ACRES Commercial Realty (NYSE:ACR) reported a second-quarter 2026 GAAP net loss allocable to common shareholders of $12.5 million, or $1.87 per share, as costs tied to its planned manager internalization weighed on results.
Chief Financial Officer Eldron Blackwell said the quarter included $5.1 million in internalization transaction costs and $4 million of incremental compensation expense related to accelerated vesting under the pending transaction. The company expects to recognize additional transaction-related expenses in the third quarter as it works to close the deal, though Chairman Andrew Fentress said those one-time charges should be lower than in the second quarter.
Loan portfolio declines as payoffs exceed commitments
During the quarter, loan payoffs and paydowns totaled $92.7 million, while funded commitments were $17.8 million. The activity resulted in a $74.9 million net decline in the loan portfolio.
President and CEO Mark Fogel said the portfolio generally continued to perform and reflected the company’s underwriting and asset-management efforts. At June 30, ACRES had a weighted average risk rating of 2.6, compared with 2.5 at March 31. The company had 10 loans rated four or five, unchanged from the end of the first quarter.
The share of the commercial real estate loan portfolio rated four or five, based on ACRES’ economic interest, remained 14% at both quarter-end dates.
Fogel told analysts that the lending pipeline was “stronger than ever,” citing a market environment in which some asset owners are selling properties after concluding they may not recover all of their equity. He said this has created opportunities for ACRES to evaluate potentially higher-quality transactions with established sponsors.
“We’re analyzing the best opportunities to put into the portfolio,” Fogel said.
Internalization transaction moves toward closing
ACRES is pursuing a transaction to internalize its external manager. Fogel said approximately 99% of votes cast on the related share-issuance proposal were in favor of the transaction. The company expects the closing to occur “in short order,” according to management.
Fentress said ACRES employees are expected to own more than 40% of the company’s common stock on a pro forma basis after closing. He said the combined company will have two primary revenue sources and that management intends to provide additional transparency on fee-related revenue metrics as reporting transitions from a REIT-focused balance sheet presentation.
During the question-and-answer session, Fentress said a presentation bridge to a $2.7 billion figure was largely driven by existing equity dollars in the portfolio that are expected to be sold and converted into the loan book, rather than warehouse financing capacity.
He also said potential assets under management and fee revenue would be supported by growth in an evergreen fund vehicle, separate accounts and new fund products in ACRES’ pipeline. Additional AUM growth across open- and closed-end fund vehicles would determine the range of outcomes discussed in the company’s presentation, he said.
Net interest income rises; reserves increase
Blackwell said second-quarter GAAP results included $10.5 million of net interest income, an increase of $1.3 million from the prior quarter. The increase was primarily attributable to the full-quarter impact of a new commercial real estate securitization.
The company also recorded a $1.1 million net increase in the performance of its net real estate operations. However, ACRES increased its current expected credit loss, or CECL, reserves by $1.7 million, equal to $0.25 per share. That compared with a $1 million reduction in CECL reserves during the first quarter, which Blackwell said had been driven primarily by lower projected macroeconomic factors.
Total allowance for credit losses stood at $21.1 million at June 30, representing 0.99%, or 99 basis points, of the company’s $2.1 billion loan portfolio at par. The allowance consisted entirely of general credit reserves.
- Second-quarter EAD was a loss of $0.74 per share, compared with a gain of $0.02 per share in the first quarter.
- Management said EAD was affected by $5.5 million of internalization transaction costs and $984,000 of accelerated deferred debt costs on a debt facility.
- Excluding those costs, Blackwell said EAD would have been $0.14 per share for the quarter.
Liquidity and book value
GAAP book value per share was $26.76 at June 30, down from $29.98 at March 31. Blackwell attributed the decline to restricted-stock vesting, transaction costs and deferred debt costs incurred during the quarter.
Available liquidity was $83 million at quarter-end, consisting of $41 million of unrestricted cash and $42 million of projected financing available on unlevered assets. The company’s GAAP debt-to-equity leverage ratio declined to 3.2 times from 3.4 times at the end of the first quarter, primarily reflecting net repayments in the CRE loan portfolio.
ACRES also reported total gross net operating loss carryforwards of $94.1 million at June 30, which Blackwell said equated to approximately $6.36 per share of book value and could offset future net income-generating activities.
On real estate owned assets, Fentress said a hotel that has been held for sale since 2022 is again on the market. He said labor-union negotiations have complicated a potential sale because prospective buyers have had difficulty projecting future labor expenses without an agreement in place.
About ACRES Commercial Realty (NYSE:ACR)
ACRES Commercial Realty Corp., a real estate investment trust (REIT), focuses on the origination, holding, and management of commercial real estate mortgage loans and equity investments in commercial real estate property in the United States. It invests in commercial real estate-related assets, including floating-rate first mortgage loans, first priority interests in first mortgage loans, subordinated interests in first mortgage loans, mezzanine financing, preferred equity investments, and commercial mortgage-backed securities.
