and macroeconomic decline[232](index=232&type=chunk) Net Interest Income Change Analysis (Q1 2023 vs Q1 2022, in thousands) | Description | Net Change | Change Due to Volume | Change Due to Rate | | :--- | :--- | :--- | :--- | | **Increase in Interest Income** | **$22,653** | **$2,041** | **$20,612** | | **Increase in Interest Expense** | **$16,468** | **$260** | **$16,208** | | **Net Increase in Net Interest Income** | **$6,185** | **$1,781** | **$4,404** | Earnings Available for Distribution (EAD) Reconciliation (in thousands, except per share) | Description | Q1 2023 | Q1 2023 Per Share | Q1 2022 | Q1 2022 Per Share | | :--- | :--- | :--- | :--- | :--- | | Net loss allocable to common shares - GAAP | $(2,416) | $(0.28) | $(2,771) | $(0.30) | | Non-cash provision for (reversal of) CRE credit losses | $5,096 | $0.59 | $(1,802) | $(0.20) | | Other reconciling items | $1,822 | $0.21 | $2,314 | $0.25 | | **EAD allocable to common shares** | **$4,502** | **$0.52** | **$(2,276)** | **$(0.25)** | [Quantitative and Qualitative Disclosures About Market Risk](index=70&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages credit, counterparty, financing, and interest rate risks, with 93.5% of its CRE loan portfolio having interest rate caps, and a 100 basis point rate increase estimated to boost net interest income by $0.865 million - To mitigate credit risk from rising interest rates, the company generally requires borrowers to purchase interest rate caps[367](index=367&type=chunk) - As of March 31, 2023, **93.5%** of the par value of the CRE loan portfolio had such caps in place[367](index=367&type=chunk) Interest Rate Sensitivity Analysis (Annualized Impact, in millions) | Scenario | Change to Net Interest Income | Change to Net Interest Income Per Share | | :--- | :--- | :--- | | **100 Basis Point Increase** | **$0.865** | **$0.10** | | **100 Basis Point Decrease** | **$(0.808)** | **$(0.09)** | [Controls and Procedures](index=72&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the period covered by the report[376](index=376&type=chunk) - **No changes** in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[377](index=377&type=chunk) Part II - Other Information [Legal Proceedings](index=73&type=section&id=Item%201%3A%20Legal%20Proceedings) The company's subsidiary, PCM, maintains a $1.2 million reserve for potential mortgage repurchase claims, with no outstanding litigation demands as of March 31, 2023 - The company's subsidiary, PCM, has a reserve of **$1.2 million** for potential mortgage repurchase and indemnification claims, although **no litigation demands** were outstanding as of March 31, 2023[382](index=382&type=chunk) [Risk Factors](index=73&type=section&id=Item%201A%3A%20Risk%20Factors) No material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K were reported - **No material changes** to the risk factors from the 2022 Annual Report on Form 10-K were reported[383](index=383&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=73&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q1 2023, the company repurchased 79,744 common shares at an average price of $9.52, with $6.5 million remaining available under the repurchase plan Common Stock Repurchases (Q1 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining for Purchase (in thousands) | | :--- | :--- | :--- | :--- | | Jan 2023 | 9,822 | $9.78 | $7,121 | | Feb 2023 | 24,754 | $9.48 | $6,887 | | Mar 2023 | 45,168 | $9.39 | $6,464 | - The company's Board authorized an additional **$20.0 million** for its share repurchase program in November 2021[384](index=384&type=chunk) [Exhibits](index=74&type=section&id=Item%206%3A%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including key corporate and financing agreements, and CEO and CFO certifications - The filing includes **CEO and CFO certifications** pursuant to Rule 13a-14(a)/15d-14(a) and Section 1350[389](index=389&type=chunk) - A list of **key corporate and financing agreements** are provided as exhibits, including the Amended and Restated Loan and Servicing Agreement dated December 22, 2022, and various amendments to financing facilities[386](index=386&type=chunk)[389](index=389&type=chunk)[391](index=391&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number 1-32733 ACRES COMMERCIAL REALTY CORP. (Exact name of registrant as specified in its charter) Maryland 20-2287134 (St ...

Financial Performance - Net interest income for the three months ended September 30, 2022, was $11,126 thousand, up from $9,452 thousand for the same period in 2021, reflecting a year-over-year increase of 17.7%[7] - The company reported a net income of $713 thousand for the three months ended September 30, 2022, compared to a net loss of $9,805 thousand for the same period in 2021, indicating a significant turnaround[7] - Net income for the three months ended September 30, 2022, was $5,486,000, compared to a net loss of $4,928,000 for the same period in 2021, representing a significant turnaround[8] - Comprehensive income before allocation to preferred shares for the nine months ended September 30, 2022, was $14,424,000, down from $23,151,000 in the same period of 2021[8] - Net income for the nine months ended September 30, 2022, was $13.1 million, a decrease of 39.5% compared to $21.8 million for the same period in 2021[12] - Total revenues for the three months ended September 30, 2022, were $20,936, compared to $12,096 for the same period in 2021, representing a 73.5% increase[7] Assets and Liabilities - Total assets increased to $2,426,386 thousand as of September 30, 2022, compared to $2,284,275 thousand on December 31, 2021, representing a growth of approximately 6.2%[5] - Total liabilities rose to $1,978,907 thousand as of September 30, 2022, from $1,836,080 thousand at the end of 2021, marking an increase of approximately 7.8%[5] - The company’s total equity decreased slightly to $447,479 thousand as of September 30, 2022, from $448,195 thousand at the end of 2021, reflecting a marginal decline of 0.16%[5] - Total stockholders' equity as of September 30, 2022, was $442,549,000, with a non-controlling interest of $4,930,000[9] - Total assets as of September 30, 2022, amounted to $1,500,325,000, with CRE securitizations contributing $1,499,956,000[32] Cash Flow and Investments - Net cash provided by operating activities was $19.0 million, down 25.4% from $25.5 million in the prior year[12] - Cash and cash equivalents and restricted cash at the end of the period totaled $76.9 million, down 46.1% from $142.4 million at the end of the previous year[12] - The company recorded a net cash used in investing activities of $300,507 for the nine months ended September 30, 2022, compared to $316,421 in 2021, showing a slight improvement[12] - The company has $193.7 million in unfunded loan commitments as of September 30, 2022, compared to $157.6 million at December 31, 2021[38] - The company reported a net cash used in investing activities of $300.5 million, a slight improvement from $316.4 million in the previous year[12] Credit Losses and Provisions - The provision for credit losses was $2,620 thousand for the three months ended September 30, 2022, compared to a reversal of $537 thousand for the same period in 2021, indicating a shift in credit quality assessment[7] - The company recorded a provision for expected credit losses of $2.6 million during the three months ended September 30, 2022, reflecting the impact of increased portfolio credit risk[142] - The allowance for credit losses decreased to $7.9 million from $8.8 million, representing a reduction of approximately 10.8%[5] - The provision for (reversal of) credit losses for the three months ended September 30, 2022, was $2,620, compared to a reversal of $537 in the same period of 2021[7] - The company reported a net reversal of credit losses of $15.4 million for the nine months ended September 30, 2021, indicating prior improvements in macroeconomic conditions[133] Stock and Equity - The weighted average number of common shares outstanding was 8,713,256 for the three months ended September 30, 2022, down from 9,553,412 for the same period in 2021, reflecting a decrease of approximately 8.8%[7] - The company repurchased common stock amounting to $8,194 during the nine months ended September 30, 2022, compared to $14,725 in the same period of 2021[12] - The company declared distributions of $0.54 per share for Series C Preferred Stock and $0.49 per share for Series D Preferred Stock for the three months ended September 30, 2022[91] - The company issued a total of 4.6 million shares of 7.875% Series D Cumulative Redeemable Preferred Stock, receiving net proceeds of $110.4 million[82] - The company had 4.8 million shares of Series C Preferred Stock and 4.6 million shares of Series D Preferred Stock outstanding as of September 30, 2022[82] Real Estate and Investments - Real estate income for the nine months ended September 30, 2022, was $21,700 thousand, compared to $7,013 thousand for the same period in 2021, representing a substantial increase of 209.5%[7] - The company acquired two real estate properties with a combined acquisition-date fair value of $51.6 million[52] - The company received a deed-in-lieu of foreclosure on a hotel property with an acquisition-date fair value of $14.3 million, which was reported as property held for sale[54] - The company recognized a realized loss of $2.3 million from a discounted payoff of a loan during the nine months ended September 30, 2022[51] - The total fair value of net assets acquired during the nine months ended September 30, 2022, was $65,926[53] Interest Rates and Financing - The weighted average interest rate for the Senior Secured Financing Facility was 5.75% as of September 30, 2022[158] - The company reported a total of $482,802,000 in outstanding borrowings across various financing facilities as of September 30, 2022[77] - The company entered into a Note and Warrant Purchase Agreement allowing for the issuance of up to $125.0 million of 12.00% Senior Unsecured Notes, with $42.0 million issued to Oaktree and $8.0 million to MassMutual[73] - The company exercised optional redemption for XAN 2020-RSO8 and XAN 2020-RSO9, paying off all outstanding senior notes from sales proceeds of certain securitization assets[71] - The company reported interest expense paid in cash of $46,999,000 for the nine months ended September 30, 2022, compared to $33,889,000 for the same period in 2021, reflecting a 38.7% increase[35] Economic Conditions and Outlook - The U.S. Federal Reserve raised the Federal Funds rate by 3.00% in five rate hikes between March 2022 and September 2022 to combat inflation[112] - The Company continuously monitors the effects of domestic and global events, including inflation and rising interest rates, on its operations and financial position[112] - The company expects to qualify as a REIT in the current fiscal year, focusing on commercial real estate mortgage loans and equity investments[14] - The company is focused on originating, holding, and managing commercial real estate mortgage loans and equity investments in commercial real estate properties[112] - The anticipated CRE loan originations, CRE debt securitizations, and other CRE-related investments for the year ended December 31, 2022, are projected to be between $600.0 million and $800.0 million[113]