ACRES Commercial Realty(ACR) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - GAAP net income allocable to common shares for Q2 2023 was $817,000 or $0.10 per share, which included an increase to CECL reserves of $2.7 million or $0.31 per share compared to $5.1 million in Q1 2023 [9] - Earnings available for distribution (EAD) for Q2 was $0.60 per share, up from $0.52 per share in Q1 [10] - GAAP book value per share was $24.50 on June 30, 2023, compared to $24.51 on March 31, 2023 [10] - Available liquidity at June 30, 2023, was $91 million, consisting of $57 million in unrestricted cash, $20 million in projected financing, and $14 million in reinvestment cash [10] - GAAP debt-to-equity leverage ratio decreased to 3.9x from 4.1x, and recourse debt leverage ratio decreased to 1.2x from 1.3x [11] Business Line Data and Key Metrics Changes - The company originated one $22.5 million mixed-use loan commitment in Q2, with loan payoffs totaling $47.3 million, resulting in a net decrease to the portfolio of $10 million [6] - The weighted average spread of floating rate loans increased to 3.94% over one-month benchmark rates [6] - Net loss from real estate investments decreased to $1.6 million in Q2 from $1.8 million in Q1 [11] Market Data and Key Metrics Changes - The portfolio ended the quarter with $2 billion in commercial real estate loans across 78 investments, with five loans rated 4 or 5, representing 4.9% of the portfolio [7] - The company acquired an office property in Chicago valued at $20.9 million, classified as held for sale [6] Company Strategy and Development Direction - The company continues to focus on selectively originating high-quality investments and actively managing the portfolio to grow earnings and book value [5] - The long-term mission remains to deliver value to shareholders through increasing earnings and book value over time [13] Management's Comments on Operating Environment and Future Outlook - The mortgage REIT sector remains challenging, but fundamentals in the multifamily segment are strong due to low unemployment and positive rent growth [13] - Credit quality in the portfolio remains stable, with active monitoring for early signs of weakness [13] Other Important Information - The company incurred $1 million in property tax arrearages on the asset acquired via deed in lieu of foreclosure [11] - G&A expenses for Q2 were $2.3 million, down from $3 million in Q1, reflecting seasonality [12] - The company used $1.2 million for share repurchases, redeeming 135,000 shares at a 64% discount to book value [12] Q&A Session Summary Question: Discussion on spreads for new originations - Management noted that there are opportunities for higher spreads in the market, but the focus remains on high credit quality and good sponsorship [16] Question: Share repurchases versus originating new loans - Management indicated that as long as the return on equity exceeds 15%, they will continue to allocate liquidity to share repurchases, with $5 million remaining in the authorized program [18]