Asked if there would be additional one-time expenses related to the internalization process in Q3, similar to Q2.

Andrew Fentress confirmed there would be additional one-time expenses in Q3, but Eldren Blackwell clarified they would be lower than Q2. GAAP requires expensing as incurred. “No, they'll be lower in the third quarter.”

Asked if the $2.7 billion number on slide 22, representing the hypothetical EAD post-merger, was largely driven by warehouse financing.

Andrew Fentress clarified that it's primarily a function of existing equity dollars in the portfolio that will be sold and converted into the loan book, not warehouse financing. “No, that is largely a function of existing equity dollars that are in the portfolio that are going to be sold and converted from equity into loan book.”

Inquired about the main drivers behind the AUM fees that would push the hypothetical EAD from $48 million to $73 million in different case scenarios.

Andrew Fentress explained that these AUM fees are related to an Evergreen fund vehicle, separate accounts, and new fund products in ACRES' pipeline. The difference between the cases is driven by additional AUM growth in these products. “So this is AUM and fees related to an Evergreen fund vehicle, separate accounts. and new fund products that are in our pipeline at ACRES.”

ACR

ACRES Commercial Realty (ACR) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Real Estate· Jul 30, 2026

Source: earnings call transcript

Executive summary

ACRES Commercial Realty Corp. Q2 FY26 — Internalization Progress and Strong Loan Pipeline

ACRES Commercial Realty Corp. reported Q2 FY26 results marked by significant progress towards its internalization transaction, which received overwhelming shareholder approval and is expected to close shortly. Despite a GAAP net loss and EAD loss primarily due to one-time internalization costs and increased CECL reserves, the company maintains a strong loan pipeline and anticipates meeting its $500 million net growth target for the year. Management is focused on growing value for shareholders through a directly aligned, internalized structure and actively managing its portfolio.

Highlights

Shareholder approval for internalization transaction: approximately 99% of votes cast were in favor.
Strong loan pipeline: management reports it is "stronger than ever" with many opportunities.
Anticipated net growth in REIT: company still targets $500 million of net growth for 2026.
GAAP debt to equity and leverage ratio decreased to 3.2 times at June 30th from 3.4 times at March 31st.
Net interest income increased by $1.3 million over the prior quarter to $10.5 million.

Concerns

GAAP net loss allocable to common shares was $12.5 million, or $1.87 per share.
Internalization transaction costs impacted GAAP net loss by $5.1 million and EAD by $5.5 million in Q2.
EAD for Q2 FY26 was a loss of $0.74 per share, compared to a gain of $0.02 per share in Q1.
Increase in current expected credit losses (CECL) reserves of $1.7 million, or $0.25 per share.
Book value per share decreased to $26.76 on June 30th from $29.98 on March 31st.
Difficulty selling one REO hotel property due to labor strikes and inability to project future labor expenses.

Guidance & targets

Category	Target	Timeline	Confidence
Net growth in REIT	$500 million high materiality	FY26 · 2026	High
Internalization transaction costs	lower than Q2 medium materiality	Q3 · 2026	High

Deals & partnerships

External manager Merger agreement for internalization of external manager. Involves share issuance.

Shareholders voted approximately 99% in favor of the share issuance proposal. This transaction will transition reporting to include additional fee-related revenues.

Risks & headwinds

Internalization transaction costs Q2 FY26, Q3 FY26

$5.1 million (GAAP), $5.5 million (EAD) in Q2 FY26. Additional, lower costs expected in Q3 FY26.

Mitigation:These are one-time costs associated with a strategic transaction; management is diligently working to close the deal.

Increase in CECL reserves Q2 FY26

$1.7 million or $0.25 per share in Q2 FY26.

Mitigation:Primarily driven by a decline in projected macroeconomic factors; implies a general economic headwind rather than specific company issue.

Difficulty selling REO hotel property Ongoing since 2022

One hotel asset held for sale since 2022.

Mitigation:Actively trying to sell, but challenges include labor strikes in the market and inability to project future labor expenses, making it difficult to find a buyer until there's a union commitment.

Slight increase in weighted average risk rating Q2 FY26

From 2.5 at March 31st to 2.6 at June 30th.

Mitigation:Management states they continue to actively manage the portfolio and are selective on opportunities. The number of loans rated 4 or 5 remained stable.

What to watch in Q3 FY26

Internalization transaction closing

coming weeks

Current pending

Target closed

Why it matters

The internalization is a major strategic shift, aligning management and shareholder interests, and is expected to impact future revenue streams and reporting.

We look forward to providing more updates as we complete the transaction.

Find out whether ACR delivers this. Inve re-checks your case every morning.

Q&A highlights

Inquired about the strength of the loan pipeline and how the company plans to achieve its $500 million net growth target given the current market.

Mark Fogel stated the pipeline is stronger than ever with many opportunities. He noted that market conditions are leading to "capitulation" where people are selling assets, creating quality acquisition opportunities with good sponsors.

“The pipeline is actually stronger than ever. There's a lot of opportunity out there, and we're analyzing best opportunities to put into the portfolio.”

asked by Matthew Erdner · answered by Mark Fogel

2 min read 6 chapters

Detailed narrative

Internalization Transaction Progress

The company's proposed internalization of its external manager received overwhelming shareholder approval, with approximately 99% of votes cast in favor. This transaction is expected to close shortly, and management anticipates providing further updates. This move is aimed at aligning employee and shareholder interests, with ACRES employees projected to own over 40% of ACR common stock pro forma for the closing.

Loan Portfolio Performance and Growth

The loan portfolio demonstrated sound performance, with a weighted average risk rating of 2.6 at June 30th, a slight increase from 2.5 at March 31st. The number of loans rated 4 or 5 remained stable at 10, representing 14% of the CRE loan portfolio.

Despite a net decrease of $74.9 million in the loan portfolio this quarter due to $92.7 million in payoffs and paydowns versus $17.8 million in funded commitments, the company still targets $500 million of net growth for FY26, supported by a strong pipeline of new opportunities.

Financial Results and Internalization Impact

ACRES reported a GAAP net loss of $12.5 million, or $1.87 per share, in Q2 FY26. This loss was significantly impacted by $5.1 million in internalization transaction costs and $4 million in accelerated compensation expense. The EAD loss of $0.74 per share was also primarily driven by these costs and accelerated deferred debt costs. Excluding these one-time items, EAD would have been $0.14 per share.

Liquidity and Balance Sheet

Available liquidity at June 30th stood at $83 million, comprising $41 million in unrestricted cash and $42 million in projected financing on unlevered assets. The GAAP debt to equity and leverage ratio improved to 3.2 times from 3.4 times in the prior quarter, mainly due to net repayments in the CRE loan portfolio.

The company also holds $94.1 million in net operating loss carry forwards, equivalent to $6.36 per share of book value.

Real Estate Owned (REO) Assets

The company has two remaining REO properties. One hotel asset has been listed for sale since 2022 but faces challenges due to labor strikes and the inability to project future labor expenses, making it difficult to find a buyer. Management is actively working to divest these assets.

Future Revenue Streams and Transparency

Post-internalization, the combined company will focus on two primary revenue sources, including additional fee-related revenues from an Evergreen fund vehicle, separate accounts, and new fund products. Management committed to providing increased transparency on key metrics related to these new revenue streams, which are expected to drive AUM growth.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.