ACRES Commercial Realty Corp.

Good day, ladies and gentlemen, and welcome to the fourth quarter 2024 ACRS 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. If anyone requires assistance during the conference, please press star, then zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Bringle, Vice President, Operations. You may begin.

Good morning, and thank you for joining our call. I would like to highlight that we have posted the fourth quarter 2024 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. 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 the forward-looking statement. These risks and uncertainties are discussed in the company's reports filed with the SEC including its reports on Forms 8K, 10Q, and 10K, and in particular, the risk factor section of its Form 10K. 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 Vogel, President and CEO, and Eldren Blackwell, ACR's CFO. Also available for Q&A is Andrew Fentress, Chairman of ACR. I will now turn the call over to Mark.

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 Elder and Blackwell will discuss the financial statements, liquidity condition, book value, and operating results for the fourth quarter 2024. Of course, we look forward to your questions at the end of our prepared remarks. The ACRES team continues to execute on our business plan by developing a pipeline of 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 $107.5 million. We closed one new commitment of $47.9 million with an unfunded commitment of $28.4 million and funded existing loan commitments during the quarter of $6.2 million, producing a net reduction of the loan portfolio of $81.8 million. The weighted average spread of the floating rate loans in our $1.5 billion commercial real estate loan portfolio is now 3.73% 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 $1.5 billion of commercial real estate loans across 53 individual investments and one loan held for sale at $11.1 million. At December 31st, our weighted average risk rating was 2.9, an increase from 2.7 at September 30th, and there were 12 loans rated 4 or 5, which represented 27% of the par value of our portfolio, an increase of 4% as compared to the end of the third quarter of 2024. Subsequent to December 31st, a four-rated loan with a principal balance of $30 million paid off at par. bringing our four or five rated loans to approximately 25% of the par value of our portfolio and our weighted average risk rating to 2.8 on a pro forma basis. 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 and we expect to retain the equity and reinvest potential gains into our loan portfolio. One of those investments, an office property in Pennsylvania was sold during the period for a gain of $7.5 million. In January, we sold a loan on an underperforming hotel in Orlando that was risk-rated for at 94% of our basis. We've already recorded the impact on book value at December 31st, and we will have a charge off to EAD of $700,000 in the first quarter. The sale will allow us to redeploy the capital into new loans. Our student housing development at Florida State University opened in August 2024 at 95% occupancy. Pre-leasing for the 2025-26 school year has been tracking well ahead of the current year in terms of both occupancy and rental rates. One asset's pre-leasing is approximately 20% higher as compared to this time last year, while another asset is seeing near double digit rent growth compared to 2024-25 school year. We are working with our partner to sell the asset and will provide updates in future quarters on the monetization of this asset. As we exit our real estate investments, we expect to redeploy the capital into our CRE loan book and look to increase our levered returns on the portfolio. Along those lines, we are working on the liquidation of our two CRE securitizations structured in 2021. The leverage profile on an aggregate basis declined to 77% at December 31st and we'll look to refinance the assets in the first quarter. We have $2.3 million of unamortized debt issuance costs as of December 31st, and we'll incur a charge with the acceleration. 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 ACR's CFO, Eldren Blackwell, discuss the financial statements, and operating results during the fourth quarter.