ACRES Commercial Realty Corp. Files Q1 2024 10-Q Report

TL;DR

<b>ACRES Commercial Realty Corp. has submitted its Q1 2024 10-Q filing, detailing its commercial real estate portfolio and financial instruments.</b>

AI Summary

ACRES Commercial Realty Corp. (ACR-PD) filed a Quarterly Report (10-Q) with the SEC on May 8, 2024. ACRES Commercial Realty Corp. filed its 10-Q report for the period ending March 31, 2024. The filing includes data related to commercial real estate portfolios, mezzanine loans, and whole loans. Key financial instruments mentioned include Series D Preferred Stock and Five Point Seven Five Percent Senior Unsecured Notes Due Two Thousand Twenty Six. The company's fiscal year ends on December 31st. The report references various financial inputs, including Fair Value Inputs Level 1 and Level 3.

Why It Matters

For investors and stakeholders tracking ACRES Commercial Realty Corp., this filing contains several important signals. This 10-Q filing provides investors with an updated view of ACRES's financial health and operational status for the first quarter of 2024. Understanding the specifics of their commercial real estate loan portfolio and debt instruments is crucial for assessing the company's risk and potential for future returns.

Risk Assessment

Risk Level: medium — ACRES Commercial Realty Corp. shows moderate risk based on this filing. The company's exposure to commercial real estate loans, including those that are 30-59 days past due, and its reliance on various financing facilities present a medium level of risk.

Analyst Insight

Investors should closely examine the company's loan portfolio performance and debt covenants detailed in the 10-Q to assess future financial stability.

Key Numbers

• 2024-03-31 — Reporting Period End Date (10-Q Filing)
• 2024-05-08 — Filing Date (10-Q Filing)
• 2022-12-31 — Previous Year End Date (Common Stock Data)
• 2023-12-31 — Prior Year End Date (Fair Value Inputs)

Key Players & Entities

• ACRES Commercial Realty Corp. (company) — FILER
• ACR (company) — FORM TYPE
• 20240331 (date) — CONFORMED PERIOD OF REPORT
• 20240508 (date) — FILED AS OF DATE
• 0001332551 (company) — CENTRAL INDEX KEY
• ACRES Capital Corp (company) — Related Party Member
• ACRES Development LLC (company) — Related Party Member
• Five Point Seven Five Percent Senior Unsecured Notes Due Two Thousand Twenty Six (dollar_amount) — Debt Instrument

FAQ

Risk Factors

• Financing Receivables Past Due [medium — financial]: The company has financing receivables that are 30 to 59 days past due, indicating potential credit risk within its commercial real estate portfolio.
• Lease Liabilities [medium — financial]: The filing references lease liabilities, suggesting ongoing obligations related to property leases that could impact cash flow.
• Debt Instruments [medium — financial]: ACRES utilizes various debt instruments, including senior unsecured notes and preferred stock, which carry associated interest expenses and maturity risks.

Key Dates

• 2024-03-31: Quarterly Period End — End of the first quarter of 2024, for which the 10-Q report is filed.
• 2024-05-08: Filing Date — Date the 10-Q report was officially filed with the SEC.

Glossary

Commercial Real Estate Portfolio

A collection of real estate properties owned or managed by the company for commercial purposes. (Core asset class for ACRES, directly impacting revenue and risk.)

Key Financial Figures

• $0.001 — nge on which registered Common Stock, $0.001 par value ACR New York Stock Exchan
• $250,000 — Corporation deposit insurance limits of $250,000 per respective depository or brokerage

Filing Documents

• acr-20240331.htm (10-Q) — 4944KB
• acr-ex31_1.htm (EX-31.1) — 13KB
• acr-ex31_2.htm (EX-31.2) — 13KB
• acr-ex32_1.htm (EX-32.1) — 8KB
• acr-ex32_2.htm (EX-32.2) — 7KB
• img82327870_0.jpg (GRAPHIC) — 14KB
• img82327870_1.jpg (GRAPHIC) — 55KB
• img82327870_2.jpg (GRAPHIC) — 57KB
• 0000950170-24-055428.txt (&nbsp;) — 20047KB
• acr-20240331.xsd (EX-101.SCH) — 2468KB
• acr-20240331_htm.xml (XML) — 4315KB

Financial Statements

Financial Statements 3 Consolidated Balance Sheets – March 31, 2024 (unaudited) and December 31, 2023 3 Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2024 and 2023 5 Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months Ended March 31, 2024 and 2023 6 Consolidated Statements of Changes in Equity (unaudited) for the Three Months Ended March 31, 2024 and 2023 7 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2024 and 2023 9

Notes to Consolidated Financial Statements – March 31, 2024 (unaudited)

Notes to Consolidated Financial Statements – March 31, 2024 (unaudited) 10 Item 2:

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 40 Item 3:

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 69 Item 4:

Controls and Procedures

Controls and Procedures 71 PART II 72 Item 1:

Legal Proceedings

Legal Proceedings 72 Item 1A:

Risk Factors

Risk Factors 72 Item 2: Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities 72 Item 5: Other Information 72 Item 6: Exhibits 74

SIGNATURES

SIGNATURES 78 (Back to Index) (Back to Index) PART I

FINANCI AL STATEMENTS

ITEM 1. FINANCI AL STATEMENTS ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES CONSOLIDATED B ALANCE SHEETS (in thousands, except share and per share data) March 31, 2024 December 31, 2023 (unaudited) ASSETS (1) Cash and cash equivalents $ 84,600 $ 83,449 Restricted cash 4,035 8,437 Accrued interest receivable 11,889 11,783 CRE loans 1,774,883 1,857,093 Less: allowance for credit losses ( 33,653 ) ( 28,757 ) CRE loans, net 1,741,230 1,828,336 Loan receivable - related party 10,925 10,975 Investments in unconsolidated entities 21,671 1,548 Properties held for sale 62,986 62,605 Investments in real estate 171,284 157,621 Right of use assets 19,799 19,879 Intangible assets 7,638 7,882 Other assets 3,795 3,590 Total assets $ 2,139,852 $ 2,196,105 LIABILITIES (2) Accounts payable and other liabilities $ 13,873 $ 13,963 Management fee payable - related party 541 584 Accrued interest payable 5,990 8,459 Borrowings 1,625,499 1,676,200 Lease liabilities 44,439 44,276 Distributions payable 3,229 3,262 Accrued tax liability 43 121 Liabilities held for sale 3,073 3,025 Total liabilities 1,696,687 1,749,890 EQUITY Preferred stock, par value $ 0.001 : 10,000,000 shares authorized 8.625 % Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock, liquidation preference $ 25.00 per share; 4,800,000 and 4,800,000 shares issued and outstanding 5 5 Preferred stock, par value $ 0.001 : 6,800,000 shares authorized 7.875 % Series D Cumulative Redeemable Preferred Stock, liquidation preference $ 25.00 per share; 4,507,857 and 4,607,857 shares issued and outstanding 5 5 Common stock, par value $ 0.001 : 41,666,666 shares authorized; 7,685,300 and 7,878,216 shares issued and outstanding (including 416,675 and 416,675 unvested restricted shares) 8 8 Additional paid-in capital 1,165,999 1,169,97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2024 (unaudited) NOTE 1 - ORGANIZATION ACRES Commercial Realty Corp., a Maryland corporation, along with its subsidiaries (collectively, the "Company"), is a real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate ("CRE") mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. The Company's manager is ACRES Capital, LLC (the "Manager"), a subsidiary of ACRES Capital Corp. (collectively, "ACRES"), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, office and industrial property in top United States ("U.S.") markets. The Company has qualified, and expects to qualify in the current fiscal year, as a REIT. The Company conducts its operations through the use of subsidiaries that it consolidates into its financial statements. The Company's core assets are consolidated through its investment in ACRES Realty Funding, Inc. ("ACRES RF"), a wholly-owned subsidiary that holds CRE loans, investments in commercial real estate properties and investments in CRE securitizations, which are consolidated as VIEs as discussed in Note 3. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. ("GAAP"). The consolidated financial statements include the accounts of the Company, majority-owned or controlled subsidiaries and VIEs for which the Company is considered the primary beneficiary. All inter-company transactions and balances have been eliminated in consolidation. Basis of Presentation All adjustments necessary to fairly present the Company's financial position, results of operations and cash flows have been ma

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) MARCH 31, 2024 (unaudited) The following table provides a reconciliation of cash, cash equivalents and restricted cash on the consolidated balance sheets to the total amount shown on the consolidated statements of cash flows (in thousands): March 31, 2024 2023 Cash and cash equivalents $ 84,600 $ 87,314 Restricted cash 4,035 33,940 Total cash, cash equivalents and restricted cash shown on the Company's consolidated statements of cash flows $ 88,635 $ 121,254 Investments in Real Estate The Company depreciates investments in real estate and amortizes related intangible assets over the estimated useful lives of the assets as follows: Category Term Building 35 to 40 years Building improvements 8 to 35 years Site improvements 10 years Tenant improvements Shorter of lease term or expected useful life Furniture, fixtures and equipment 3 to 12 years Right of use assets 7 to 94 years Intangible assets 90 days to 18 years Lease liabilities 7 to 94 years Income Taxes The Company recorded a full valuation allowance against its net deferred tax assets (tax effected expense of $ 21.1 million ) at March 31, 2024 , as the Company believes it is more likely than not that the deferred tax assets will not be realized. This assessment was based on the Company's cumulative historical losses and uncertainties as to the amount of taxable income that would be generated in future years by the Company's taxable REIT subsidiaries. Earnings per Share The Company presents both basic and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is computed by dividing net income (loss) allocable to common shareholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) MARCH 31, 2024 (unaudited) NOTE 3 - VARIABLE INTEREST ENTITIES The Company has evaluated its loans, investments in unconsolidated entities, liabilities to subsidiary trusts issuing preferred securities (consisting of unsecured junior subordinated notes), securitizations, guarantees and other financial contracts in order to determine if they are variable interests in VIEs. The Company regularly monitors these legal interests and contracts and, to the extent it has determined that it has a variable interest, analyzes the related entity for potential consolidation. Consolidated VIEs (the Company is the primary beneficiary) Based on management's analysis, the Company was the primary beneficiary of two VIEs at both March 31, 2024 and December 31, 2023 (collectively, the "Consolidated VIEs"). The Consolidated VIEs are CRE securitizations that were formed on behalf of the Company to invest in CRE whole loans that were financed by the issuance of debt securities. By financing these assets with long-term borrowings through the issuance of debt securities, the Company seeks to generate attractive risk-adjusted equity returns and to match the term of its assets and liabilities. The primary beneficiary determination for each of these VIEs was made at each VIE's inception and is continually assessed. The Company has exposure to losses on its securitizations to the extent of its investments in the subordinated debt and preferred equity of each securitization. The Company is entitled to receive payments of principal and interest on the debt securities it holds and, to the extent revenues exceed debt service requirements and other expenses of the securitizations, distributions with respect to its preferred equity interests. As a result of consolidation, the debt and equity interests the Company holds in these securitizations have been eliminated; and the Company's consolidated balance sheets reflect the assets

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) MARCH 31, 2024 (unaudited) The following table shows the classification and carrying values of assets and liabilities of the Company's Consolidated VIEs at March 31, 2024 (in thousands): ASSETS Restricted cash $ 190 Accrued interest receivable 9,340 CRE loans, pledged as collateral (1) 1,409,013 Other assets 56 Total assets (2) $ 1,418,599 LIABILITIES Accounts payable and other liabilities $ 142 Accrued interest payable 3,634 Borrowings 1,146,812 Total liabilities $ 1,150,588 (1) Excludes allowance for credit losses. (2) Assets of each of the Consolidated VIEs may only be used to settle the obligations of each respective VIE. In April 2022, the Company contributed an initial investment of $ 13.0 million for a 72.1 % interest in Charles Street-ACRES FSU Student Venture, LLC (the "FSU Student Venture"). The FSU Student Venture, a joint venture between the Company and two unrelated third parties, was formed for the purpose of developing a student housing project. The FSU Student Venture was determined not to be a VIE as there was sufficient equity at risk, it does not have disproportionate voting rights and its members all have the following characteristics: (1) the power to direct activities (2) the obligation to absorb losses and (3) the right to receive residual returns. However, the Company consolidated the FSU Student Venture due to its 72.1 % interest that provides the Company with control over all major decisions of the joint venture. The portion of the joint venture that the Company does not own is presented as non-controlling interest at and for the periods presented in the Company's consolidated financial statements. Unconsolidated VIEs (the Company is not the primary beneficiary, but has a variable interest) Based on management's analysis, the Company is not the primary beneficiary of the VIEs discussed below since it does not have both (i

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