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    ACR
    Earnings call· Jun 2026(Q2 FY26)

    ACRES Commercial Realty Q2 FY26 earnings call ACR

    Jul 30, 2026 Source

    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

    5

    • 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

    6

    • 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

    2
    CategoryTargetConfidence
    Net growth in REIT
    $500 million
    high materiality
    High
    Internalization transaction costs
    lower than Q2
    medium materiality
    High

    Operational metrics

    23
    Loan payoffs and paydowns
    $92.7 million
    Q2 FY26
    Funded commitments
    $17.8 million
    Q2 FY26
    Net decrease to loan portfolio
    $74.9 million
    Q2 FY26

    Result of loan payoffs/paydowns minus funded commitments.

    Weighted average risk rating
    2.6up from 2.5 at March 31st
    Q2 FY26
    Number of loans rated 4 or 5
    10same as end of Q1
    Q2 FY26

    Represents loans with higher risk.

    CRE loan portfolio rated 4 or 5 (economic interest)
    14%same as March 31st
    Q2 FY26

    Based on the company's economic interest.

    GAAP net loss allocable to common shares
    $12.5 million
    Q2 FY26

    Includes internalization transaction costs and incremental compensation expense.

    Internalization transaction costs (GAAP)
    $5.1 million
    Q2 FY26

    Expensed as incurred, impacting GAAP net loss.

    Incremental compensation expense (GAAP)
    $4 million
    Q2 FY26

    From accelerated vesting in connection with pending internalization.

    Net interest income
    $10.5 millionincrease of $1.3 million over prior quarter
    Q2 FY26

    Primarily driven by full quarter's impact of new CRE securitization.

    Net increase in performance of net real estate operations
    $1.1 million
    Q2 FY26

    Included in GAAP net loss.

    Increase in CECL reserves
    $1.7 millioncompared to a decrease of $1 million in Q1
    Q2 FY26

    Primarily driven by a decline in projected macroeconomic factors.

    Total allowance for credit losses
    $21.1 million
    June 30, 2026
    EAD per share (loss)
    $0.74compared to EAB gain of $0.02 per share for Q1
    Q2 FY26

    Primarily driven by internalization transaction costs and accelerated deferred debt costs.

    Internalization transaction costs (EAD impact)
    $5.5 million
    Q2 FY26

    Recognized during the quarter, impacting EAD.

    Accelerated deferred debt costs (EAD impact)
    $984,000
    Q2 FY26

    Recognized during the quarter, impacting EAD.

    EAD per share (excluding one-time costs)
    $0.14
    Q2 FY26

    Hypothetical EAD without internalization transaction costs and accelerated deferred debt costs.

    Book value per share
    $26.76versus $29.98 on March 31st
    June 30, 2026

    Driven by vesting of restricted stock, transaction costs, and deferred debt costs.

    Available liquidity
    $83 million
    June 30, 2026
    GAAP debt to equity and leverage ratio
    3.2 timesdecreased from 3.4 times at March 31st
    June 30, 2026

    Primarily due to net repayments on the CRE loan portfolio.

    Total gross net operating loss carry forwards
    $94.1 million
    June 30, 2026

    Can be offset against future net income generating activities.

    ACR common stock ownership by employees (pro forma)
    40 plus percent
    Post-internalization closing

    Pro forma for the closing of the internalization transaction.

    REO properties remaining
    2
    Q2 FY26

    One is a hotel held for sale since 2022.

    Industry KPIs

    1
    MetricValueDetails
    Investment volume closed$17.8 millionUSD

    Deals & partnerships

    1
    External managerMerger 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

    4
    Internalization transaction costsQ2 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 reservesQ2 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 propertyOngoing 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 ratingQ2 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

    4

    Internalization transaction closing

    coming weeks
    Currentpending
    Targetclosed

    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.

    Q&A highlights

    5

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.