UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 1-32733
ACRES COMMERCIAL REALTY CORP.
(Exact name of registrant as specified in its charter)
Maryland
20-2287134
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
390 RXR Plaza, Uniondale, New York 11556
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 516-535-0015
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value
ACR
New York Stock Exchange
8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock
ACRPrC
7.875% Series D Cumulative Redeemable Preferred Stock
ACRPrD
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
The number of outstanding shares of the registrant’s common stock on November 4, 2024 was 7,736,907 shares.
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PAGE
PART I
3
Item 1:
Financial Statements
Consolidated Balance Sheets – September 30, 2024 (unaudited) and December 31, 2023
Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023
5
Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023
6
Consolidated Statements of Changes in Equity (unaudited) for the Three Months Ended March 31, 2024 and 2023 and June 30, 2024 and 2023 and September 30, 2024 and 2023
7
Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2024 and 2023
9
Notes to Consolidated Financial Statements – September 30, 2024 (unaudited)
10
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
41
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
75
Item 4:
Controls and Procedures
77
PART II
78
Legal Proceedings
Item 1A:
Risk Factors
Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Item 5:
Other Information
79
Item 6:
Exhibits
80
SIGNATURES
84
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 30, 2024
December 31, 2023
(unaudited)
ASSETS (1)
Cash and cash equivalents
$
70,074
83,449
Restricted cash
961
8,437
Accrued interest receivable
13,944
11,783
CRE loans
1,580,516
1,857,093
Less: allowance for credit losses
(34,699
)
(28,757
CRE loans, net
1,545,817
1,828,336
Principal paydowns receivable
24,445
—
Loan receivable - due from Manager
10,750
10,975
Investments in unconsolidated entities
22,036
1,548
Properties held for sale
200,194
62,605
Investments in real estate
89,379
157,621
Right of use assets
19,613
19,879
Intangible assets
7,152
7,882
Other assets
5,971
3,590
Total assets
2,010,336
2,196,105
LIABILITIES (2)
Accounts payable and other liabilities
16,421
13,963
Management fee payable - related party
540
584
Accrued interest payable
4,867
8,459
Borrowings
1,489,229
1,676,200
Lease liabilities
44,739
44,276
Distributions payable
3,740
3,262
Accrued tax liability
735
121
Liabilities held for sale
3,173
3,025
Total liabilities
1,563,444
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
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
Common stock, par value $0.001: 41,666,666 shares authorized; 7,789,217 and 7,878,216 shares issued and outstanding (including 574,538 and 416,675 unvested restricted shares)
8
Additional paid-in capital
1,164,285
1,169,970
Accumulated other comprehensive loss
(3,605
(4,801
Distributions in excess of earnings
(724,358
(729,391
Total stockholders’ equity
436,340
435,796
Non-controlling interests
10,552
10,419
Total equity
446,892
446,215
TOTAL LIABILITIES AND EQUITY
The accompanying notes are an integral part of these statements
CONSOLIDATED BALANCE SHEETS - (Continued)
(1) Assets of consolidated variable interest entities ("VIEs") included in total assets above:
190
220
10,719
9,188
CRE loans, pledged as collateral (3)
1,237,235
1,466,463
Principal paydown receivable
15,450
159
71
Total assets of consolidated VIEs
1,263,753
1,475,942
(2) Liabilities of consolidated VIEs included in total liabilities above:
142
143
2,477
3,828
990,520
1,204,569
Total liabilities of consolidated VIEs
993,139
1,208,540
4
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2024
2023
REVENUES
Interest income:
38,712
47,567
120,918
138,388
Other
589
641
2,060
2,297
Total interest income
39,301
48,208
122,978
140,685
Interest expense
28,842
33,555
90,404
97,372
Net interest income
10,459
14,653
32,574
43,313
Real estate income
11,857
9,316
29,371
25,266
Other revenue
37
112
107
Total revenues
22,353
24,006
62,057
68,686
OPERATING EXPENSES
General and administrative
2,430
2,246
8,041
7,573
Real estate expenses
12,524
9,706
31,791
29,058
Management fees - related party
1,624
2,113
4,871
5,776
Equity compensation - related party
833
482
2,124
2,095
Corporate depreciation and amortization
16
22
40
68
(Reversal of) provision for credit losses, net
(291
1,983
5,942
9,779
Total operating expenses
17,136
16,552
52,809
54,349
5,217
7,454
9,248
14,337
OTHER INCOME (EXPENSE)
Equity in losses of unconsolidated subsidiaries
(168
(209
Gain on conversion of real estate
2,802
8,637
Gain on sale of real estate
745
Other income
285
113
1,835
465
Total other income
2,919
10,263
1,210
INCOME BEFORE TAXES
8,136
7,567
19,511
15,547
Income tax expense
(82
(136
(129
NET INCOME
8,054
19,375
15,418
Net income allocated to preferred shares
(5,318
(4,855
(14,946
(14,566
Carrying value in excess of consideration paid for preferred shares
242
Net loss allocable to non-controlling interest, net of taxes
88
158
362
419
NET INCOME ALLOCABLE TO COMMON SHARES
2,824
2,870
5,033
1,271
NET INCOME PER COMMON SHARE - BASIC
0.37
0.34
0.65
0.15
NET INCOME PER COMMON SHARE - DILUTED
0.36
0.33
0.63
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
7,669,051
8,456,884
7,695,656
8,469,597
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
7,945,622
8,592,556
7,940,299
8,609,679
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income:
Reclassification adjustments associated with net unrealized losses from interest rate swaps included in interest expense
401
402
1,196
1,192
Total other comprehensive income
Comprehensive income before allocation to preferred shares
8,455
7,969
20,571
16,610
Net loss allocated to non-controlling interests shares
Comprehensive income allocable to common shares
3,225
3,272
6,229
2,463
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except share data)
Common Stock
Shares
Amount
Series C Preferred Stock
Series D Preferred Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Loss
Distributions in Excess of Earnings
Total Stockholders’ Equity
Non-Controlling Interest
Total Equity
Balance, December 31, 2023
7,878,216
Purchase and retirement of common stock
(194,827
(2,068
Stock-based compensation
1,911
19
Amortization of stock-based compensation
477
Preferred stock redemption
(2,399
(2,157
Contributions from non-controlling interests
180
5,136
(212
4,924
Distributions and accrual of cumulative preferred stock dividends
(4,822
Amortization of terminated derivatives
397
Balance, March 31, 2024
7,685,300
1,165,999
(4,404
(728,835
432,778
10,387
443,165
(115,458
(1,555
333,333
Offering costs
814
61
6,459
(62
6,397
(4,806
398
Balance, June 30, 2024
7,903,175
1,165,176
(4,006
(727,182
434,006
10,386
444,392
(113,958
(1,724
254
8,142
(88
Balance, September 30, 2024
7,789,217
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - (Continued)
Balance, December 31, 2022
8,708,100
1,174,202
(6,394
(732,359
435,468
5,846
441,314
(79,744
(756
17,780
170
894
2,332
2,439
(146
2,293
393
Balance, March 31, 2023
8,646,136
1,174,510
(6,001
(734,775
433,753
8,032
441,785
(135,416
(1,200
6,875
65
719
1,533
5,673
(115
5,558
(4,856
Balance, June 30, 2023
8,517,595
1,174,094
(5,604
(733,958
434,551
9,450
444,001
(83,297
(1
(728
(729
14,226
127
1,232
7,725
(158
Balance, September 30, 2023
8,448,524
1,173,975
(5,202
(731,088
437,703
10,524
448,227
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses, net
Depreciation, amortization and accretion
5,200
3,996
(8,637
(745
209
Changes in operating assets and liabilities
(5,585
5,681
Net cash provided by operating activities
18,628
36,224
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal fundings of CRE loans
(27,958
(75,002
Principal payments received on CRE loans
245,684
194,856
(42,755
(27,434
Investment in unconsolidated entities
(574
Purchases of furniture and fixtures
(8
Proceeds from sale of real estate
14,309
Principal payments received on loan - due from Manager
225
Net cash provided by investing activities
174,614
106,954
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
Repurchase of common stock
(5,347
(2,684
Repurchase of preferred stock
Proceeds from borrowings:
Senior secured financing facility
13,500
Warehouse financing facilities and repurchase agreements
19,177
11,970
Mortgages payable
31,071
144
Construction loans
6,106
Payments on borrowings:
Securitizations
(216,447
(32,091
(1,397
(40,554
(24,938
(89,704
Payment of debt issuance costs
(4,891
Proceeds received from non-controlling interests
495
5,097
Distributions paid on preferred stock
(14,468
Net cash used in financing activities
(214,093
(147,673
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
(20,851
(4,495
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD
91,886
104,811
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD
71,035
100,316
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 variable interest entities ("VIEs") as discussed in Note 3.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. ("GAAP"). In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments necessary to fairly present the Company’s financial position, results of operations and cash flows.
Principles of Consolidation
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.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and within the period of financial results. Actual results could differ from those estimates. Estimates affecting the accompanying consolidated financial statements include, but are not limited to, the net realizable and fair values of the Company’s investments and derivatives, the estimated useful lives used to calculate depreciation, the expected lives over which to amortize premiums and accrete discounts, reversals of or provisions for expected credit losses and the disclosure of contingent liabilities.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all highly liquid investments with original maturities of three months or less at the time of purchase. At September 30, 2024 and December 31, 2023, $66.8 million and $81.1 million, respectively, of the reported cash balances exceeded the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation deposit insurance limits of $250,000 per respective depository or brokerage institution. However, all of the Company’s cash deposits are held at multiple, established financial institutions, in multiple accounts associated with its parent and respective consolidated subsidiaries, to minimize credit risk exposure. The Company has not experienced, and does not expect, any losses on its cash and cash equivalents.
Restricted cash includes required account balance minimums primarily for the Company’s CRE debt securitizations as well as cash held in the syndicated corporate loan collateralized debt obligations ("CDOs").
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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):
September 30,
64,440
35,876
Total cash, cash equivalents and restricted cash shown on the Company’s consolidated statements of cash flows
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
7 to 94 years
90 days to 18 years
Income Taxes
The Company recorded a full valuation allowance against its net deferred tax assets (tax effected expense of $21.4 million) at September 30, 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, where such exercise or conversion would result in a lower EPS amount.
Recent Accounting Standards
Accounting Standards to be Adopted in Future Periods
In November 2023, the Financial Accounting Standards Board ("FASB") issued guidance to improve reportable segment disclosure requirements, enhance interim disclosure requirements and provide new segment disclosure requirements for entities with a single reportable segment. The guidance is effective for fiscal years beginning after December 15, 2023, and for interim periods with fiscal years beginning after December 15, 2024. The guidance is applied retrospectively to all periods presented in the financial statements, unless it is impracticable. The Company is in the process of evaluating the impact of this guidance, however, the Company does not expect a material impact to its consolidated financial statements.
In December 2023, the FASB issued guidance to improve the transparency of income tax disclosures. This guidance is effective for fiscal years beginning after December 15, 2024 and is to be adopted on a prospective basis with the option to apply retrospectively. The Company is in the process of evaluating the impact of this guidance, however, the Company does not expect a material impact to its consolidated financial statements.
11
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 September 30, 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 Consolidated VIEs are accounted for as secured borrowings in accordance with GAAP.
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 held, debt issued by the securitizations to third parties and any accrued payables to third parties. The Company’s operating results and cash flows include the gross amounts related to the securitizations’ assets and liabilities as opposed to the Company’s net economic interests in the securitizations. Assets and liabilities related to the securitizations are disclosed, in the aggregate, on the Company’s consolidated balance sheets. For a discussion of the debt issued through the securitizations, see Note 10.
Creditors of the Company’s Consolidated VIEs have no recourse to the general credit of the Company, nor to each other. During the nine months ended September 30, 2024 and 2023, the Company did not provide any financial support to either of its Consolidated VIEs nor does it have any requirement to do so, although it may choose to do so in the future to maximize future cash flows on such investments by the Company. There are no explicit arrangements that obligate the Company to provide financial support to either of its Consolidated VIEs.
Charles Street-ACRES FSU Student Venture, LLC
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) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. Accordingly, the following VIEs are not consolidated in the Company’s financial statements at September 30, 2024 and December 31, 2023. The Company continuously reassesses whether it is deemed to be the primary beneficiary of its unconsolidated VIEs. The Company’s maximum exposure to risk for each of these unconsolidated VIEs is set forth in the "Maximum Exposure to Loss" column in the table below.
12
Unsecured Junior Subordinated Debentures
The Company has a 100% interest in the common shares of each of Resource Capital Trust I ("RCT I") and RCC Trust II ("RCT II"), respectively, with a value of $1.5 million in the aggregate, or 3.0% of each trust, at September 30, 2024 and December 31, 2023. RCT I and RCT II were formed for the purposes of providing debt financing to the Company. The Company completed a qualitative analysis to determine whether it is the primary beneficiary of each of the trusts and determined that it was not the primary beneficiary of either trust because it does not have the power to direct the activities most significant to the trusts, which include the collection of principal and interest through servicing rights. Accordingly, neither trust is consolidated into the Company’s consolidated financial statements.
The Company records its investments in RCT I and RCT II’s common shares of $774,000 each as investments in unconsolidated entities using the cost method, recording dividend income when declared by RCT I and RCT II. The trusts each hold subordinated debentures for which the Company is the obligor in the amount of $25.8 million for each of RCT I and RCT II. The debentures were funded by the issuance of trust preferred securities of RCT I and RCT II.
65 E. Wacker Joint Venture, LLC
In March 2024, the Company contributed its interest in an East North Central office property to form a joint venture (the "Wacker JV") with an unrelated third-party ("Wacker Managing Member") for the purpose of converting the office property to multifamily units. At the date of contribution, the office property had a fair value of $20.3 million. The Wacker Managing Member is responsible for the day-to-day operations of the Wacker JV, but the Company and the Wacker Managing Member must each approve all major decisions related to the operations, financing or disposition of the Wacker JV before any major decision can be taken. The Company accounts for its investment in the Wacker JV as an equity method investment within investments in unconsolidated entities in its consolidated financial statements.
7720 McCallum JV, LLC
In September 2024, the Company contributed $574,000 as well as its net interest in a multifamily unit property located in the Southwest region to form a joint venture (the "McCallum JV") with an unrelated third-party ("McCallum Managing Member"). The McCallum Managing Member is responsible for the day-to-day operations of the McCallum JV. The Company determined McCallum JV to be a VIE for which it was not the primary beneficiary because it did not have the power to direct the activities most significant to the McCallum JV, as the Company does not have unilateral kick-out rights or substantive participating rights. The Company accounts for its investment in the McCallum JV as an equity method investment within investments in unconsolidated entities in its consolidated financial statements.
Upon formation of the McCallum JV, the McCallum JV took ownership of the multifamily property subject to a related CRE loan payable to the Company which was novated to allow the McCallum JV to replace the original obligor who was experiencing financial difficulty. The $31.5 million CRE loan has an initial maturity date of September 5, 2027 and bears interest at a rate of one-month Term SOFR and a spread of 2.75%. There were no other changes to the terms of the loan. McCallum JV also entered into a $1.5 million mezzanine loan commitment with the Company. No amounts were funded under this commitment at September 30, 2024.
13
The following table shows the classification, carrying value and maximum exposure to loss with respect to the Company’s unconsolidated VIEs at September 30, 2024 (in thousands):
65 E Wacker Joint Venture, LLC
Total
Maximum Exposure to Loss
ASSETS
19,942
546
1,561
22,049
LIABILITIES
420
N/A
51,548
51,968
Net (liability) asset
(50,407
(29,919
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes the Company’s supplemental disclosure of cash flow information (in thousands):
Supplemental cash flows:
Interest expense paid in cash
91,084
94,433
Income taxes paid in cash
83
101
Non-cash investing activities include the following:
Transfer of whole loans to investments in real estate
43,828
20,900
Properties held for sale assets related to the receipt of foreclosure or deed-in-lieu of foreclosure
(14,398
(20,900
Transfer of investment in real estate to investment in unconsolidated entities
(20,123
Investments in real estate related to the receipt of foreclosure
(9,307
Non-cash financing activities include the following:
Incentive compensation paid in common stock
Distributions on preferred stock accrued but not paid
Capitalized amortization of deferred debt issuance costs
717
Capitalized interest
1,722
766
14
NOTE 5 - LOANS
The following is a summary of the Company’s CRE loans held for investment by asset type (dollars in thousands, except amounts in footnotes):
Description
Quantity
Principal
Unamortized (Discount) Premium, net (1)
Amortized Cost
Allowance for Credit Losses
Carrying Value
Contractual Interest Rates (2)
Maturity Dates (3)(4)
At September 30, 2024:
Whole loans (5)(6)(7)
55
1,578,565
(2,749
1,575,816
(29,999
BR + 2.50% to BR + 8.61%
October 2024 to September 2027
Mezzanine loan (5)
1
4,700
(4,700
10.00%
June 2028
1,583,265
At December 31, 2023:
Whole loans (5)(6)
69
1,858,265
(5,872
1,852,393
(24,057
January 2024 to January 2027
1,862,965
The following is a summary of the Company’s CRE loans held for investment by property type and geographic location (dollars in thousands, except amounts in footnotes):
Property Type
% of Loan Portfolio
Multifamily
1,225,778
79.4
%
1,453,681
79.6
Office
216,964
14.0
247,410
13.5
Hotel
66,851
4.3
70,857
3.9
Self-Storage
2.3
48,363
2.6
Retail
8,025
0.4
100
15
Geographic Location
Southwest
433,992
28.1
484,902
26.6
Mountain
276,876
17.9
275,120
15.0
Southeast
249,344
16.1
401,624
22.0
Mid Atlantic
217,747
14.1
236,104
12.9
Pacific
146,874
9.5
169,789
9.3
Northeast
134,942
8.7
161,172
8.8
East North Central
46,538
3.0
60,401
3.3
West North Central
39,504
39,224
2.1
The following is a summary of the contractual maturities of the Company’s CRE loans held for investment, at amortized cost (in thousands, except amounts in the footnotes):
2025
2026 and Thereafter
Whole loans (1)
123,016
1,060,979
297,394
1,481,389
Mezzanine loan
Total CRE loans (2)
302,094
1,486,089
916,985
814,772
79,484
1,811,241
84,184
1,815,941
At September 30, 2024 and December 31, 2023, no single loan or investment represented more than 10% of the Company’s total assets, and no single investment group generated over 10% of the Company’s revenue.
Principal Paydowns Receivable
Principal paydowns receivable represents loan principal payments that have been received by the Company's servicers and trustees but have not been remitted to the Company. At September 30, 2024, the Company had $24.4 million of principal paydowns receivable, all of which were received by the Company during October 2024. At December 31, 2023, the Company had no loan principal paydowns receivable.
NOTE 6 - FINANCING RECEIVABLES
The following table shows the activity in the allowance for credit losses for the nine months ended September 30, 2024 and the year ended December 31, 2023 (in thousands):
Nine Months Ended September 30, 2024
Year Ended December 31, 2023
Allowance for credit losses at beginning of period
28,757
18,803
Provision for credit losses
10,902
Charge offs
(948
Allowance for credit losses at end of period
34,699
During the three months ended September 30, 2024, the Company recorded a reversal of expected credit losses of $291,000, primarily attributable to a decrease in modeled credit risk resulting from payoffs and net improvements in property-level performance, offset by a minor worsening of macroeconomic factors, which in turn is keeping interest rates higher for longer. During the nine months ended September 30, 2024, provisions of expected credit losses in the first and second quarters of 2024 outpaced the reversal during the third quarter of 2024, resulting in a net provision of $5.9 million, primarily driven by worsening macroeconomic factors, including, but not limited to, higher interest rates lasting longer than expected pressuring CRE pricing, offset, in part, by a decrease in modeled credit risk resulting from payoffs and net improvements in property-level performance.
At both September 30, 2024 and December 31, 2023, the Company individually evaluated the following loan for impairment:
In fiscal year 2024, the Company individually evaluated one additional loan for which a resolution was reached:
At December 31, 2023, the Company had individually evaluated three additional loans for which resolutions were reached in fiscal year 2024:
17
Credit quality indicators
Commercial Real Estate Loans
CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten loan-to-collateral value ("LTV") ratios, loan structure and exit plan. Depending on the loan’s performance against these various factors, loans are rated on a scale from 1 to 5, with loans rated 1 representing loans with the highest credit quality and loans rated 5 representing loans with the lowest credit quality. Loans are typically rated a 2 at origination. The factors evaluated provide general criteria to monitor credit migration in the Company’s loan portfolio; as such, a loan’s rating may improve or worsen, depending on new information received.
The criteria set forth below should be used as general guidelines. Therefore, not every loan will have all of the characteristics described in each category below.
Risk Rating
Risk Characteristics
• Property performance has surpassed underwritten expectations.
• Occupancy is stabilized, the property has had a history of consistently high occupancy, and the property has a diverse and high-quality tenant mix.
2
• Property performance is consistent with underwritten expectations and covenants and performance criteria are being met or exceeded.
• Occupancy is stabilized, near stabilized or is on track with underwriting.
• Property performance lags behind underwritten expectations.
• Occupancy is not stabilized and the property has some tenancy rollover.
• Property performance significantly lags behind underwritten expectations. Performance criteria and loan covenants have required occasional waivers.
• Occupancy is not stabilized and the property has a large amount of tenancy rollover.
• Property performance is significantly worse than underwritten expectations. The loan is not in compliance with loan covenants and performance criteria and may be in default. Expected sale proceeds would not be sufficient to pay off the loan at maturity.
• The property has a material vacancy rate and significant rollover of remaining tenants.
• An updated appraisal is required upon designation and updated on an as-needed basis.
All CRE loans are evaluated for any credit deterioration by debt asset management and certain finance personnel on at least a quarterly basis. Mezzanine loans may experience greater credit risks due to their nature as subordinated investments.
For the purpose of calculating the quarterly provision for credit losses under CECL, the Company pools CRE loans based on the underlying collateral property type and utilizes a probability of default and loss given default methodology for approximately one year after which it immediately reverts to a historical mean loss ratio.
18
Credit risk profiles of CRE loans at amortized cost were as follows (in thousands, except amounts in the footnote):
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Total (1)
Whole loans, floating-rate
61,993
649,765
505,249
353,196
5,613
10,313
973,424
581,032
256,785
41,152
45,852
Credit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in the footnotes):
2024(1)
2022
2021
2020
Prior
Total (2)
Whole loans, floating-rate: (3)
47,505
150,007
381,822
56,460
13,971
15,798
216,417
261,949
11,085
31,545
84,778
191,984
44,889
Total whole loans, floating-rate
63,303
451,202
897,748
75,558
Mezzanine loan (rating 5)
80,258
Current Period Gross Write-Offs
2019
63,634
212,175
636,487
22,556
38,572
168,791
364,369
34,232
13,640
82,918
123,333
5,645
14,000
19,127
477,884
1,124,189
56,788
63,344
66,554
71,254
The Company has one additional mezzanine loan that was included in other assets held for sale, and that loan had no carrying value at both September 30, 2024 and December 31, 2023.
Loan Portfolio Aging Analysis
The following table presents the CRE loan portfolio aging analysis at the dates indicated for CRE loans at amortized cost (in thousands, except amounts in footnotes):
20
30-59 Days
60-89 Days
Greater than 90Days
Total Past Due
Current
Total Loans Receivable (1)
Total Loans > 90 Days and Accruing
94,427
Mezzanine loan (2)
99,127
At September 30, 2024 and December 31, 2023, the Company had four and three CRE whole loans, with total amortized costs of $94.4 million and $41.2 million, respectively, and one mezzanine loan, with a total amortized cost of $4.7 million, in payment default.
During the three and nine months ended September 30, 2024, the Company recognized interest income of $204,000 and $338,000, respectively, on one CRE whole loan that was placed on nonaccrual status. In both the three and nine months ended September 30, 2023, the Company recognized interest income of $335,000, on two CRE whole loans that were placed on nonaccrual status.
Loan Modifications
The Company is required to disclose modifications where it determined the borrower is experiencing financial difficulty and modified the agreement to: (i) forgive principal, (ii) reduce the interest rate, (iii) cause an other-than-insignificant payment delay, (iv) extend the loan term, or (v) any combination thereof.
During the nine months ended September 30, 2024, the Company entered into the following three loan modifications that required disclosure:
21
These loans were performing in accordance with the modified contractual terms as of September 30, 2024. At September 30, 2024, two of these loans, with a total amortized cost of $123.7 million, had a risk rating of "4" and one loan, with an amortized cost of $44.4 million, had a risk rating of "3". Loans with a risk rating of "3" and "4" are included in the determination of the Company's general CECL reserves.
During the nine months ended September 30, 2023, the Company did not enter into any loan modifications for borrowers that were experiencing financial difficulty.
NOTE 7 - INVESTMENTS IN REAL ESTATE AND OTHER ACQUIRED ASSETS AND ASSUMED LIABILITIES
During the three months ended September 30, 2024, the Company acquired investments in real estate as a result of its lending activities (through foreclosure or deed-in-lieu of foreclosure in full or partial satisfaction of non-performing loans). The following table summarizes the acquisition date values of the acquired assets and assumed liabilities during the three and nine months ended September 30, 2024 (in thousands):
Investments in real estate from lending activities:
Assets acquired:
9,140
Cash and other assets
629
18,299
28,068
Liabilities assumed:
Other liabilities
758
Total fair value at acquisition of net assets acquired
27,310
At September 30, 2024, the Company held investments in eight real estate properties, four of which are included in investments in real estate, and four of which are included in properties held for sale on the consolidated balance sheet. During the three months ended September 30, 2024, the Company reclassified one property in the southeast region with a carrying value of $118.2 million from an investment in real estate to real estate held for sale.
The following table summarizes the book value of the Company’s acquired assets and assumed liabilities (in thousands, except amounts in the footnotes):
Cost Basis
Accumulated Depreciation & Amortization
Investments in real estate, equity:
Investments in real estate (1)
95,105
(5,775
89,330
162,662
(5,041
Right of use assets (2)(3)
19,665
(683
18,982
19,664
(478
19,186
Intangible assets (4)
11,195
(4,043
11,474
(3,592
Subtotal
125,965
(10,501
115,464
193,800
(9,111
184,689
Properties held for sale (5)
326,159
315,658
256,405
247,294
Mortgage payables
71,368
2,548
73,916
40,297
1,489
41,786
247
(247
(220
27
Lease liabilities (3)(6)
44,061
43,538
115,676
2,301
117,977
84,082
1,269
85,351
Liabilities held for sale (7)
118,849
121,150
87,107
88,376
Total net investments in real estate and properties held for sale (8)
207,310
194,508
169,298
158,918
23
The Company acquired a ground lease with its equity investment in a hotel property in April 2022. This ground lease has an associated above-market lease intangible liability. The ground lease confers the Company the right to use the land on which its hotel operates, and the ground lease payments increase 3.00% per year until 2116. The Company acquired the original 99-year lease with 94 years remaining. At September 30, 2024, 92 years remain in its term.
The Company recorded lease payments of $452,000 and $1.3 million for the three and nine months ended September 30, 2024, respectively, and $439,000 and $1.3 million for the three and nine months ended September 30, 2023, respectively. The Company recorded amortization of $51,000 and $153,000 during the three and nine months ended September 30, 2024, respectively, related to the right of use asset and accretion of $639,000 and $1.9 million during the three and nine months ended September 30, 2024, respectively, related to its ground lease liability. The Company recorded amortization of $51,000 and $153,000 during the three and nine months ended September 30, 2023, respectively, related to the right of use asset and accretion of $620,000 and $1.8 million during the three and nine months ended September 30, 2023, respectively, related to its ground lease liability.
During the three and nine months ended September 30, 2024, the Company recorded amortization expense of $243,000 and $730,000, respectively, on its intangible assets. During the three and nine months ended September 30, 2023, the Company recorded amortization expense of $252,000 and $755,000, respectively, on its intangible assets. The Company expects to record additional amortization expense of $232,000 during the remainder of fiscal year 2024. The Company also expects to record amortization expense of $793,000, $748,000, $748,000, $748,000 and $748,000 during the 2025, 2026, 2027, 2028 and 2029 fiscal years, respectively, on its intangible assets.
NOTE 8 - LEASES
In addition to the ground lease discussed in Note 7, the Company has operating leases for office space and office equipment. The leases have terms that expire between February and September 2029. The leases on the office space and office equipment contain options for early termination granted to the Company and the lessor. Lease payments are determined as follows:
The following table summarizes the Company’s operating leases (in thousands):
Operating Leases:
631
693
(678
(738
Weighted average remaining lease term:
5.0 years
5.8 years
Weighted average discount rate (1):
8.70
24
The following table summarizes the Company’s operating lease costs and cash payments for the periods presented (in thousands):
Three Months Ended September 30, 2024
Three Months Ended September 30, 2023
Nine Months Ended September 30, 2023
Lease Cost:
Operating lease cost
39
119
154
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
38
116
The following table summarizes the Company’s operating leases cash flow obligations on an undiscounted, annual basis (in thousands):
Operating Leases
162
2026
166
2027
2028
174
Thereafter
131
843
Less: impact of discount
(165
678
25
NOTE 9 - INVESTMENTS IN UNCONSOLIDATED ENTITIES
The following table summarizes the Company's investments in unconsolidated entities at September 30, 2024 and December 31, 2023 and equity in earnings of unconsolidated entities for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands, except in the footnotes):
Earnings (Losses) of Unconsolidated Entities
Ownership %
at September 30, 2024
Investment in RCT I and II (1)
3%
65 E. Wacker Joint Venture, LLC (2)
90%
(140
(181
7720 McCallum JV, LLC (3)
50%
(28
NOTE 10 - BORROWINGS
The Company historically has financed the acquisition of its investments, including investment securities and loans, through the use of secured and unsecured borrowings. Certain information with respect to the Company’s borrowings is summarized in the following table (dollars in thousands, except amounts in the footnotes):
Principal Outstanding
Unamortized Issuance Costs and Discounts
Outstanding Borrowings
Weighted Average Borrowing Rate
Weighted Average Remaining Maturity
Value of Collateral
ACR 2021-FL1 Senior Notes
$585,332
$1,056
$584,276
6.73%
11.7 years
$712,752
ACR 2021-FL2 Senior Notes
408,261
2,017
406,244
7.15%
12.3 years
541,261
63,099
2,375
60,724
8.87%
3.3 years
161,303
CRE - term warehouse financing facilities (1)(2)
165,100
1,220
163,880
7.70%
1.0 year
264,631
74,849
933
9.71%
6.3 years
118,209
5.75% Senior Unsecured Notes
150,000
1,359
148,641
5.75%
1.9 years
Unsecured junior subordinated debentures
9.51%
11.9 years
$1,498,189
$8,960
$1,489,229
7.19%
9.1 years
$1,798,156
$643,040
$2,243
$640,797
6.98%
12.5 years
$770,460
567,000
3,227
563,773
7.28%
13.1 years
700,000
64,495
2,927
61,568
9.14%
4.1 years
157,722
CRE - term warehouse financing facilities (1)
170,861
2,273
168,588
7.96%
1.6 years
254,081
43,779
1,993
8.92%
11.3 years
83,739
1,860
148,140
2.6 years
9.60%
12.7 years
26
$1,690,723
$14,523
$1,676,200
10.4 years
$1,966,002
The following table sets forth certain information with respect to the Company’s consolidated securitizations at September 30, 2024 (in thousands):
Closing Date
Maturity Date
Reinvestment Period End (1)
Total Note Paydowns from Closing Date through September 30, 2024
ACR 2021-FL1
May 2021
June 2036
May 2023
89,891
ACR 2021-FL2
December 2021
January 2037
December 2023
158,739
The investments held by the Company’s securitizations collateralize the securitizations’ borrowings and, as a result, are not available to the Company, its creditors, or stockholders. All senior notes of the securitizations held by the Company at both September 30, 2024 and December 31, 2023 were eliminated in consolidation.
In May 2021, the Company closed ACRES Commercial Realty 2021-FL1 Issuer, Ltd. ("ACR 2021-FL1"), an $802.6 million CRE debt securitization transaction that provided financing for CRE loans. ACR 2021-FL1 issued a total of $675.2 million of non-recourse, floating-rate notes to third parties at par. Additionally, ACRES RF retained 100% of the Class F and Class G notes and a subsidiary of ACRES RF retained 100% of the outstanding preference shares. The preference shares are subordinated in right of payment to all other securities issued by ACR 2021-FL1. ACR 2021-FL1 included a reinvestment period, which ended in May 2023, that allowed it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds. All of the notes issued mature in June 2036, although the Company has the right to call the notes beginning on the payment date in May 2023 and thereafter. As of September 30, 2024, the Company had not exercised this right.
In December 2021, the Company closed ACRES Commercial Realty 2021-FL2 Issuer, Ltd. ("ACR 2021-FL2"), a $700.0 million CRE debt securitization transaction that provided financing for CRE loans. ACR 2021-FL2 issued a total of $567.0 million of non-recourse, floating-rate notes to third parties at par. Additionally, ACRES RF retained 100% of the Class F and Class G notes and a subsidiary of ACRES RF retained 100% of the outstanding preference shares. The preference shares are subordinated in right of payment to all other securities issued by ACR 2021-FL2. Additionally, ACR 2021-FL2 included a reinvestment period, which ended in December 2023, that allowed it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds. All of the notes issued mature in January 2037, although the Company has the right to call the notes beginning on the payment date in December 2023 and thereafter. As of September 30, 2024, the Company had not exercised this right.
Financing Arrangements
Borrowings under the Company’s financing arrangements are guaranteed by the Company or one or more of its subsidiaries. The following table sets forth certain information with respect to these arrangements (dollars in thousands, except amounts in footnotes):
Number of Positions as Collateral
Weighted Average Interest Rate
Senior Secured Financing Facility
Massachusetts Mutual Life Insurance Company (1)
CRE - Term Warehouse Financing Facilities (2)
JPMorgan Chase Bank, N.A. (3)
90,843
157,633
7.57%
74,694
125,044
7.82%
Morgan Stanley Mortgage Capital Holdings LLC (4)
73,037
106,998
7.85%
93,894
129,037
8.07%
Mortgages Payable
ReadyCap Commercial, LLC (5)
20,171
26,925
8.91%
19,365
25,400
9.16%
Oceanview Life and Annuity Company (6)(7)
38,643
91,284
11.10%
7,330
58,339
11.37%
Florida Pace Funding Agency (6)(8)
15,102
7.26%
15,091
298,520
544,143
271,942
495,542
The following table shows information about the amount at risk under the Company's financing arrangements (dollars in thousands, except amounts in footnotes):
Amount at Risk
Senior Secured Financing Facility (1)
Massachusetts Mutual Life Insurance Company
98,571
CRE - Term Warehouse Financing Facilities (1)(2)
JPMorgan Chase Bank, N. A.
67,392
1.8 years
Morgan Stanley Mortgage Capital Holdings LLC (3)
35,070
0.1 years
ReadyCap Commercial, LLC (4)
6,533
0.5 years
Oceanview Life and Annuity Company (5)(6)
36,138
0.4 years
Florida Pace Funding Agency (5)(6)
28.8 years
28
The Company was in compliance with all financial covenants in each of the respective agreements at September 30, 2024 and December 31, 2023.
On July 31, 2020, an indirect, wholly owned subsidiary ("Holdings"), along with its direct wholly owned subsidiary (the "Borrower"), of the Company entered into a $250.0 million Loan and Servicing Agreement (the "MassMutual Loan Agreement") with MassMutual and the other lenders party thereto (the "Lenders"). The asset-based revolving loan facility (the "MassMutual Facility") provided under the MassMutual Loan Agreement has been used to finance the Company’s core CRE lending business. The MassMutual Facility initially had an interest rate of 5.75% per annum payable monthly and initially matured on July 31, 2027.
In December 2022, Holdings, the Borrower and the Lenders entered into an Amended and Restated Loan and Servicing Agreement, which amends and restates the MassMutual Loan Agreement, and reflects a senior secured term loan facility, not to exceed $500.0 million, composed of individual loan series issued upon mutual agreement of the Borrower and Lenders. Each loan series will be available for three months after the closing date agreed upon by the Borrower and Lender ("Commitment Period"), subject to the maximum dollar amount agreed upon for that series. The Commitment Period is subject to immediate termination upon the occurrence of an event of default. Each loan series will have a final maturity of five years from the issuance date for the loan series unless an additional time is mutually agreed upon by the Lenders and Borrower. The advance rate on portfolio assets will be mutually agreed upon by the Lenders and Borrower. Each loan series will have its own mutually agreed upon interest rate equal to one-month Term SOFR plus the applicable spread.
CRE - Term Warehouse Financing Facilities
In October 2018, an indirect, wholly-owned subsidiary of the Company entered into a master repurchase agreement (the "JPMorgan Chase Facility") with JP Morgan Chase to finance the origination of CRE loans. As amended, the JPMorgan Chase Facility has a maximum facility amount of $250.0 million, charges interest of one-month Term SOFR plus market spreads and matures in July 2026.
In November 2021, an indirect, wholly-owned subsidiary of the Company entered into a master repurchase and securities contract agreement (the "Morgan Stanley Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley") to finance the origination of CRE loans. As amended, the Morgan Stanley Facility has a maximum facility amount of $250.0 million, charges interest of one-month Term SOFR plus market spreads and matures in November 2024. The Company also has the right to request a one-year extension. In November 2024, the Company entered into Amendment No. 3 to Guaranty (the “Morgan Stanley Amendment”) by and between the Company and Morgan Stanley, which makes certain amendments and modifications to the Guaranty, dated November 3, 2021 between the Company and Morgan Stanley as amended (the “MS Guaranty”) including but not limited to amending the EBITDA to Interest Expense ratio (as defined in the MS Guaranty) through the quarter ending December 2025 and extending the Morgan Stanley Facility to November 2025. See Part II, Item 5 "Other Information".
The Term Warehouse Financing Facilities are accounted for as secured borrowings in accordance with GAAP.
In April 2022, Chapel Drive West, LLC, a wholly owned subsidiary of the FSU Student Venture, entered into a Loan Agreement (the "Mortgage") with ReadyCap Commercial, LLC ("ReadyCap") to finance the acquisition of a student housing complex. The Mortgage is interest only and has a maximum principal balance of $20.4 million, of which, $18.7 million was advanced in the initial funding. Initially, the Mortgage charged interest of 30-day average Secured Overnight Financing Rate plus a spread of 3.80%. In October 2022, the Mortgage was amended to charge interest of one-month Term SOFR plus a spread of 3.80%. The Mortgage matures in April 2025, subject to two one-year extension options.
The Mortgage contains events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement. The remedies for such events of default are also customary for this type of transaction.
29
In January 2023, Chapel Drive East, LLC, a wholly owned subsidiary of the FSU Student Venture, entered into a loan agreement (the "Construction Loan Agreement") with Oceanview Life and Annuity Company ("Oceanview") to finance the construction of a student housing complex (the "Construction Loan"). The Construction Loan is interest only and has a maximum principal balance of $48.0 million. The Construction Loan charges one-month Term SOFR plus a spread of 6.00% and matures in February 2025, subject to three one-year extension options.
In addition to the Construction Loan, Chapel Drive East, LLC, entered into a financing agreement with Florida Pace Funding Agency to fund energy efficient building improvements and has a maximum principal balance of $15.5 million. This agreement charges fixed interest of 7.26% and matures in July 2053. The Company does not guarantee this financing agreement.
In connection with the Company's investment in the student housing complex, ACRES RF entered into guarantees related to the Construction Loan. Pursuant to the guarantees, Jason Pollack, Frank Dellaglio and ACRES RF (collectively, the "Guarantors"), for the benefit of Oceanview, provided limited "bad boy" guaranties to Oceanview pursuant to the Construction Loan Agreement until the earlier of the payment in full of the indebtedness or the date of a sale of the property pursuant to a foreclosure of the mortgage or deed or other transfer in lieu of foreclosure is accepted by Oceanview. The Guarantors also entered into a Completion Guaranty Agreement for the benefit of Oceanview to guaranty the timely completion of the project in accordance with the Construction Loan Agreement, as well as a Carry Guaranty Agreement, for the benefit of Oceanview to guaranty unconditional payment by Chapel Drive East, LLC of all customary or necessary costs and expenses incurred in connection with the operation, maintenance and management of the property and an Environmental Indemnity Agreement jointly and severally in favor of Oceanview whereby the Guarantors provided environmental representations and warranties, covenants and indemnifications (collectively the "Guaranties"). The Guaranties include certain financial covenants required of ACRES RF, including required net worth and liquidity requirements.
Corporate Debt
5.75% Senior Unsecured Notes Due 2026
On August 16, 2021, the Company issued $150.0 million of its 5.75% senior unsecured notes due 2026 (the "5.75% Senior Unsecured Notes") pursuant to its Indenture dated August 16, 2021 (the "Base Indenture"), between it and Wells Fargo, now Computershare Trust Company, N.A. ("CTC"), as trustee (the "Trustee"), as supplemented by the First Supplemental Indenture, dated August 16, 2021, between it and Wells Fargo (now CTC) (the "Supplemental Indenture" and, together with the Base Indenture, the "Indenture"). Prior to May 15, 2026, the Company may at its option redeem the 5.75% Senior Unsecured Notes, in whole or in part, at a redemption price equal to the sum of (i) 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, and (ii) a make-whole premium. On or after May 15, 2026, the Company may at its option redeem the 5.75% Senior Unsecured Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of the 5.75% Senior Unsecured Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date.
During 2006, the Company formed RCT I and RCT II for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. RCT I and RCT II are not consolidated into the Company’s consolidated financial statements because the Company is not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, the Company issued junior subordinated debentures to RCT I and RCT II of $25.8 million each, representing the Company’s maximum exposure to loss. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II were included in borrowings and were amortized into interest expense on the consolidated statements of operations using the effective yield method over a ten year period.
There were no unamortized debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II outstanding at September 30, 2024 and December 31, 2023. The interest rates for RCT I and RCT II, at September 30, 2024, were 9.54% and 9.47%, respectively. The interest rates for RCT I and RCT II, at December 31, 2023, were 9.61% and 9.60%, respectively.
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Contractual maturity dates of the Company’s borrowings’ principal outstanding by category and year are presented in the table below (in thousands):
2028 and Thereafter
CRE securitizations
993,593
50,996
12,103
73,108
91,992
59,339
15,510
1,498,189
241,992
1,072,754
NOTE 11 - SHARE ISSUANCE AND REPURCHASE
On October 4, 2021, the Company and the Manager entered into an Equity Distribution Agreement with JonesTrading Institutional Services LLC, as placement agent ("JonesTrading"), pursuant to which the Company may issue and sell from time to time up to 2.2 million shares of the 7.875% Series D Cumulative Redeemable Preferred Stock ("Series D Preferred Stock"). Sales of the Series D Preferred Stock may be made in transactions that are deemed to be "at the market" offerings, as defined in Rule 415 of the Securities Act of 1933, as amended, including without limitation, sales made directly on the New York Stock Exchange, on any other existing trading market for the shares or to or through a market maker. Subject to the terms of the Company’s notice, JonesTrading may also sell the shares by any other method permitted by law, including but not limited to in privately negotiated transactions. The Company will pay JonesTrading a commission up to 3.0% of the gross proceeds from the sales of the Series D Preferred Stock pursuant to the agreement. The terms and conditions of the agreement include various representations and warranties, conditions to closing, indemnification rights and obligations of the parties and termination provisions. During both the nine months ended September 30, 2024 and the year ended December 31, 2023, the Company did not issue any Series D Preferred Stock through this agreement.
On or after July 30, 2024, the Company may, at its option, redeem its 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock"), in whole or in part, at any time and from time to time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date. Effective July 30, 2024 and thereafter, the Company will pay cumulative distributions on the Series C Preferred Stock at a floating rate equal to three-month Term SOFR plus a spread of 5.927% per annum based on the $25.00 liquidation preference, provided that such floating rate shall not be less than the initial rate of 8.625% at any date of determination.
At September 30, 2024, the Company had 4.8 million shares of Series C Preferred Stock and 4.5 million shares of Series D Preferred Stock outstanding, with weighted average issuance prices, excluding offering costs, of $25.00.
In November 2021, the board of directors, (the "Board"), authorized and approved the continued use of its existing share repurchase program to repurchase an additional $20.0 million of the outstanding shares of the Company's common stock. Under the share repurchase program, the Company intends to repurchase shares through open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 and 10b5-1 of the Exchange Act. In November 2023, the Board authorized and approved the repurchase of an additional $10.0 million of outstanding shares of both common and preferred stock.
During the nine months ended September 30, 2024 and 2023, the Company repurchased $5.3 million and $2.7 million, respectively, of its common stock, representing 424,243 and 298,457 shares, respectively. Additionally, during the nine months ended September 30, 2024, the Company repurchased $2.2 million, or 100,000 shares, of its Series D Preferred Stock. At September 30, 2024, $2.3 million of common and preferred stock remains available under this repurchase plan.
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In connection with the Note and Warrant Purchase Agreement with Oaktree Capital Management, L.P. ("Oaktree") and Massachusetts Mutual Life Insurance Company ("MassMutual") dated July 31, 2020, the Company issued to Oaktree warrants to purchase 391,995 shares of common stock for an aggregate purchase price of $42.0 million, and issued to MassMutual warrants to purchase 74,666 shares of common stock for an aggregate purchase price of $8.0 million. The warrants are classified as equity and recorded in additional paid-in capital on the consolidated balance sheets at their fair value of $3.1 million at issuance. The warrants are immediately exercisable on issuance at an exercise price of $0.03 per share, subject to certain potential adjustments, and expire seven years from the issuance date. The holder of the warrants can exercise with cash or as a net exercise. In July 2022, MassMutual exercised their warrants to purchase 74,666 shares. At September 30, 2024, the Oaktree warrants have not been exercised.
NOTE 12 - SHARE-BASED COMPENSATION
In June 2021, the Company’s shareholders approved the ACRES Commercial Realty Corp. Third Amended and Restated Omnibus Equity Compensation Plan (the "Omnibus Plan") and the ACRES Commercial Realty Corp. Manager Incentive Plan (the "Manager Plan" and together with the Omnibus Plan, the "Plans"). The Omnibus Plan was amended to (i) increase the number of shares authorized for issuance by an additional 1,100,000 shares of common stock, less any shares of common stock issued or subject to awards granted under the Manager Plan; and (ii) extend the expiration date of the Omnibus Plan from June 2029 to June 2031. The maximum number of shares that may be subject to awards granted under the Plans, determined on a combined basis, will be 1,700,817 shares of common stock.
The Omnibus Plan and the Manager Plan are administered by the compensation committee of the Company's Board (the "Compensation Committee"). In 2020, the Compensation Committee and the Board created parameters for equity awards, whereby they are no longer discretionary but are now based upon the Company’s achievement of performance parameters using book value of the common stock as the appropriate benchmark. See Note 16 for a description of awards made under the Manager Plan.
The Company recognized stock-based compensation expense of $833,000 and $2.1 million during the three and nine months ended September 30, 2024 and $482,000 and $2.1 million, respectively, during the three and nine months ended September 30, 2023, related to restricted stock.
In May 2024, the Company issued 295,237 shares of common stock to the Manager and 38,096 shares of common stock to the Company’s directors (with the exception of Messrs. Fentress and Fogel) under the Plans after the Company reached the established per share book value target of $27.00 per share. Each grant vests 25% per year over four years.
Under the Company’s Fourth Amended and Restated Management Agreement, as amended ("Management Agreement"), incentive compensation is paid quarterly. Up to 75% of the incentive compensation may be paid in cash and at least 25% must be paid in the form of an award of common stock, recorded in management fees on the consolidated statements of operations. During the three and nine months ended September 30, 2024, the Company incurred no incentive compensation payable to the Manager. At September 30, 2024, there was no amount included in Management fee payable - related party on the consolidated balance sheets. During the three and nine months ended September 30, 2023, the Company incurred incentive compensation expense payable to the Manager of $473,000 and $857,000, respectively, of which 50% was paid in cash and 50% was payable in common stock.
The Company issued 1,911 shares of common stock to the Manager during the nine months ended September 30, 2024, pertaining to the portion of the fourth quarter 2023 incentive compensation that was payable in shares. Shares of common stock issued under the Management Agreement for incentive compensation vest immediately upon issuance.
The following table summarizes the Company’s restricted common stock transactions:
Manager
Directors
Total Number of Shares
Weighted-Average Grant-Date Fair Value
Unvested shares at January 1, 2024
375,001
41,674
416,675
14.07
Issued
297,148
38,096
335,244
13.90
Vested
(151,909
(25,472
(177,381
14.52
Unvested shares at September 30, 2024
520,240
54,298
574,538
13.83
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The unvested restricted common stock shares are expected to vest during the following years:
245,952
164,293
82,139
82,154
At September 30, 2024, total unrecognized compensation costs relating to unvested restricted stock was $4.4 million based on the grant date fair value of shares granted. The cost is expected to be recognized over a weighted average period of 3.2 years.
NOTE 13 - EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted income per common share for the periods presented (dollars in thousands, except per share amounts):
Net income allocable to common shares
Weighted average number of common shares outstanding:
Weighted average number of common shares outstanding - basic
7,277,056
8,064,889
7,303,661
8,077,602
Weighted average number of warrants outstanding (1)
391,995
Total weighted average number of common shares outstanding - basic
Effect of dilutive securities - unvested restricted stock
276,571
135,672
244,643
140,082
Weighted average number of common shares outstanding - diluted
Net income per common share - basic
Net income per common share - diluted
NOTE 14 - DISTRIBUTIONS
In order to qualify as a REIT, the Company must distribute at least 90% of its taxable income. In addition, the Company must distribute 100% of its taxable income in order to not be subject to corporate federal income taxes. The Company anticipates it will distribute substantially all of its taxable income to its stockholders, after accounting for the net usage of its deferred tax assets. Because taxable income differs from cash flow from operations due to non-cash revenues or expenses (such as provisions for loan and lease losses and depreciation) and tax loss carryforwards, in certain circumstances the Company may generate operating cash flow in excess of its distributions or, alternatively, may be required to borrow funds to make sufficient distribution payments.
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The Company’s 2024 distributions are, and will be, determined by the Company's Board, which will also consider the composition of any distributions declared, including the option of paying a portion in cash and the balance in additional shares of common stock.
For the three and nine months ended September 30, 2024 and 2023, the Company did not pay any common share distributions.
The following table presents distributions declared (on a per share basis) for the nine months ended September 30, 2024 and the year ended December 31, 2023 with respect to the Company's Series C Preferred Stock and Series D Preferred Stock:
Date Paid
Total Distribution Paid
Distribution Per Share
September 30
October 30
3,355
0.6988981
2,219
0.4921875
June 30
July 30
2,587
0.5390625
March 31
April 30
2,588
December 31
January 30, 2024
2,268
July 31
May 1
NOTE 15 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in net unrealized loss on derivatives, the sole component of accumulated other comprehensive loss, for the nine months ended September 30, 2024 (in thousands):
Accumulated Other Comprehensive Loss - Net Unrealized Loss on Derivatives
Balance at January 1, 2024
Amounts reclassified from accumulated other comprehensive loss (1)
Balance at September 30, 2024
NOTE 16 - RELATED PARTY TRANSACTIONS
Relationship with ACRES Capital Corp. and certain of its Subsidiaries. The Manager is a subsidiary of ACRES Capital Corp., of which Andrew Fentress, the Company’s Chairman, serves as Managing Partner, and Mark Fogel, the Company’s President, Chief Executive Officer and Director, serves as Chief Executive Officer and President. Mr. Fentress and Mr. Fogel are also shareholders and board members of ACRES Capital Corp.
Effective on July 31, 2020, the Company has a Management Agreement with the Manager pursuant to which the Manager provides the day-to-day management of the Company’s operations and receives management fees. For the three and nine months ended September 30, 2024 and 2023, the Manager earned base management fees of $1.6 million and $4.9 million, respectively.
For the three and nine months ended September 30, 2024, the Manager did not earn an incentive management fee. For the three and nine months ended September 30, 2023, the Manager earned incentive management fees of $473,000 and $857,000, respectively, of which 50% was paid in cash and 50% was paid in common stock.
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At September 30, 2024 and December 31, 2023, $540,000 and $546,000, respectively, of base management fees were payable by the Company to the Manager. At September 30, 2024, there was no incentive management fee payable and at December 31, 2023, there was $38,000 of incentive management fees payable by the Company to the Manager.
The Manager and its affiliates provide the Company with a Chief Financial Officer and a sufficient number of additional accounting, finance, tax and investor relations professionals. The Company reimburses the Manager’s expenses for (a) the wages, salaries and benefits of the Chief Financial Officer, and (b) a portion of the wages, salaries and benefits of accounting, finance, tax, and investor relations professionals, in proportion to such personnel’s percentage of time allocated to the Company’s operations. The Company reimburses out-of-pocket expenses and certain other costs incurred by the Manager that related directly to the Company’s operations. These costs are recorded in general and administrative expenses on the consolidated statements of operations.
The Company reimbursed the Manager $1.1 million and $3.7 million, for the three and nine months ended September 30, 2024, respectively, and $670,000 and $3.0 million, for the three and nine months ended September 30, 2023, respectively, for all such compensation and costs. At September 30, 2024 and December 31, 2023, the Company had payables to the Manager pursuant to the Management Agreement totaling $212,000 and $686,000, respectively, related to such compensation and costs. The Company’s base management fee payable and incentive management fee payable were recorded in management fee payable while expense reimbursement payables were recorded in accounts payable and other liabilities on the consolidated balance sheets, respectively.
On July 31, 2020, ACRES RF, a direct, wholly owned subsidiary of the Company, provided a $12.0 million loan (the "ACRES Loan") to ACRES Capital Corp. evidenced by the promissory note from ACRES Capital Corp.
The ACRES Loan accrues interest at 3.00% per annum payable monthly. The monthly amortization payment is $25,000. The ACRES Loan matures in July 2026, subject to two one-year extensions (at ACRES Capital Corp.’s option) subject to the payment of a 0.5% extension fee to ACRES RF on the outstanding principal amount of the ACRES Loan.
The Company recorded interest income of $83,000 and $248,000 for the three and nine months ended September 30, 2024, respectively, and $85,000 and $254,000 for the three and nine months ended September 30, 2023, respectively, on the ACRES Loan in other income (expense) on the consolidated statements of operations. At September 30, 2024 and December 31, 2023, the ACRES Loan had a principal balance of $10.8 million and $11.0 million, respectively, recorded in loan receivable - due from Manager on the consolidated balance sheets. At September 30, 2024 and December 31, 2023, the ACRES Loan had no accrued interest receivable.
At September 30, 2024, the Company retained equity in two securitization entities that were structured for the Company by the Manager. Under the Management Agreement, the Manager was not separately compensated by the Company for executing this transaction and was not separately compensated for managing the securitization entity and its assets.
Relationship with ACRES Capital Servicing LLC. Under the MassMutual Loan Agreement, ACRES Capital Servicing LLC ("ACRES Capital Servicing"), an affiliate of ACRES Capital Corp. and the Manager, serves as the portfolio servicer. Additionally, ACRES Capital Servicing serves as special servicer of ACR 2021-FL1 and ACR 2021-FL2.
During the three and nine months ended September 30, 2024 and 2023, ACRES Capital Servicing received no portfolio servicing fees and earned $298,000 and $324,000, and $26,000 and $91,000, respectively, in special servicing fees, of which $4,000 and $11,000 and $9,000 and $56,000, respectively, was recorded as a reduction to interest income in the consolidated statements of operations.
Relationship with ACRES Commercial Mortgage, LLC. During the year ended December 31, 2023, subsequent to approval from its Board, the Company purchased a participation for $22.5 million in one CRE whole loan from ACRES Commercial Mortgage, LLC, an affiliate of ACRES Capital Corp. and the Manager. There was no activity for the nine months ended September 30, 2024.
Relationship with ACRES Collateral Manager, LLC. ACRES Collateral Manager, LLC, an affiliate of ACRES Capital Corp. and the Manager, serves as the collateral manager of ACR 2021-FL1 and ACR 2021-FL2, a role for which it waived its fee.
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Relationship with ACRES Development Management, LLC. ACRES Development Management, LLC ("DevCo") is a wholly owned subsidiary of ACRES Capital Corp., the parent of the Manager. DevCo acts in various capacities as a co-developer or owner’s representative for direct equity investments within the Company’s portfolio. In November 2021, December 2021 and April 2022, the joint venture entities of the three CRE equity investments acquired through direct investment entered into development agreements with DevCo (the "Development Agreements").
Pursuant to the Development Agreements, DevCo agreed to manage the development of the projects associated with each equity investment in accordance with a development standard in exchange for fees equal to between 1.25% and 1.5% of all project costs. The Company incurred and paid fees for services rendered under these agreements of $165,000 and $371,000 for the three and nine months ended September 30, 2024, respectively, and $182,000 and $327,000 for the three and nine months ended September 30, 2023, respectively.
Relationship with ACRES Share Holdings, LLC. During the nine months ended September 30, 2024, the Company issued 1,911 shares to ACRES Share Holdings, LLC in connection with the incentive compensation payable to the Manager under the Management Agreement. There was no activity for the three months ended September 30, 2024. The shares vested fully upon issuance pursuant to the Management Agreement.
During the nine months ended September 30, 2024, the Company issued 295,237 restricted shares of common stock under the Manager Plan to ACRES Share Holdings, LLC after meeting the established per share book value hurdle. This grant vests 25% per year over four years. See Note 12 for further details. There was no activity for the three months ended September 30, 2024.
Relationship with McCallum JV. In September 2024, ACRES RF, a direct, wholly owned subsidiary, entered into a $33.7 million senior loan commitment and a $1.5 million mezzanine loan commitment with McCallum JV in which the Company holds a 50% interest. The loan has an initial maturity date of September 5, 2027, with a rate of one-month Term SOFR plus a spread of 2.75%. At September 30, 2024, the outstanding balance on the senior loan was $31.5 million, and no amounts have been funded on the mezzanine loan.
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company had no financial instruments carried at fair value on a recurring basis at either September 30, 2024 and December 31, 2023.
The Company measures the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying value of the assets may be impaired. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-downs of an asset's value due to impairment.
During the nine months ended September 30, 2024, the Company received one deed-in-lieu of foreclosure on a property and foreclosed on a second property that each formerly collateralized a CRE whole loan. Upon receipt, the properties were immediately contributed to joint ventures, and the Company's investment in those joint ventures are included in investments in unconsolidated entities on the consolidated balance sheet. The first property was appraised and determined to have a fair value of $20.3 million at the time of acquisition. Fair value was determined using a discounted cash flow valuation technique, with the significant unobservable inputs being an internal rate of return of 8.50% and a terminal cap rate of 7.00%. The second property was appraised and determined to have a fair value of $32.0 million at the time of acquisition. Fair value was determined using an income capitalization valuation technique, with the significant unobservable inputs being a terminal cap rate of 6.00%.
Additionally, two properties were acquired through foreclosure that each formerly collateralized a CRE whole loan. The first property was determined to have a fair value of $17.5 million at the time of acquisition and was immediately classified as a property held for sale on the Company's consolidated balance sheets. The property's value was determined from a range of offers received to purchase the property. The second property was appraised and determined to have a value of $9.8 million at the time of acquisition. Fair value was determined using an income approach valuation technique, with the significant unobservable input being a terminal cap rate of 6.25%. The valuation of these properties fell under Level 3 of the fair value hierarchy.
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The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair values of the Company’s short-term financial instruments such as cash and cash equivalents, restricted cash, accrued interest receivable, principal paydowns receivable, accounts payable and other liabilities, accrued interest payable and distributions payable approximate their carrying values on the consolidated balance sheets. The fair values of the Company’s other financial assets and liabilities are estimated as follows:
CRE whole loans. The fair values of the Company’s loans held for investment are measured by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Par values of loans with variable interest rates are expected to approximate fair value unless evidence of credit deterioration exists, in which case the fair value approximates the par value less the loan’s allowance estimated through individual evaluation. The Company’s floating-rate CRE loans had interest rates from 7.75% to 13.79% and 7.88% to 13.96% at September 30, 2024 and December 31, 2023, respectively.
CRE mezzanine loan. Historically, this was measured by discounting the expected remaining cash flows using the current interest rates at which similar instruments would be originated for the same remaining maturity. The Company's mezzanine loan was fully reserved and had no carrying or fair value at September 30, 2024 or December 31, 2023.
Loan receivable- due from Manager. This is estimated using a discounted cash flow model.
Senior notes in CRE securitizations, 5.75% Senior Unsecured Notes and junior subordinated notes. These are estimated using a discounted cash flow model with implied yields based on trades for similar securities.
Senior secured financing facility, warehouse financing facilities and mortgages payable. These are variable-rate debt instruments that are indexed to one-month Term SOFR that reset periodically and as a result, their carrying value approximates their fair value, excluding deferred debt issuance costs.
The fair values of the Company’s financial and non-financial assets that are not reported at fair value on the consolidated balance sheets are reported in the following table (in thousands):
Fair Value Measurements
Fair Value(1)
Quoted Prices in Active Markets for Identical Assets of Liabilities(Level 1)
Significant Other Observable Inputs(Level 2)
Significant Unobservable Inputs(Level 3)
Assets:
CRE whole loans
1,578,566
Loan receivable - related party
9,052
Liabilities:
Senior notes in CRE securitizations
981,805
Warehouse financing facilities
145,785
Junior subordinated notes
40,107
8,598
1,204,570
1,163,048
138,795
38,406
NOTE 18 - MARKET RISK AND DERIVATIVE INSTRUMENTS
The Company is affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company’s financial performance and are referred to as "market risks." When deemed appropriate, the Company may use derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments were interest rate risk and market price risk.
The Company also historically managed its interest rate risk with interest rate swaps. Interest rate swaps are contracts between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices.
The Company seeks to manage the extent to which net income changes as a function of changes in interest rates by matching adjustable-rate assets with variable-rate borrowings.
The Company classified its interest rate swap contracts as cash flow hedges, which are hedges that eliminate the risk of changes in the cash flows of a financial asset or liability.
The Company terminated all of its interest rate swap positions associated with its financed CMBS portfolio in April 2020. At termination, the Company realized a loss of $11.8 million. At September 30, 2024 and December 31, 2023, the Company had losses of $3.7 million and $5.0 million, respectively, recorded in accumulated other comprehensive loss, which will be amortized into earnings over the remaining life of the debt. During the three and nine months ended September 30, 2024, the Company recorded amortization expense of $425,000 and $1.3 million, respectively, reported in interest expense on the consolidated statements of operations. During the three and nine months ended September 30, 2023, the Company recorded amortization expense of $425,000 and $1.3 million, reported in interest expense on the consolidated statements of operations.
At September 30, 2024 and December 31, 2023, the Company had an unrealized gain of $96,000 and $164,000, respectively, attributable to two terminated interest rate swaps in accumulated other comprehensive loss on the consolidated balance sheets, to be accreted into earnings over the remaining life of the debt. For each of the three months ended September 30, 2024 and 2023, the Company recorded accretion income, reported in interest expense on the consolidated statements of operations, of $23,000 to accrete the accumulated other comprehensive income on the terminated swap agreements. For the nine months ended September 30, 2024 and 2023, the Company recorded accretion income, reported in interest expense on the consolidated statements of operations, of $69,000 and $68,000, respectively, to accrete the accumulated other comprehensive income on the terminated swap agreements.
The following table presents the effect of the derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2024 and 2023 (in thousands):
Realized and Unrealized Gain (Loss) (1)
Consolidated Statements of Operations Location
Interest rate swap contracts, hedging
(1,196
(1,192
NOTE 19 - OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES
The following table presents a summary of the Company’s offsetting of financial liabilities (in thousands, except amounts in footnotes):
(i)Gross Amounts
(ii)Gross Amounts Offset on the
(iii) = (i) - (ii)Net Amounts of Liabilities Presented on the
(iv)Gross Amounts Not Offset on the Consolidated Balance Sheets
of Recognized Liabilities
Consolidated Balance Sheets
Financial Instruments (1)
Cash Collateral Pledged
(v) = (iii) - (iv)Net Amount
Warehouse financing facilities (2)
All balances associated with warehouse financing facilities are presented on a gross basis on the Company’s consolidated balance sheets.
Certain of the Company’s warehouse financing facilities are governed by underlying agreements that generally provide for a right of offset in the event of default or in the event of a bankruptcy of either party to the transaction.
NOTE 20 - COMMITMENTS AND CONTINGENCIES
The Company may become involved in litigation on various matters due to the nature of the Company’s business activities. The resolution of these matters may result in adverse judgments, fines, penalties, injunctions and other relief against the Company as well as monetary payments or other agreements and obligations. In addition, the Company may enter into settlements on certain matters in order to avoid the additional costs of engaging in litigation. The Company is unaware of any contingencies arising from such litigation that would require accrual or disclosure in the consolidated financial statements at September 30, 2024.
The Company did not have any general litigation reserve at September 30, 2024 or December 31, 2023.
Other Guarantees
See description of Mortgages Payable in Note 10.
Unfunded Commitments
Unfunded commitments on the Company’s originated CRE loans generally fall into two categories: (1) pre-approved capital improvement projects and (2) new or additional construction costs subject, in each case, to the borrower meeting specified criteria. Upon completion of the improvements or construction, the Company would receive additional interest income on the advanced amount. Whole loans had $78.4 million and $109.4 million in unfunded loan commitments at September 30, 2024 and December 31, 2023, respectively.
NOTE 21 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing of this report and determined that there have not been any events, other than those described in Note 10 that have occurred that would require adjustments to or disclosures in the consolidated financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this quarterly report to "we," "us" or the "Company" refer to ACRES Commercial Realty Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "continue," "expect," "intend," "anticipate," "estimate," "believe," "look forward" or other similar words or terms. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, including, without limitation, factors impacting whether we will be able to maintain our sources of liquidity and whether we will be able to identify sufficient suitable investments to increase our originations, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the "SEC"). Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a Maryland corporation and an externally managed 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. Our manager is ACRES Capital, LLC (our "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 properties in top United States ("U.S.") markets. Our Manager draws upon the management team of ACRES and its collective investment experience to provide its services. Our longer term objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies as well as to maximize long-term stockholder value by maintaining stability through our available liquidity and diversified CRE loan portfolio. Our short term strategy is to drive book value ("BV") growth over the coming years by utilizing our NOL carryforwards of $32.1 million and a portion of our net capital loss carryforwards of $121.9 million, each at September 30, 2024. By retaining future earnings, we can grow our investable base and selectively deploy the anticipated capital growth into new whole loan originations at attractive yields, which we expect will grow our earnings available for distribution.
Currently, markets are grappling with inflation and the prospect of having higher interest rates for longer than originally forecasted. These market pressures have caused continued disruption in many market segments, including the financial services, real estate and credit markets and these disruptions have affected the availability and the cost of capital. The increase in the cost of capital is expected to cause dislocations in various investment and financing markets in which we participate as we and other market participants adjust to the new financing environment.
The U.S. Federal Reserve raised the Federal Funds rate by 5.25% in 11 rate hikes between March 2022 and July 2023 to combat inflation. While the U.S Federal Reserve has lowered rates in September 2024, there is no certainty with respect to the timing and pace of potential future decreases or if such decreases will continue to occur. Interest rates may remain at or near recent highs, which creates further uncertainty for the economy and our borrowers. A rising interest rate environment generally correlates to increases in our net income. However, increases in interest rates may adversely affect our existing borrowers and could lead to nonperformance, i.e. the borrower’s inability to pay debt service. Lowering rates and decreasing costs may encourage consumer spending and accelerate corporate profit growth, which may positively impact the collateral underlying our loans and positively impact our borrowers' ability to sell or refinance in the current market.
Additionally, the office property market continues to experience high vacancies, slower leasing activity and current tenants reevaluating their needs for physical office space due to remote-work trends across the country. These factors, coupled with inflation, historically higher interest rates and dislocations in market liquidity, have converged to create higher levels of uncertainty surrounding property values, which in turn, also negatively impact borrowers' ability and willingness to financially support and standby their
investments in their office properties, their abilities to sell or refinance their positions in the current market and ultimately our financial results.
In response, we continue to manage corporate liquidity actively and responsibly, manage our CRE assets through a solutions-based approach with our borrowers and manage our daily operations in light of changing macroeconomic circumstances. Our Manager also continuously monitors for new capital opportunities and selectively executes on agreements that are expected to enhance our returns.
We originate transitional floating-rate CRE loans with a target size between $10.0 million and $100.0 million. During the nine months ended September 30, 2024, we did not originate any new floating-rate CRE loans. Loan payoffs during the nine months ended September 30, 2024 were $270.1 million, along with loan foreclosures of $37.7 million, offset by net funded commitments of $28.1 million, producing a net decrease to the portfolio of $279.7 million. During the year ended December 31, 2023, we selectively originated three floating-rate CRE whole loans with total commitments of $68.2 million. Loan payoffs during the year ended December 31, 2023 were $293.1 million, offset by net funded commitments of $40.5 million, producing a net decrease to the portfolio of $184.4 million.
Our CRE loan portfolio, which had carrying values of $1.5 billion and $1.8 billion at September 30, 2024 and December 31, 2023, respectively, comprised:
We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt.
While the CRE whole loans included in the CRE loan portfolio are substantially composed of floating-rate loans benchmarked to the one-month Term Secured Overnight Financing Rate ("Term SOFR"), asset yields are protected through the use of benchmark floors and minimum interest periods that typically range from 12 to 18 months at the time of a loan’s origination. Our benchmark floors provide asset yield protection when the benchmark rate falls below an in-place benchmark floor. Our net investment returns are enhanced by a decline in the cost of our floating-rate liabilities that do not have benchmark floors. Our net investment returns will be negatively impacted by the rising cost of our floating-rate liabilities that do not have floors until the benchmark rate is above the benchmark floor, at which point our floating-rate loans and floating-rate liabilities will be match-funded, effectively locking in our net interest margin until the benchmark floor rate is activated again or the floating-rate loan is paid off or refinanced.
In a business environment where benchmark rates are increasing significantly, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default. We partially mitigate this risk by generally requiring our borrowers to purchase interest rate cap agreements with non-affiliated, well-capitalized third parties and by selectively requiring our borrowers to have and maintain debt service reserves. These interest rate caps generally mature prior to the maturity date of the loan and the borrowers are required to pay to extend them. In certain cases, the sponsors will need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. At September 30, 2024, 76% of the par value of our CRE loan portfolio had interest rate caps or funded debt service reserves in place with a weighted-average maturity of six months.
At September 30, 2024, our par-value $1.6 billion floating-rate CRE loan portfolio had a weighted average benchmark floor of 0.85%, while at December 31, 2023, this floor was 0.70%. With the historical trend of rising benchmark rates, we have seen the coupons on all of our floating-rate assets and debt rise accordingly. Because we have equity invested in each floating-rate loan, and because in all instances the benchmark interest rates are above our loan floors, the rise in interest rates resulted in an increase in our net interest income, which was offset due to the decrease in our floating-rate CRE loan portfolio. See "Interest Rate Risk" in "Item 3: Quantitative and Qualitative Disclosures About Market Risk."
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Our portfolio comprises loans with a diverse array of collateral types and locations. Multifamily continues to comprise the majority of our portfolio, with 79.4% of our portfolio allocated to multifamily at September 30, 2024 and 79.6% at December 31, 2023. The following charts show our portfolio allocation by property type at September 30, 2024 and December 31, 2023:
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From time to time, we may acquire real estate property through direct equity investments or as a result of our lending activities. During the first quarter of 2024, we acquired an office property located in the East North Central region via deed-in-lieu of foreclosure that, at acquisition, had a cost basis of $14.0 million and a fair value of $20.3 million. We recognized a $5.8 million gain upon converting the loan to real estate owned and immediately contributed the property into a joint venture with an unrelated third-party, seeking to maximize the property's value through a multifamily conversion. In the third quarter of 2024, we acquired a multifamily property in the Southwest region via foreclosure that, at acquisition, had a cost basis of $30.9 million. No gain or loss was recognized upon conversion of the CRE loan to real estate investment owned, and the property was immediately contributed to a joint venture with an unrelated third-party. We reported this investment as an investment in an unconsolidated entity on our consolidated balance sheet at September 30, 2024. Additionally, we acquired two properties via foreclosure in the third quarter of 2024 that are held as investments in real estate. The first is an office complex located in the Southwest region that, at acquisition, had a fair value of $17.5 million. We recognized a $2.8 million net unrealized gain upon converting the CRE loan to real estate owned. The second acquisition is a multi-family property located in the Southeast region with a cost basis of $9.4 million. No gain or loss occurred upon conversion of the CRE loan to real estate owned.
At September 30, 2024, the net carrying value of our net real estate-related assets and liabilities was $194.5 million on eight properties owned, four of which are included in investments in real estate and four of which are included in properties held for sale on our consolidated balance sheets. The existence of net capital loss carryforwards available until December 31, 2025 allows for potential future capital gains on certain of these investments to be shielded from income taxes.
We use leverage to enhance our returns. The cost of borrowings to finance our investments is a significant part of our expenses. Our net interest income depends on our ability to control these expenses relative to our revenue. Our CRE loans may initially be financed with term facilities, such as CRE loan warehouse financing facilities, in anticipation of their ultimate securitization. We ultimately seek to finance our CRE loans through the use of non-recourse long-term, match-funded CRE debt securitizations.
At September 30, 2024 and December 31, 2023, our financing arrangements were as follows (dollars in thousands):
Percentage of Borrowings
CRE debt securitizations(1)(2)
66.5
CRE - term warehouse financing facilities(1)
11.0
Senior secured financing facility(1)
4.1
Mortgages payable(1)
4.9
10.0
3.5
100.0
71.9
10.1
3.7
2.4
3.1
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We reevaluate our current expected credit losses ("CECL") allowance quarterly, incorporating our current expectations of macroeconomic factors considered in the determination of our CECL reserves. At September 30, 2024, the CECL allowance on our CRE loan portfolio was $34.7 million, or 2.2% of our $1.6 billion loan portfolio. During the nine months ended September 30, 2024, we recorded a net provision for credit losses primarily attributable to worsening macroeconomic factors, including, but not limited to, higher interest rates lasting longer than expected pressuring CRE pricing, offset, in part, by a decrease in modeled credit risk resulting from payoffs and net improvements in property-level performance.
At December 31, 2023, the CECL allowance on our CRE loan portfolio was $28.8 million or 1.5% of our $1.9 billion loan portfolio. During the year ended December 31, 2023, we recorded a provision for credit losses primarily attributable to the modeled increases in general portfolio credit risk compounded by ongoing uncertainty around the commercial real estate market’s current macroeconomic outlook, which affected our borrowers’ business plan execution and general market liquidity. In June 2023, we received the deed-in-lieu of foreclosure to a property formerly collateralizing an office loan in the East North Central region with a principal balance of $22.8 million, which resulted in a charge off of $948,000 against the allowance for credit losses.
Additionally, the decline in our CECL reserves from our highest reserve balance at June 30, 2020 of $61.1 million, or 3.4% of the par balance of our CRE loan portfolio, to our current reserve balance at September 30, 2024 of $34.7 million, or 2.2% of the par balance of our CRE loan portfolio, has been due to the following: the successful resolution of our individually evaluated loans with specific reserves, the overall newer vintage of our CRE loan portfolio (with only 8.6% of the portfolio, at September 30, 2024, being originated prior to the fourth quarter of 2020) as well as the increased percentage allocation of our CRE loan portfolio to multifamily loans over time. Multifamily loans have historically had the lowest credit losses of any asset class, and our percentage allocation of our CRE loan portfolio to multifamily has grown from 58.4% at June 30, 2020 to 79.4% at September 30, 2024.
Common stock book value was $27.92 per share at September 30, 2024, a $1.27 per share increase from December 31, 2023.
Results of Operations
Our net income allocable to common shares for the three months ended September 30, 2024 was $2.8 million or $0.37 per share-basic ($0.36 per share-diluted) as compared to net income allocable to common shares for the three months ended September 30, 2023 of $2.9 million or $0.34 per share-basic ($0.33 per share-diluted). Our net income allocable to common shares for the nine months ended September 30, 2024 was $5.0 million, or $0.65 per share-basic ($0.63 per share-diluted), as compared to net income allocable to common shares for the nine months ended September 30, 2023 of $1.3 million, or $0.15 per share-basic ($0.15 per share-diluted).
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Net Interest Income
The following tables analyze the change in interest income and interest expense for the comparative three and nine months ended September 30, 2024 and 2023 by changes in volume and changes in rates. The changes attributable to the combined changes in volume and rate have been allocated proportionately, based on absolute values, to the changes due to volume and changes due to rates (dollars in thousands, except amounts in footnotes):
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Due to Changes in
Net Change
Percent Change (1)
Volume
Rate
Decrease in interest income:
CRE whole loans (2)
(8,855
(19
)%
(8,172
CRE mezzanine loan
(52
(134
82
Total decrease in interest income
(8,907
(18
(8,306
(601
(Decrease) increase in interest expense:
Securitized borrowings:
(1,087
(9
(1,237
150
(2,122
(20
(2,363
241
258
248
CRE - term warehouse financing facilities
(1,777
(32
(1,791
5.75% Senior Unsecured Notes (3)
Hedging (3)
Total (decrease) increase in interest expense
(4,713
(14
(5,133
Net decrease in net interest income
(4,194
(3,173
(1,021
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
(17,457
(13
(20,249
2,792
(100
(237
(10
(442
205
(17,707
(20,691
2,984
Securitized borrowings: (3)
(818
(2
(3,338
2,520
(1,180
(4
(3,434
2,254
Senior secured financing facility (3)
669
425
244
CRE - term warehouse financing facilities (3)
(5,862
(34
(6,798
936
189
Hedging
(6,968
(7
(13,115
6,147
(10,739
(7,576
(3,163
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Net Change in Interest Income for the Comparative three and nine months ended September 30, 2024 and 2023:
Aggregate interest income decreased by $8.9 million and $17.7 million for the comparative three and nine months ended September 30, 2024 and 2023, respectively. We attribute the change to the following:
CRE whole loans. The decrease of $8.9 million for the comparative three months ended September 30, 2024 and 2023 was primarily attributable to a decrease in total par value of our CRE portfolio resulting from loan payoffs and foreclosures and the benchmark rate over the comparative period. The decrease of $17.5 million for the comparative nine months ended September 30, 2024 and 2023 was primarily attributable to a decrease in total par value of our CRE portfolio, offset, in part, by an increase in the benchmark rate over the comparative period.
Other. The decrease of $52,000 and $237,000 for the comparative three and nine months ended September 30, 2024 and 2023, respectively, was primarily attributable to a decrease in restricted cash in our CRE securitizations, offset, in part, by an increase in yields on our interest earning money market accounts.
Net Change in Interest Expense for the Comparative three and nine months ended September 30, 2024 and 2023:
Aggregate interest expense decreased by $4.7 million and $7.0 million for the comparative three and nine months ended September 30, 2024 and 2023, respectively. We attribute the change to the following:
Securitized borrowings. The net decrease of $3.2 million and $2.0 million for the comparative three and nine months ended September 30, 2024 and 2023, respectively, was primarily attributable to paydowns on our borrowings, offset, in part, by an increase in the benchmark rate over the comparative periods.
Senior secured financing facility. The increase of $258,000 and $669,000 for the comparative three and nine months ended September 30, 2024 and 2023, respectively, was primarily attributable to an increase in borrowings and the benchmark rate over the comparative periods.
CRE - term warehouse financing facilities. The decrease of $1.8 million and $5.9 million for the comparative three and nine months ended September 30, 2024 and 2023, respectively, were primarily attributable to paydowns on our borrowings.
Unsecured junior subordinated debentures. The increase of $5,000 and $189,000 for the comparative three and nine months ended September 30, 2024 and 2023, respectively, was primarily attributable to an increase in the benchmark rate over the comparative periods.
Average Net Yield and Average Cost of Funds:
The following tables present the average net yield and average cost of funds for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands, except amounts in footnotes):
Average Amortized Cost
Interest Income (Expense)
Average Net Yield (Cost of Funds) (1)
Interest-earning assets
CRE whole loans, floating-rate (2)
1,622,256
9.47
1,930,841
9.77
57,633
4.05
71,332
3.57
Total interest income/average net yield
1,684,589
9.26
2,006,873
9.53
Interest-bearing liabilities
Collateralized by:
CRE whole loans (3)
1,250,634
(24,860
(7.89
1,518,646
(29,588
(7.73
General corporate debt:
5.75% Senior Unsecured Notes (4)
148,557
(2,326
(6.21
147,899
(2,316
(1,254
(9.52
(1,249
(9.48
Hedging (5)
(402
Total interest expense/average cost of funds
1,450,739
(28,842
(7.78
1,718,093
(33,555
(7.65
Total net interest income
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1,716,687
120,917
9.38
1,972,052
138,375
68,167
2,061
4.03
90,565
3.39
1,789,554
9.15
2,067,317
9.10
1,330,717
(78,499
(7.86
1,564,831
(85,690
(7.32
148,390
(6,970
(6.26
147,743
(6,940
(6.28
(3,739
(9.53
(3,550
(9.08
1,530,655
(90,404
(7.76
1,764,122
(97,372
(7.28
Real Estate Income and Other Revenue
The following table sets forth information relating to our real estate income and other revenue for the periods presented (dollars in thousands):
Dollar Change
Percent Change
Real estate income and other revenue:
2,541
11,894
9,353
4,105
29,483
25,373
4,110
Aggregate real estate income and other revenue increased by $2.5 million and $4.1 million for the comparative three and nine months ended September 30, 2024 and 2023. The increase in the comparative three and nine months was attributed to: (i) incremental increase in revenues from the acquisition of an office building through deed-in-lieu of foreclosure in June 2023, and asset acquisitions in the third quarter of 2024 of a multifamily property and an office property through foreclosures, (ii) increased revenues from a hotel property that had increased occupancy and rental rates for both the comparative three and nine month periods and (iii) an increase in revenue related to a student housing property that completed construction and became operational in August 2024.
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Operating Expenses
The following tables set forth information relating to our operating expenses for the periods presented (dollars in thousands):
Operating expenses:
184
2,818
(489
(23
351
73
(6
(27
(2,274
468
2,733
(905
(16
(41
(3,837
(39
(1,540
(3
Aggregate operating expenses increased by $584,000 for the comparative three months ended September 30, 2024 and 2023 and decreased by $1.5 million for the comparative nine months ended September 30, 2024 and 2023. We attribute the changes to the following:
General and administrative. General and administrative expenses increased by $184,000 and $468,000 for the comparative three and nine months ended September 30, 2024 and 2023, respectively. The following table summarizes the information relating to our general and administrative expenses for the periods presented (dollars in thousands):
Professional services
1,215
960
255
Wages and benefits
326
338
(12
D&O insurance
215
276
(61
(22
Operating expenses
211
265
(54
Dues and subscriptions
249
191
58
Director fees
204
206
Travel
49
4,156
3,441
715
1,028
1,079
(51
(5
697
917
(24
620
772
(152
623
122
659
619
Tax penalties, interest & franchise tax
86
56
57
The increase in general and administrative expense for the comparative three and nine months ended September 30, 2024 and 2023 was primarily attributable to an increase related to the increase in professional services due to timing of the audit expense accrual.
Real estate expenses. The increase of $2.8 million for the three months ended September 30, 2024 and $2.7 million for the nine months ended September 30, 2024 was primarily related to (i) an increase in expenses related to a student housing property that completed construction and became operational in August 2024 and (ii) an incremental increase in expenses from the acquisition of an office building through deed-in-lieu of foreclosure in June 2023, and asset acquisitions in the third quarter of 2024 of a multifamily property and an office property through deed-in-lieu of foreclosure.
Provision for credit losses. The decrease in the provision for credit losses of $2.3 million for the three months ended September 30, 2024 and $3.8 million for the nine months ended September 30, 2024 were primarily driven by a decrease in modeled credit risk for improved property performance and loan payoffs offset by an increase in reserves from macroeconomic factors this quarter. Please refer to the "Financing Receivables" section for more information on our provision for credit losses.
Other Income (Expense)
The following table sets forth information relating to our other income (expense) incurred for the periods presented (dollars in thousands):
Other income (expense):
172
152
2,806
2,483
1,370
295
9,053
748
50
Aggregate other income increased $2.8 million and $9.1 million for the comparative three and nine months ended September 30, 2024 and 2023, respectively. We attribute the change to the following:
Gain on sale of real estate. The decrease of $745,000 during the comparative nine months ended September 30, 2024 and 2023 was primarily attributed to the sale of a hotel property in the Northeast region in February 2023 that generated a non-recurring gain of $745,000. No sales of real estate occurred in the nine months ended September 30, 2024.
Gain on conversion of real estate. The increase of $2.8 million and $8.6 million during the comparative three and nine months ended September 30, 2024 and 2023, respectively, was primarily attributed to the completion of one deed-in-lieu of foreclosure that generated a non-recurring gain of $5.8 million, in the first quarter of 2024, and a foreclosure in the third quarter of 2024 that generated an unrealized gain of $2.8 million, as the fair value of the properties exceeded the amortized cost basis of the loans.
Other Income. The increase of $1.4 million during the comparative nine months ended September 30, 2024 and 2023 is primarily attributed to the reversal of warranty reserves and representations related to a discontinued residential lending business.
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Financial Condition
Summary
Our total assets were $2.0 billion and $2.2 billion at September 30, 2024 and December 31, 2023, respectively.
Investment Portfolio
The tables below summarize the amortized cost and net carrying amount of our investment portfolio, classified by asset type, at September 30, 2024 and December 31, 2023 as follows (dollars in thousands, except amounts in footnotes):
At September 30, 2024
Net Carrying Amount (1)
Percent of Portfolio
Weighted Average Coupon
Loans held for investment:
CRE whole loans, floating-rate
87.71
8.95%
0.00
Other investments:
1.25
N/A (4)
Investments in real estate (2)
71,403
Properties held for sale (3)
123,105
6.99
216,544
12.29
Total investment portfolio
1,797,060
1,762,361
100.00
At December 31, 2023
91.93
9.15%
0.08
99,338
4.99
59,580
3.00
160,466
8.07
2,017,559
1,988,802
CRE loans. During the nine months ended September 30, 2024, we did not originate any new CRE loans. We received $270.1 million in proceeds from loan payoffs, along with loan foreclosures of $37.7 million, offset by funding of $28.1 million of previously unfunded loan commitments, producing a net reduction of $279.7 million in the par balance of the portfolio.
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The following is a summary of our loans (dollars in thousands, except amounts in footnotes):
At September 30, 2024, 28.1%, 17.9% and 16.1% of our CRE loan portfolio based on carrying value was concentrated in the Southwest, Mountain and Southeast regions, respectively, as defined by the NCREIF. At December 31, 2023, 26.6%, 22.0% and 15.0% of our CRE loan portfolio based on carrying value was concentrated in the Southwest, Southeast and Mountain regions, respectively. At September 30, 2024 and December 31, 2023, no single loan or investment represented more than 10% of our total assets and no single investment group generated over 10% of our revenue.
Investments in unconsolidated entities. Our investments in unconsolidated entities at September 30, 2024 comprised a 100% interest in the common shares of Resource Capital Trust I ("RCT I") and RCC Trust II ("RCT II"), with a value of $1.5 million in the aggregate, or 3.0% of each trust, our investment in 65 E. Wacker Joint Venture, LLC (the " Wacker JV"), representing a 90% interest in a joint venture formed for the purpose of converting an office property in the East North Central region to multifamily units with a value of $19.9 million and our investment in 7720 McCallum JV, LLC (the "McCallum JV"), representing a 50% interest in a joint venture for a multifamily unit property in the Southwest region with a value of $546,000. Our investments in unconsolidated entities at December 31, 2023 solely comprised our investments in RCT I and RCT II.
We record our investments in RCT I’s and RCT II’s common shares as investments in unconsolidated entities using the cost method. We record our investment in the Wacker JV and McCallum JV as equity method investments.
Investments in real estate and properties held for sale. At September 30, 2024, we held investments in eight real estate properties, four of which are included in investments in real estate and four of which are included in properties held for sale on the consolidated balance sheets. During the three months ended September 30, 2024, we reclassified one property in the southeast region from an investment in real estate to real estate held for sale. This property had a carrying value of $118.2 million which is now classified as held for sale.
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The following table summarizes the book value of our investments in real estate and related intangible assets at September 30, 2024 and December 31, 2023 (in thousands, except amounts in the footnotes):
Financing Receivables
Current market conditions have resulted in, and may continue to result in, a dislocation in capital markets, declining real estate values of certain asset classes and increased delinquencies and defaults, resulting in increased loan modifications, increased allowances for credit losses and an increased risk to borrowers of foreclosure actions. We routinely employ rigorous risk management and underwriting practices to proactively evaluate and maintain the credit quality of our CRE loan portfolio and work closely with our borrowers to mitigate potential losses.
The following tables show the activity in the allowance for credit losses for the nine months ended September 30, 2024 and year ended December 31, 2023 (in thousands):
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During the three months ended September 30, 2024, we recorded a reversal of expected credit losses of $291,000, primarily attributable to a decrease in modeled credit risk resulting from payoffs and net improvements in property-level performance, offset by a minor worsening of macroeconomic factors. During the nine months ended September 30, 2024, provisions of expected credit losses in the first and second quarters of 2024 outpaced the reversal during the third quarter of 2024, resulting in a net provision of $5.9 million, primarily driven by worsening macroeconomic factors, including, but not limited to, higher interest rates lasting longer than expected pressuring CRE pricing, offset, in part, by a decrease in modeled credit risk resulting from payoffs and net improvements in property-level performance.
At September 30, 2024 and December 31, 2023, we individually evaluated the following loan for impairment:
In fiscal year 2024, we individually evaluated one additional loan for which a resolution was reached:
At December 31, 2023, we individually evaluated three additional loans for which resolutions were reached in fiscal year 2024:
CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten loan-to-collateral value ("LTV") ratios, loan structure and exit plan. Depending on the loan’s performance against these various factors, loans are rated on a scale from 1 to 5, with loans rated 1 representing loans with the highest credit quality and loans rated 5 representing loans with the lowest credit quality. Loans are typically rated a 2 at origination. The factors evaluated provide general criteria to monitor credit migration in our loan portfolio; as such, a loan’s rating may improve or worsen, depending on new information received.
The criteria set forth below should be used as general guidelines and, therefore, not every loan will have all of the characteristics described in each category below.
• Occupancy is stabilized, the property has had a history of consistently high occupancy, and the property has a diverse and high quality tenant mix.
For the purpose of calculating the quarterly provision for credit losses under CECL, we pool CRE loans based on the underlying collateral property type and utilize a probability of default and loss given default methodology for approximately one year after which we immediately revert to a historical mean loss ratio.
Credit risk profiles of CRE loans at amortized cost were as follows (in thousands, except amounts in the footnotes):
Credit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in footnotes):
At both September 30, 2024 and December 31, 2023, we had one additional mezzanine loan included in other assets held for sale that had no carrying value.
The following table presents the CRE loan portfolio aging analysis as of the dates indicated for CRE loans at amortized cost (in thousands, except amounts in footnotes):
At September 30, 2024 and December 31, 2023, we had four and three CRE whole loans, with total amortized costs of $94.4 million and $41.2 million, respectively, and one mezzanine loan, with a total amortized cost of $4.7 million, in payment default.
During the three and nine months ended September 30, 2024, we recognized interest income of $204,000 and $338,000, respectively, on one CRE whole loan that was placed on nonaccrual status. In both the three and nine months ended September 30, 2023, we recognized interest income of $335,000 on two CRE whole loans that were placed on nonaccrual status.
We are required to disclose modifications where we determined the borrower is experiencing financial difficulty and modified the agreement to: (i) forgive principal, (ii) reduce the interest rate, (iii) cause an other-than-insignificant payment delay, (iv) extend the loan term, or (v) any combination thereof.
During the nine months ended September 30, 2024, we entered into the following three loan modifications that required disclosure:
These loans were performing in accordance with the modified contractual terms as of September 30, 2024. At September 30, 2024, two of these loans, with a total amortized cost of $123.7 million, had a risk rating of "4" and one loan, with an amortized cost of $44.4 million, had a risk rating of "3". Loans with a risk rating of "3" and "4" are included in the determination of our general CECL reserves.
During the nine months ended September 30, 2023, we did not enter into any loan modifications for borrowers that were experiencing financial difficulty.
Restricted Cash
At September 30, 2024, we had restricted cash of $961,000 held in escrow for deposits or tax payments at our real estate properties or pledged with minimum reserve balance requirements. At December 31, 2023, we had restricted cash of $8.4 million, which consisted of $7.6 million held in reserve for a construction loan, and $800,000 held in escrow for deposits or tax payments at our real estate properties or pledged with minimum reserve balance requirements. The decrease of $7.5 million was primarily attributable to a decrease in restricted cash at our investments in real estate that was used to fund planned construction.
Accrued Interest Receivable
The following table summarizes our accrued interest receivable at September 30, 2024 and December 31, 2023 (in thousands):
Accrued interest receivable from loans
13,931
11,750
2,181
Accrued interest receivable from promissory note, escrow, sweep and reserve accounts
2,161
The increase of $2.2 million in accrued interest receivable was primarily attributable to accrued deferred interest on modified loans offset by loan payoffs.
Other Assets
The following table summarizes our other assets at September 30, 2024 and December 31, 2023 (in thousands):
Tax receivables and prepaid taxes
212
214
Other receivables
3,304
1,913
1,391
Other prepaid expenses
1,407
566
841
Fixed assets - non real estate
281
Other assets, miscellaneous
799
616
183
2,381
The increase of $2.4 million in other assets was primarily attributable to increases in various receivables and prepaid accounts held at our real estate properties, offset by amortization.
Deferred Tax Assets
At both September 30, 2024 and December 31, 2023, our net deferred tax asset was zero, resulting from a full valuation allowance of $21.4 million and $21.1 million, respectively, on our gross deferred tax asset as we believed it was more likely than not that some or all of the deferred tax assets would not be realized. We will continue to evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies.
Derivative Instruments
Historically, we sought to mitigate the potential impact on net income (loss) of adverse fluctuations in interest rates incurred on our borrowings by entering into hedging agreements. We classified our interest rate hedges as cash flow hedges, which are hedges that eliminate the risk of changes in the cash flows of a financial asset or liability.
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We terminated interest rate swap positions associated with our prior financed CMBS portfolio in April 2020. At termination, we realized a loss of $11.8 million. At September 30, 2024 and December 31, 2023, we had a loss of $3.7 million and $5.0 million, respectively, recorded in accumulated other comprehensive loss, which is being amortized into earnings over the remaining life of the debt. During the three and nine months ended September 30, 2024, we recorded amortization expense of $425,000 and $1.3 million, respectively, reported in interest expense on the consolidated statements of operations. During the three and nine months ended September 30, 2023, we recorded amortization expense of $425,000 and $1.3 million, respectively, reported in interest expense on the consolidated statements of operations.
At September 30, 2024 and December 31, 2023, we had unrealized gains of $96,000 and $164,000, respectively, attributable to two terminated interest rate swaps, in accumulated other comprehensive loss on the consolidated balance sheets, to be accreted into earnings over the remaining life of the debt. During both the three months ended September 30, 2024 and 2023, we recorded accretion income, reported in interest expense on the consolidated statements of operations, of $23,000, to accrete the accumulated other comprehensive income on the terminated swap agreements. For each of the nine months ended September 30, 2024 and 2023, we recorded accretion income, reported in interest expense on the consolidated statements of operations, of $69,000 and $68,000, respectively, to accrete the accumulated other comprehensive income on the terminated swap agreements.
The following tables present the effect of derivative instruments on our consolidated statements of operations for the nine months ended September 30, 2024 and 2023 (in thousands):
Borrowings under our financing arrangements are guaranteed by us or one or more of our subsidiaries. The following table sets forth certain information with respect to our borrowings (dollars in thousands, except amounts in footnotes):
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We were in compliance with all covenants in the respective agreements at September 30, 2024 and December 31, 2023.
In July 2020, an indirect, wholly-owned subsidiary of ours ("Holdings"), along with its direct wholly-owned subsidiary (the "Borrower"), entered into a $250.0 million loan and servicing agreement (the "MassMutual Loan Agreement") with Massachusetts Mutual Life Insurance Company ("MassMutual") and the other lenders party thereto (the "Lenders") to form an asset-based revolving loan facility ("MassMutual Facility") to finance our core CRE lending business. The MassMutual Facility initially had an interest rate of 5.75% per annum payable monthly and initially matured on July 31, 2027.
In October 2018, an indirect, wholly-owned subsidiary of ours entered into a master repurchase agreement (the "JPMorgan Chase Facility") with JP Morgan Chase to finance the origination of CRE loans. As amended, the JPMorgan Chase Facility has a maximum facility amount of $250.0 million, charges interest of one-month benchmark plus market spreads and has a maturity date of July 2026.
In November 2021, an indirect, wholly-owned subsidiary of ours entered into a master repurchase and securities contract agreement (the "Morgan Stanley Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley") to finance the origination of CRE loans. As amended, the Morgan Stanley Facility has a maximum facility amount of $250.0 million, charges interest of one-month Term SOFR plus market spreads and matures in November 2024. We also have the right to request a one-year extension. In November 2024, we entered into Amendment No. 3 to Guaranty (the “Morgan Stanley Amendment”) by and between us and Morgan Stanley, which makes certain amendments and modifications to the Guaranty, dated November 3, 2021 between us and Morgan Stanley as amended (the “MS Guaranty”) including but not limited to amending the EBITDA to Interest Expense ratio (as defined in the MS Guaranty) through the quarter ending December 2025 and extending the Morgan Stanley Facility to November 2025. See Part II, Item 5 "Other Information".
In April 2022, Chapel Drive West, LLC, a wholly owned subsidiary of Charles Street – ACRES FSU Student Venture, LLC entered into a Loan Agreement (the "Mortgage") with Readycap Commercial, LLC ("Readycap") to finance the acquisition of a student housing complex. The Mortgage is interest only and has a maximum principal balance of $20.4 million, of which, $18.7 million was advanced in the initial funding. The Mortgage charges interest of one-month Term SOFR plus a spread of 3.80% and matures in April 2025, subject to two one-year extension options.
In addition to the Construction Loan, Chapel Drive East, LLC entered into a financing agreement with Florida Pace Funding Agency to fund energy efficient building improvements and has a maximum principal balance of $15.5 million. This agreement charges fixed interest of 7.26% and matures in July 2053. We do not guarantee this financing agreement.
In connection with our investment in the student housing complex, ACRES RF entered into guarantees related to the Construction Loan. Pursuant to the guarantees, Jason Pollack, Frank Dellaglio and ACRES RF (collectively, the "Guarantors"), for the benefit of Oceanview, provided limited "bad boy" guaranties to Oceanview pursuant to the Construction Loan Agreement until the earlier of the payment in full of the indebtedness or the date of a sale of the property pursuant to a foreclosure of the mortgage or deed or other transfer in lieu of foreclosure is accepted by Oceanview. The Guarantors also entered into a Completion Guaranty Agreement for the benefit of Oceanview to guaranty the timely completion of the project in accordance with the Construction Loan Agreement, as well as a Carry Guaranty Agreement, for the benefit of Oceanview to guaranty unconditional payment by Chapel Drive East, LLC of all customary or necessary costs and expenses incurred in connection with the operation, maintenance and management of the property and an Environmental Indemnity Agreement jointly and severally in favor of Oceanview whereby the Guarantors provided environmental representations and warranties, covenants and indemnifications (collectively the "Guaranties"). The Guaranties include certain financial covenants required of ACRES RF, including required net worth and liquidity requirements.
At September 30, 2024, we retained equity in two CRE loan securitizations that we executed, as follows:
In May 2021, we closed ACR 2021-FL1, an $802.6 million CRE debt securitization transaction that provided financing for CRE loans. ACR 2021-FL1 included a reinvestment period, which ended in May 2023, that allowed it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds. ACR 2021-FL1 issued a total of $675.2 million of non-recourse, floating-rate notes to third parties at par. We retained 100% of the Class F and Class G notes in addition to 100% of the outstanding preference shares. The preference shares are subordinated in right of payment to all other securities issued by ACR 2021-FL1. All notes issued mature in June 2036, although we have the right to call the notes beginning on the payment date in May 2023 and thereafter. As of September 30, 2024, we had not exercised this right.
In December 2021, we closed ACR 2021-FL2, a $700.0 million CRE debt securitization transaction that provided financing for CRE loans. ACR 2021-FL2 includes a reinvestment period, which ends in December 2023, that allows it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds. ACR 2021-FL2 issued a total of $567.0 million of non-recourse, floating-rate notes to third parties at par. We retained 100% of the Class F and Class G notes in addition to 100% of the outstanding preference shares. The preference shares are subordinated in right of payment to all other securities issued by ACR 2021-FL2. All notes issued mature in January 2037, although we have the right to call the notes beginning on the payment date in December 2023 and thereafter. As of September 30, 2024, we had not exercised this right.
On August 16, 2021, we issued $150.0 million of our 5.75% senior unsecured notes due 2026 (the "5.75% Senior Unsecured Notes") pursuant to our Indenture, dated August 16, 2021 (the "Base Indenture"), between Wells Fargo, now Computershare Trust Company, N.A. ("CTC"), as trustee (the "Trustee"), and us as supplemented by the First Supplemental Indenture, dated August 16, 2021, between Wells Fargo, now CTC, and us (the "Supplemental Indenture" and, together with the Base Indenture, the "Indenture"). Prior to May 15, 2026, we may at our option redeem the 5.75% Senior Unsecured Notes, in whole or in part, at a redemption price equal to the sum of (i) 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, and (ii) a make-whole premium. On or after May 15, 2026, we may at our option redeem the 5.75% Senior Unsecured Notes, at any time, in whole or in part, on not less than 15 days nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of the 5.75% Senior Unsecured Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date.
During 2006, we formed RCT I and RCT II for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. RCT I and RCT II are not consolidated into our consolidated financial statements because we are not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, we issued junior subordinated debentures to RCT I and RCT II of $25.8 million each, representing our maximum exposure to loss. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II were included in borrowings and were amortized into interest expense on the consolidated statements of operations using the effective yield method over a ten year period.
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Equity
Total equity at September 30, 2024 was $446.9 million compared to total equity at December 31, 2023 of $446.2 million. The increase in equity during the nine months ended September 30, 2024 was primarily attributable to current earnings offset by common stock and preferred stock repurchases and dividends on preferred stock for the nine months ended September 30, 2024.
Our preferred equity is composed of the following at September 30, 2024:
Balance Sheet - Book Value Reconciliation
The following table rolls forward our common stock book value for the three and nine months ended September 30, 2024 (in thousands, except per share data and amounts in footnotes):
Total Amount
Per Share Amount
Common stock book value at beginning of period (1)
210,015
27.20
209,306
26.65
Net income allocable to common shares (2)
0.66
Change in other comprehensive income on derivatives
0.05
0.16
Repurchase of common stock (3)
0.19
(5,348
0.80
Impact to equity of share-based compensation
0.11
2,162
(0.35
Total net increase
2,334
0.72
3,043
1.27
Common stock book value at end of period (4)
212,349
27.92
Management Agreement Equity
Our monthly base management fee, as defined in our Management Agreement, is equal to 1/12 of the amount of our equity multiplied by 1.50% and is calculated and paid monthly in arrears.
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The following table summarizes the calculation of equity, as defined in the Management Agreement (in thousands):
Proceeds from capital stock issuances, net (1)
1,330,472
Retained earnings, net (2)
(644,174
Payments for repurchases of capital stock
(254,178
432,120
Earnings Available for Distribution
Earnings Available for Distribution ("EAD") is a non-GAAP financial measure intended to supplement our financial results computed in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and we believe EAD serves as a useful indicator for investors in evaluating our performance and ability to pay dividends.
EAD excludes the effects of certain transactions and adjustments in accordance with GAAP that we believe are not necessarily indicative of our current CRE loan portfolio and other CRE-related investments and operations. EAD excludes income (loss) from all non-core assets such as commercial finance, residential mortgage lending, certain legacy CRE loans and other non-CRE assets designated as assets held for sale at the initial measurement date of December 31, 2016.
EAD, for reporting purposes, is defined as GAAP net income (loss) allocable to common shares, excluding (i) non-cash equity compensation expense, (ii) unrealized gains and losses, (iii) non-cash provisions for credit losses, (iv) non-cash impairments on securities, (v) non-cash amortization of discounts or premiums associated with borrowings, (vi) net income or loss from a limited partnership interest owned at the initial measurement date, (vii) net income or loss from non-core assets, (viii) real estate depreciation and amortization, (ix) foreign currency gains or losses and (x) income or loss from discontinued operations. EAD may also be adjusted periodically to exclude certain one-time events pursuant to changes in GAAP and certain non-cash items.
Although pursuant to the Management Agreement we calculate incentive compensation using EAD that excludes incentive compensation payable to our Manager, we include incentive compensation payable to our Manager in calculating EAD for reporting purposes.
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The following table provides a reconciliation from GAAP net income allocable to common shares to EAD allocable to common shares for the periods presented (in thousands, except per share data):
Per ShareData
Net income allocable to common shares - GAAP
Realized gain on sale of investment in real estate
(0.09
Net income allocable to common shares - GAAP, adjusted
526
0.06
Reconciling Items from Continuing Operations:
Non-cash equity compensation expense
0.10
0.27
0.24
Non-cash (recovery of) provision for CRE credit losses
(0.04
0.23
0.75
1.13
0.09
Unrealized gain on core activities
(2,802
(1.09
Real estate depreciation and amortization
1,345
0.17
3,830
0.48
2,833
Net income from non-core assets (1)
(1,103
(0.13
Earnings Available for Distribution allocable to common shares
1,909
6,292
0.73
7,189
0.91
15,950
1.85
Weighted average common shares - diluted on Earnings Available for Distribution allocable to common shares
7,946
8,593
7,940
8,610
Earnings Available for Distribution per common share - diluted
For the three and nine months ended September 30, 2024, EAD in accordance with the Management Agreement, which excludes incentive compensation payable, was $1.9 million and $7.2 million, respectively, or $0.24 and $0.91, respectively, per common share outstanding. There was no incentive compensation payable incurred by us for the three and nine months ended September 30, 2024.
Incentive Compensation Hurdle
With respect to each fiscal quarter commencing with the quarter ended December 31, 2022, an incentive management fee calculated and payable in arrears in an amount, not less than zero, equal to:
The following table summarizes the calculation of the Incentive Compensation Hurdle for the three months ended September 30, 2024 (dollars in thousands, except per share data):
Book Value Equity
Stockholders' equity less equity attributable to any outstanding preferred stock at September 30, 2022
216,026
Total amount of net proceeds from any issuance of common stock after October 1, 2022
1,863
Cumulative EAD from and after October 1, 2022 to the end of the most recently completed calendar quarter
33,970
Amount paid to repurchase common stock after October 1, 2022 (1)
(9,531
Incentive Compensation paid after October 1, 2022 (1)
(1,182
Book value equity at September 30, 2024
241,146
Incentive Compensation Hurdle (2)(3)
16,880
Average closing price of 30 day period ending three days prior to issuance date
15.45
For the three months ended September 30, 2024, there was no incentive compensation payable to the Manager.
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, repay borrowings and provide for other general business needs, including payment of our base management fee and incentive compensation. Our ability to meet our on-going liquidity needs is subject to our ability to generate cash from operating activities, which was $18.6 million for the nine months ended September 30, 2024, and our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to below.
At September 30, 2024, our liquidity consisted of $70.1 million of unrestricted cash and cash equivalents, and $9.6 million of potential proceeds from unlevered financeable CRE loans.
During the nine months ended September 30, 2024, our principal sources of liquidity were: (i) proceeds of $31.1 million from our mortgages payable; (ii) net proceeds of $19.5 million from repayments on our CRE portfolio; and (iii) proceeds of $19.3 million from advances from our term warehouse financing facilities.
These sources of liquidity were offset by our paydowns on our term warehouse facilities, deployments in CRE whole loans and real estate investments, repurchases of common and preferred stock, distributions on our preferred stock and ongoing operating expenses and substantially resulted in the $70.1 million of unrestricted cash we held at September 30, 2024.
The outstanding balance of our loan to ACRES Capital Corp., the parent of our Manager, was $10.8 million and $11.0 million at September 30, 2024 and December 31, 2023, respectively. The note bears interest at 3.00% per annum, payable monthly, and matures in July 2026, subject to two one-year extensions, at ACRES Capital Corp.’s option, and amortizes at a rate of $25,000 per month.
Cash Flows
For the nine months ended September 30, 2024, our restricted and unrestricted cash and cash equivalents balance decreased $20.9 million to $71.0 million. The cash movements can be summarized by the following:
Cash flows from operating activities. For the nine months ended September 30, 2024, operating activities increased our cash balances by $18.6 million, primarily driven by net income after removing non-cash gain on conversion of real estate, non-cash provision for loan losses, non-cash amortization and depreciation, and net changes in other assets and liabilities.
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Cash flows from investing activities. For the nine months ended September 30, 2024, investing activities increased our cash balances by $174.6 million, primarily driven by repayments of CRE loans, partially offset by funding of existing commitments on CRE whole loans and deployments in our investment in real estate.
Cash flows from financing activities. For the nine months ended September 30, 2024, financing activities decreased our cash balances by $214.1 million, primarily driven by repayments on our CRE securitization notes and distributions on our preferred stock and repurchases of our common stock and preferred stock and on our term warehouse financing facilities, partially offset by proceeds from financing on our investments in real estate and term warehouse financing facilities.
Financing Availability
We utilize a variety of financing arrangements to finance certain assets. We generally utilize the following types of financing arrangements:
We were in compliance with all of our covenants at September 30, 2024 in accordance with the terms provided in agreements with our lenders.
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At September 30, 2024, we had financing arrangements as summarized below (in thousands, except amounts in footnotes):
Execution Date
Maximum Capacity
Facility PrincipalOutstanding
Availability
July 2020
500,000
436,901
JPMorgan Chase Bank, N.A.
October 2018
July 2026
250,000
91,721
158,279
November 2021
November 2024
72,918
177,082
April 2022
April 2025
20,375
20,291
Oceanview Life and Annuity Company (5)
January 2023
February 2025
48,000
39,048
8,952
Florida Pace Funding Agency (6)
January 2053
-
302,587
The following table summarizes the average principal outstanding during the three months ended September 30, 2024 and December 31, 2023 and the principal outstanding on our financing arrangements at September 30, 2024 and December 31, 2023 (in thousands, except amounts in footnotes):
Three Months Ended December 31, 2023
Average Principal Outstanding
Financing Arrangement
Senior secured financing facility (1)
Term warehouse financing facilities - CRE loans (2)
164,639
226,373
170,322
227,738
290,868
234,817
The following table summarizes the maximum month-end principal outstanding on our financing arrangements during the periods presented (in thousands):
Maximum Month-End Principal Outstanding During the
Term warehouse financing facilities - CRE loans
189,563
333,834
Historically, we have financed the acquisition of our investments through collateralized debt obligations ("CDO") and securitizations that essentially match the maturity and repricing dates of these financing vehicles with the maturities and repricing dates of our investments. In the past, we have derived substantial operating cash from our equity investments in our CDOs and securitizations, which will cease if the CDOs and securitizations fail to meet certain tests. Through September 30, 2024, we did not experience difficulty in maintaining our existing CDO and securitization financing and passed all of the critical tests required by these financings. Our securitizations collectively had balances of $993.6 million and $1.2 billion at September 30, 2024 and December 31, 2023, respectively.
The following table sets forth the distributions received by us and coverage test summaries for our active securitizations for the periods presented (in thousands):
Cash Distributions
Overcollateralization Cushion (1)
Annualized Interest Coverage Cushion (2)(3)
Name
For the Nine Months Ended September 30, 2024
Initial Measurement Date
Reinvestment Period End (4)
13,546
24,923
23,830
6,758
5,838
13,363
19,652
44,788
5,652
9,460
Our leverage ratio, defined as the ratio of borrowings to total equity, may vary as a result of the various funding strategies we use. At September 30, 2024 and December 31, 2023, our leverage ratio under GAAP was 3.3 and 3.8 times, respectively. The leverage ratio decreased during the period primarily due to the net decrease in borrowings offset by a net increase to total equity.
Contractual Obligations and Commitments
Contractual Commitments
(dollars in thousands, except amounts in footnotes)
Payments due by Period
Less than 1 year
1 - 3 years
3 - 5 years
More than 5 years
CRE - term warehouse financing facilities (2)
Mortgages payable (3)
Unsecured junior subordinated debentures (5)
Lease liabilities (6)
852,980
1,670
5,796
6,333
839,181
Unfunded commitments on CRE loans (7)
78,374
65,137
13,237
Base management fees (8)
6,482
2,436,025
205,736
261,025
69,432
1,899,832
Net Operating Losses and Loss Carryforwards
The following table sets forth the net operating losses and loss carryforwards for the periods presented (in millions):
Tax Year Recognized
REIT (QRS) Tax Loss Carryforwards
TRS Tax Loss Carryforwards
Tax Asset Item
Operating
Capital
Net Operating Loss Carryforwards:
Cumulative as of 2023
2023 Return
32.1
60.9
Net Capital Loss Carryforwards:
121.9
1.0
Total tax asset estimates
Useful life
Unlimited
5 years
Various
At September 30, 2024, we have $32.1 million of cumulative net operating losses ("NOL") to carry forward to future years. NOL can generally be carried forward to offset both ordinary taxable income and capital gains in future years. The Tax Cuts and Jobs Act ("TCJA"), along with revisions made by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act reduced the deduction for NOLs generated post 2017 to 80% of taxable income and granted an indefinite carryforward period. Additionally, we have cumulative net capital losses of $121.9 million, which are set to expire at December 31, 2025. During the year ended December 31, 2023, we generated $14.6 million of taxable income which was offset by our cumulative NOL. This was reported on our tax return that was filed in October 2024.
We also have tax assets in our taxable REIT subsidiaries ("TRS"). These tax assets are analyzed and disclosed quarterly in our financial statements. At September 30, 2024, our TRSs have $60.9 million of NOLs comprising: $39.8 million of pre-TCJA NOLs, some of which are set to expire beginning in 2044 and $21.1 million of NOLs with an indefinite carryforward period. Additionally, our TRSs have cumulative total net capital losses of $1.0 million, which are set to expire at December 31, 2024.
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Distributions
We did not pay distributions on our common shares during the nine months ended September 30, 2024 as we were focused on prudently retaining and managing sufficient excess liquidity. As a result of losses during 2020, we received significant NOL carryforwards and net capital loss carryforwards, as finalized in our 2020 tax return. We intend to retain taxable income by utilizing our NOL carryforwards and expect to generate capital gains to use a portion of our net capital loss carryforwards, thereby growing book value and our investable equity base. As we continue to take steps necessary to stabilize our earnings available for distribution, our Board expects to establish a plan for the prudent resumption of the payment of common share distributions. No assurance, however, can be given as to the amounts or timing of future distributions as such distributions are subject to our earnings, financial condition, capital requirements and such other factors as our Board deems relevant.
We intend to continue to make regular quarterly distributions to holders of our preferred stock.
U.S. federal income tax law generally requires that a REIT distribute at least 90% of its REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements on our repurchase agreements and other debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
Off-Balance Sheet Arrangements
General
At September 30, 2024, we did not maintain any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements or contractually narrow or limited purposes, although we do have interests in unconsolidated entities not established for those purposes. At September 30, 2024, we had not guaranteed obligations of any unconsolidated entities or entered into any commitment or letter of intent to provide additional funding to any such entities.
In the ordinary course of business, we make commitments to borrowers whose loans are in our CRE loan portfolio to provide additional loan funding in the future. Disbursement of funds pursuant to these commitments is subject to the borrower meeting pre-specified criteria. These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial investments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Whole loans had $78.4 million and $109.4 million in unfunded loan commitments at September 30, 2024 and December 31, 2023, respectively. Unfunded commitments are not considered in the CECL reserve if they are unconditionally cancellable.
Guarantees and Indemnifications
In the ordinary course of business, we may provide guarantees and indemnifications that contingently obligate us to make payments to the guaranteed or indemnified party based on changes in the value of an asset, liability or equity security of the guaranteed or indemnified party. As such, we may be obligated to make payments to a guaranteed party based on another entity’s failure to perform or achieve specified performance criteria, or we may have an indirect guarantee of the indebtedness of others.
In January 2023, Chapel Drive East, LLC, a wholly owned subsidiary of the FSU Student Venture, entered into a loan agreement (the "Construction Loan Agreement") with Oceanview Life and Annuity Company ("Oceanview") to finance the construction of a student housing complex (the "Construction Loan").
In connection with our investment in the student housing complex, ACRES RF entered into guarantees related to the Construction Loan. Pursuant to the guarantees, Jason Pollack, Frank Dellaglio and ACRES RF (collectively, the "Guarantors"), for the benefit of Oceanview, provided limited "bad boy" guaranties to Oceanview pursuant to the Construction Loan Agreement until the earlier of the payment in full of the indebtedness or the date of a sale of the property pursuant to a foreclosure of the mortgage or deed or other transfer in lieu of foreclosure is accepted by Oceanview. The Guarantors also entered into a Completion Guaranty Agreement for the benefit of Oceanview to guaranty the timely completion of the project in accordance with the Construction Loan Agreement, as well as a Carry Guaranty Agreement, for the benefit of Oceanview to guaranty unconditional payment by Chapel Drive East, LLC of all customary or necessary costs and expenses incurred in connection with the operation, maintenance and management of the property
and an Environmental Indemnity Agreement jointly and severally in favor of Oceanview whereby the Guarantors provided environmental representations and warranties, covenants and indemnifications (collectively the "Guaranties"). The Guaranties include certain financial covenants required of ACRES RF, including required net worth and liquidity requirements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared by management in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that may affect the value of our assets or liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and our financial results. We believe that certain of our policies are critical because they require us to make difficult, subjective and complex judgments about matters that are inherently uncertain. The critical policies summarized below relate to valuation of investment securities, accounting for derivative financial instruments and hedging activities, income taxes, allowance for credit losses and variable interest entities (“VIEs”).
We maintain an allowance for credit loss on our loans held for investment. CRE loans that are held for investment are carried at cost, net of unamortized acquisition premiums or discounts, loan fees and origination costs as applicable. Effective January 1, 2020, we determine our allowance for credit losses, consistent with GAAP, by measuring CECL on the loan portfolio on a quarterly basis. We utilize a probability of default and loss given default methodology over a reasonable and supportable forecast period after which we revert to the historical mean loss ratio, utilizing a blended approach sourced from our own historical losses and the market losses from an engaged third-party’s database, to be applied for the remaining estimable period. The CECL model requires us to make significant judgments, including: (i) the selection of a reasonable and supportable forecast period, (ii) the selection and weighting of appropriate macroeconomic forecast scenarios, (iii) the determination of the risk characteristics in which to pool financial assets, and (iv) the appropriate historical loss data to use in the model. Unfunded commitments are not considered in the CECL reserve if they are unconditionally cancellable by us.
We measure the loan portfolio’s credit losses by grouping loans based on similar risk characteristics under CECL, which is typically based on the loan’s collateral type. We regularly evaluate the risk characteristics of our loan portfolio to determine whether a different pooling methodology is more accurate. Further, if we determine that foreclosure of a loan’s collateral is probable or repayment of the loan is expected through sale or operation of the collateral and the borrower is experiencing financial difficulty, expected credit losses are measured as the difference between the current fair value of the collateral and the amortized cost of the loan. Fair value may be determined based on (i) the present value of estimated cash flows; (ii) the market price, if available; or (iii) the fair value of the collateral less estimated disposition costs.
While a loan exhibiting credit quality deterioration may remain on accrual status, the loan is placed on nonaccrual status at such time as (i) management believes that scheduled debt service payments will not be met within the coming 12 months; (ii) the loan becomes 90 days past due; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the credit deterioration; or (iv) the net realizable value of the loan’s underlying collateral approximates our carrying value for such loan. While on nonaccrual status, we recognize interest income only when an actual payment is received if a credit analysis supports the borrower’s principal repayment capacity. When a loan is placed on nonaccrual, previously accrued interest is reversed from interest income.
We utilize the contractual life of our loans to estimate the period over which we measure expected credit losses. Estimates for prepayments and extensions are incorporated into the inputs for our CECL model. Modifications to loan terms, such as a modification in connection with a troubled debt restructuring ("TDR"), where a concession is granted to a borrower experiencing financial difficulty, may result in the extension of the loan’s life and an increase in the allowance for credit losses.
In order to calculate the historical mean loss ratio applied to the loan portfolio, we utilize historical losses from our full underwriting history, along with the market loss history of a selected population of loans from a third-party’s database that are similar to our loan types, loan sizes, durations, interest rate structure and general LTV profiles. We may make adjustments to the historical loss history for qualitative or environmental factors if we believe there is evidence that the estimate for expected credit losses should be increased or decreased.
We record write-offs against the allowance for credit losses if we deem that all or a portion of a loan’s balance is uncollectible. If we receive cash in excess of some or all of the amounts we previously wrote off, we record a recovery to increase the allowance for credit losses.
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As part of the evaluation of the loan portfolio, we assess the performance of each loan and assign a risk rating based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten LTV ratios, risk inherent in the loan structure and exit plan. Loans are rated “1” through “5,” from least risk to greatest risk, in connection with this review.
We acquire investments in real estate through direct equity investments and as a result of our lending activities (i.e. through foreclosure or the receipt of the deed-in-lieu of foreclosure on a property). Acquired investments in real estate assets are recorded initially at fair value in accordance with GAAP. We allocate the purchase price of our acquired assets and assumed liabilities based on the relative fair values of the assets acquired and liabilities assumed.
We evaluate whether property obtained as a result of our lending activities should be identified as held for sale. If a property is determined to be held for sale, all of the acquired assets and assumed liabilities will be recorded in property held for sale on the consolidated balance sheets and recorded at the lower of cost or fair value. Once a property is classified as held for sale, depreciation expense is no longer recorded.
Investments in real estate are carried net of accumulated depreciation. We depreciate real property, building and tenant improvements and furniture, fixtures, and equipment using the straight-line method over the estimated useful lives of the assets. We amortize any acquired intangible assets using the straight-line method over the estimated useful lives of the intangible assets. We amortize the value allocated to lease right of use assets and related in-place lease liabilities, when determined to be operating leases, using the straight-line method over the remaining lease term. The value allocated to any associated above or below market lease intangible asset or liability is amortized to lease expense over the remaining lease term.
Ordinary repairs and maintenance are expensed as incurred. Costs related to the improvement of the real property are capitalized and depreciated over their useful lives. Costs related to the development and construction of real property are capitalized to construction in progress during the period beginning with the commencement of development and ending with the completion of construction.
We depreciate investments in real estate and amortize intangible assets over the estimated useful lives of the assets as follows:
5 to 39 years
1 to 12 years
Revenue Recognition
Interest income from our loan portfolio is recognized over the life of each loan using the effective interest method and is recorded on the accrual basis. Premiums and discounts are amortized or accreted into income using the effective yield method. If a loan with a premium or discount is prepaid, we immediately recognize the unamortized portion as a decrease or increase to interest income. In addition, we defer loan origination and extension fees and loan origination costs and recognize them over the life of the related loan with interest income using the straight-line method, which approximates the effective yield method. Income recognition is suspended for loans at the earlier of the date at which payments become 90 days past due or when, in our opinion, a full recovery of principal and income becomes doubtful. When the ultimate collectability of the principal is in doubt, all payments received are applied to principal under the cost recovery method. When the ultimate collectability of the principal is not in doubt, contractual interest is recorded as interest income when received, under the cash method, until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.
Through our investments in real estate, we earn revenue associated with rental operations and hospitality operations, which are presented in real estate income on the consolidated statements of operations.
Rental operating revenue consists of fixed contractual base rent arising from tenant leases at our office properties under operating leases. Revenue is recognized on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded in our consolidated balance sheets. We move to cash basis operating lease income recognition in the period in which collectability of all lease payments is no longer considered probable. At such time, any uncollectible receivable balance will be written off.
Hospitality operating revenue consists of amounts derived from hotel operations, including room sales and other hotel revenues. We recognize hospitality operating revenue when guest rooms are occupied, services have been provided or fees have been earned. Revenues are recorded net of any sales, occupancy or other taxes collected from customers on behalf of third parties. The following provides additional detail on room revenue and other operating revenue:
Variable Interest Entities
We consolidate entities that are VIEs where we have determined that we are the primary beneficiary of such entities. Once it is determined that we hold a variable interest in a VIE, management performs a qualitative analysis to determine (i) if we have the power to direct the matters that most significantly impact the VIE’s financial performance; and (ii) if we have the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. If our variable interest possesses both of these characteristics, we are deemed to be the primary beneficiary and would be required to consolidate the VIE. This assessment must be done on an ongoing basis.
At September 30, 2024, we determined that we are the primary beneficiary of two VIEs that are consolidated.
In November 2023, the FASB issued guidance to improve reportable segment disclosure requirements, enhance interim disclosure requirements and provide new segment disclosure requirements for entities with a single reportable segment. The guidance is effective for fiscal years beginning after December 15, 2023, and for interim periods with fiscal years beginning after December 15, 2024. The guidance is applied retrospectively to all periods presented in the financial statements, unless it is impracticable. We are in the process of evaluating the impact of this guidance, however, we do not expect a material impact to our consolidated financial statements.
In December 2023, the FASB issued guidance to improve the transparency of income tax disclosures. This guidance is effective for fiscal years beginning after December 15, 2024 and is to be adopted on a prospective basis with the option to apply retrospectively. We are in the process of evaluating the impact of this guidance, however, we do not expect a material impact to our consolidated financial statements.
Inflation
Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with GAAP and our distributions are determined by our Board based primarily on our maintaining our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2024, the primary components of our market risk were credit risk, counterparty risk, financing risk, and interest rate risk, as described below. While we do not seek to avoid risk completely, we do seek to assume risk that can be quantified from historical experience, to actively manage that risk, to earn sufficient compensation to justify assuming that risk and to maintain capital levels consistent with the risk we undertake or to which we are exposed. Additionally, refer to Item 1A, "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information on risks we face.
Credit Risks
Our loans and investments are subject to credit risk. The performance and value of our loans and investments depend upon the sponsors’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, ACRES Capital, LLC’s asset management team reviews our investment portfolios and in certain instances is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.
In addition, we are exposed to the risks generally associated with the commercial real estate ("CRE") market, including variances in occupancy rates, capitalization rates, absorption rates, and other macroeconomic factors beyond our control. We seek to manage these risks through our underwriting and asset management processes.
In a business environment where benchmark interest rates are increasing significantly, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default. We partially mitigate this risk by generally requiring our borrowers to purchase interest rate cap agreements with non-affiliated, well-capitalized third parties and by selectively requiring our borrowers to have and maintain debt service reserves. These interest rate caps generally mature prior to the maturity date of the loan and the borrowers are required to pay to extend them. In most cases the sponsors will need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. At September 30, 2024, 76.2% of the par value of our CRE loan portfolio had interest rate caps in place with a weighted-average maturity of six months.
Macroeconomic conditions may persist into the future and impair our borrowers’ ability to comply with the terms under our loan agreements. We maintain a robust asset management relationship with our borrowers and have utilized these relationships to address rising interest rates, lingering impacts of the COVID-19 pandemic, and other macroeconomic factors on our loans secured by properties experiencing cash flow pressure. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments. In order to mitigate that risk, we have proactively engaged with our borrowers, particularly with those with near-term maturities, in order to maximize recovery.
Counterparty Risk
The nature of our business requires us to hold our cash and cash equivalents and obtain financing with various financial institutions. This exposes us to the risk that these financial institutions may not fulfill their obligations to us under these various contractual arrangements. We mitigate this exposure by depositing our cash and cash equivalents and entering into financing agreements with high credit-quality institutions.
Financing Risk
We finance our target assets using our CRE debt securitizations, a senior secured financing facility, warehouse financing facilities and mortgage payables. Over time, as market conditions change, we may use other forms of leverage in addition to these methods of financing. Weakness or volatility in the financial markets, the CRE and mortgage markets or the economy generally could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders or potential lenders to be unwilling or unable to provide us with financing, or to decrease the amount of our available financing, or to increase the costs of that financing.
Interest Rate Risk
Our business model is such that rising interest rates will increase our net income, while declining interest rates will decrease net income, subject to the impact of interest rate floors. At September 30, 2024, 99.5% of our CRE loan portfolio by par value earned a floating rate of interest and may be financed with liabilities that both pay interest at floating rates and that are fixed. Floating-rate loans financed with fixed rate liabilities have a negative correlation with declining interest rates to the extent of our financing. The remaining 0.5% of our CRE loan portfolio by par value has a contractual fixed rate of interest. To the extent that interest rate floors on our floating-rate CRE loans are in the money, our net interest will have a negative correlation with rising interest rates to the extent of those interest rate floors. Our floating-rate loan portfolio of $1.6 billion had a weighted-average benchmark floor of 0.85% at September 30, 2024.
The following table estimates the hypothetical impact on our net interest income assuming an immediate increase or decrease of 100 basis points in the applicable interest rate benchmark (in thousands, except per share data):
100 Basis Point Decrease (4)
100 Basis Point Increase
Net Assets Subject to Interest Rate Sensitivity (1)(2)(3)
Decrease to Net Interest Income
Decrease to Net Interest Income Per Share
Increase to Net Interest Income
Increase to Net Interest Income Per Share
302,687
(760
(0.10
767
Risk Management
To the extent consistent with maintaining our status as a REIT, we seek to manage our interest rate risk exposure to protect our variable rate debt against the effects of major interest rate changes. We generally seek to manage our interest rate risk by monitoring and adjusting, if necessary, the reset index and interest rate related to our borrowings.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of our Chief Executive Officer and Chief Financial Officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
We may become involved in litigation on various matters due to the nature of our business activities. The resolution of these matters may result in adverse judgments, fines, penalties, injunctions and other relief against us as well as monetary payments or other agreements and obligations. In addition, we may enter into settlements on certain matters in order to avoid the additional costs of engaging in litigation. We are unaware of any contingencies arising from such litigation that would require accrual or disclosure in the consolidated financial statements at September 30, 2024.
ITEM 1A. RISK FACTORS
As of the date of this report, there have been no material changes to the risk factors disclosed under Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission ("SEC"), except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities
In March 2016, our Board approved a securities repurchase program. In November 2020, our Board authorized and approved the continued use of our existing share repurchase program in order to repurchase up to $20.0 million of our outstanding shares of common stock. In November 2023, our Board authorized and approved the repurchase of an additional $10.0 million of outstanding shares of both common and preferred stock. At September 30, 2024, $2.3 million remains available under this repurchase program.
The following table presents information about our common and preferred stock repurchases made during the nine months ended September 30, 2024 in accordance with our repurchase program (dollars in thousands, except per share data):
Total Number of Shares Purchased
Average Price Paid per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs
January 2, 2024 - January 31, 2024
75,138
9.86
9,087,747
January 17, 2024 (2)
100,000
21.57
6,932,747
February 1, 2024 - February 29, 2024
52,195
10.14
6,404,704
March 1, 2024 - March 28, 2024
67,494
11.84
5,607,039
April 1, 2024 - April 30, 2024
52,812
4,877,655
May 1, 2024 - May 31, 2024
39,994
13.37
4,343,681
June 3, 2024 - June 28, 2024
22,652
12.80
4,054,292
July 1, 2024 - July 31, 2024
24,936
13.73
3,712,310
August 1, 2024 - August 30, 2024
47,682
15.52
2,973,466
September 3, 2024 - September 30, 2024
41,340
15.53
2,332,294
On May 7, 2024, we issued a total of 333,333 shares of common stock under our Manager Incentive Plan to ACRES Share Holdings, LLC, a subsidiary of the Manager and under our Third Amended and Restated Omnibus Equity Compensation Plan to our directors (with the exception of Messrs. Fentress and Fogel), after we reached the established per share book value target of $27.00 per share. Each grant vests 25% over four years. Of this amount, ACRES Share Holdings, LLC was granted 295,237 shares of common stock and now holds approximately 12.3% of our outstanding common stock. Shares issued to ACRES Share Holdings, LLC under the Management Incentive Plan were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On May 7, 2024, we granted ACRES Share Holdings, LLC a stock ownership waiver allowing it to exceed the 9.8% ownership limitations set forth in our charter. The stock ownership waiver allows ACRES Share Holdings, LLC to hold up to 15% of our outstanding shares of common stock.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2024, no director or officer of the Company adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
On November 1, 2024, the Company entered into Amendment No. 3 to Guaranty (the “Morgan Stanley Amendment”) by and between the Company and Morgan Stanley Mortgage Capital Holdings LLC (“Morgan Stanley”), which makes certain amendments and modifications to the Guaranty, dated November 3, 2021 between the Company and Morgan Stanley as amended (the “MS Guaranty”) including but not limited to amending the EBITDA to Interest Expense ratio (as defined in the MS Guaranty) through the quarter ending December 2025 and extending the Morgan Stanley Facility to November 2025.
The foregoing description of the Morgan Stanley Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Morgan Stanley Amendment, which has been filed with this Quarterly Report on Form 10-Q as Exhibit 99.2(f).
ITEM 6. EXHIBITS
Exhibit No.
Asset Purchase Agreement, dated June 6, 2017, by and among Stearns Lending, LLC, Primary Capital Mortgage, LLC, and Resource Capital Corp. (10)
3.1(a)
Amended and Restated Articles of Incorporation of Resource Capital Corp. (1)
3.1(b)
Articles of Amendment to Restated Certificate of Incorporation of Resource Capital Corp. (9)
3.1(c)
Articles Supplementary 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (7)
3.1(d)
Articles Supplementary 7.875% Series D Cumulative Redeemable Preferred Stock, as corrected. (24)
3.1(e)
Articles of Amendment, effective May 25, 2018. (12)
3.1(f)
Articles of Amendment, effective February 16, 2021. (21)
3.1(g)
Articles of Amendment, effective May 28, 2021. (25)
3.2
Fourth Amended and Restated Bylaws of ACRES Commercial Realty Corp. (21)
4.1(a)
Form of Certificate for Common Stock for Resource Capital Corp. (1)
4.1(b)
Form of Certificate for 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (7)
4.1(c)
Form of Certificate for 7.875% Series D Cumulative Redeemable Preferred Stock. (24)
4.2(a)
Junior Subordinated Indenture between Resource Capital Corp. and Wells Fargo Bank, N.A., dated May 25, 2006. (2)
4.2(b)
Amendment to Junior Subordinated Indenture and Junior Subordinated Note due 2036 between Resource Capital Corp. and Wells Fargo Bank, N.A., dated October 26, 2009 and effective September 30, 2009. (6)
4.3(a)
Amended and Restated Trust Agreement among Resource Capital Corp., Wells Fargo Bank, N.A., Wells Fargo Delaware Trust Company and the Administrative Trustees named therein, dated May 25, 2006. (2)
4.3(b)
Amendment to Amended and Restated Trust Agreement and Preferred Securities Certificate among Resource Capital Corp., Wells Fargo Bank, N.A. and the Administrative Trustees named therein, dated October 26, 2009 and effective September 30, 2009. (6)
4.4
Junior Subordinated Note due 2036 in the principal amount of $25,774,000, dated October 26, 2009. (6)
4.5(a)
Junior Subordinated Indenture between Resource Capital Corp. and Wells Fargo Bank, N.A., dated September 29, 2006. (3)
4.5(b)
4.6(a)
Amended and Restated Trust Agreement among Resource Capital Corp., Wells Fargo Bank, N.A., Wells Fargo Delaware Trust Company and the Administrative Trustees named therein, dated September 29, 2006. (3)
4.6(b)
4.7
4.8
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. (35)
4.9(a)
Base Indenture, dated August 16, 2021, between the Company and the Trustee. (28)
4.9(b)
First Supplemental Indenture, dated August 16, 2021, between the Company and the Trustee. (28)
4.9(c)
Form of 5.75% Senior Note due 2026 (included in Exhibit 4.9(b)).
10.1(a)
Fourth Amended and Restated Management Agreement, dated as of July 31, 2020, by and among Exantas Capital Corp., ACRES Capital, LLC and ACRES Capital Corp. (16)
10.1(b)
First Amendment to Fourth Amended and Restated Management Agreement, dated as of February 16, 2021, by and among ACRES Commercial Realty Corp. f/k/a Exantas Capital Corp., ACRES Capital, LLC and ACRES Capital Corp. (22)
10.1(c)
Second Amendment to Fourth Amended and Restated Management Agreement, dated as of May 6, 2022, by and among ACRES Commercial Realty Corp. f/k/a Exantas Capital Corp., ACRES Capital, LLC and ACRES Capital Corp. (36)
10.1(d)
Third Amendment to Fourth Amended and Restated Management Agreement, dated February 15, 2024, by and among ACRES Commercial Realty Corp., ACRES Capital, LLC and ACRES Capital Corp.(45)
10.2(a)
Second Amended and Restated Omnibus Equity Compensation Plan. (14)
10.2(b)
Amendment No. 1 to the Exantas Capital Corp. Second Amended and Restated Omnibus Equity Compensation Plan. (17)
10.2(c)
Third Amended and Restated Omnibus Equity Compensation Plan. (23)
10.2(d)
Form of Stock Award Agreement. (8)
10.2(e)
Form of Stock Award Agreement (for employees with Resource America, Inc. employment agreements). (8)
10.3
Form of Indemnification Agreement. (11)
10.4(a)
Loan and Servicing Agreement, dated as of July 31, 2020, among RCC Real Estate SPE Holdings LLC, as Holdings, RCC Real Estate SPE 9 LLC, as the Borrower, Massachusetts Mutual Life Insurance Company and the other Lenders from time to time party thereto, Wells Fargo Bank, National Association, as the Administrative Agent, Massachusetts Mutual Life Insurance Company, as the Facility Servicer, ACRES Capital Servicing LLC, as the Portfolio Asset Servicer, and Wells Fargo Bank, National Association, as the Collateral Custodian. (16)
10.4(b)
First Amendment to Loan and Servicing Agreement, dated as of September 16, 2020, among RCC Real Estate SPE Holdings LLC, RCC Real Estate SPE 9 LLC, Massachusetts Mutual Life Insurance Company and Wells Fargo Bank, National Association, as the Administrative Agent. (18)
10.4(c)
Second Amendment to Loan and Servicing Agreement, dated as of May 25, 2021, among RCC Real Estate SPE Holdings LLC, RCC Real Estate SPE 9 LLC, Massachusetts Mutual Life Insurance Company and Wells Fargo Bank, National Association as the Administrative Agent. (27)
10.4(d)
Third Amendment to Loan and Servicing Agreement, dated as of August 16, 2021, among RCC Real Estate SPE Holdings LLC, RCC Real Estate SPE 9 LLC, the Lenders party thereto and Massachusetts Mutual Life Insurance Company and Wells Fargo Bank, National Association as the Administrative Agent.(33)
10.4(e)
Fourth Amendment to Loan and Servicing Agreement, dated as of April 12, 2022, among RCC Real Estate SPE Holdings LLC, RCC Real Estate SPE 9 LLC, the Lenders party thereto and Massachusetts Mutual Life Insurance Company and Wells Fargo Bank, National Association as the Administrative Agent. (36)
10.4(f)
Fifth Amendment to Loan and Servicing Agreement, dated as of July 26, 2022, among RCC Real Estate SPE Holdings LLC, RCC Real Estate SPE 9 LLC, the Lenders party thereto and Massachusetts Mutual Life Insurance Company and Wells Fargo Bank, National Association as the Administrative Agent. (37)
10.4(g)
Sixth Amendment to Loan and Servicing Agreement, dated as of August 29, 2022, among RCC Real Estate SPE Holdings LLC, RCC Real Estate SPE 9 LLC, the Lenders party thereto and Massachusetts Mutual Life Insurance Company and Wells Fargo Bank, National Association as the Administrative Agent. (38)
10.4(h)
Guaranty, dated as of July 31, 2020, by Exantas Capital Corp., and each of Exantas Real Estate Funding 2018-RSO6 Investor, LLC, Exantas Real Estate Funding 2019-RSO7 Investor, LLC, and Exantas Real Estate Funding 2020-RSO8 Investor, LLC, in favor of the Secured Parties. (16)
10.4(i)
Amended and Restated Loan and Servicing Agreement, dated as of December 22, 2022, among RCC Real Estate SPE Holdings LLC, RCC Real Estate SPE 9 LLC, Plymouth Meeting Holdings, LLC, Exantas Phili Holdings, LLC, ACRES Real Estate TRS 9 LLC, Massachusetts Mutual Life Insurance Company and ACRES Capital Servicing. (40)
10.4(j)
Guaranty, dated May 25, 2021 between Exantas Phili Holdings, LLC in favor of the Secured Parties. (36)
10.4(k)
Guaranty, dated May 25, 2021 between 65 E. Wacker Holdings, LLC in favor of the Secured Parties. (36)
10.4(l)
Guaranty, dated May 25, 2021 between Plymouth Meeting Holdings, LLC in favor of the Secured Parties. (36)
10.4(m)
Pledge and Guaranty Agreement, dated August 16, 2021 between ACRES Real Estate TRS 9 LLC in favor of the Secured Parties. (36)
10.4(n)
Guaranty, dated April 12, 2022 between Appleton Hotel Holdings, LLC and Appleton Hotel Leasing, LLC in favor of the Secured Parties. (36)
10.5(a)
Note and Warrant Purchase Agreement, dated as of July 31, 2020, by and among Exantas Capital Corp. and the Purchasers signatory thereto. (16)
10.5(b)
Agreement between the Company, OCM XAN Holdings PT, LLC and the Massachusetts Mutual Life Insurance Company, dated August 18, 2021. (29)
10.5(c)
Amendment No. 1 to Note and Warrant Purchase Agreement, dated January 31, 2022, between ACRES Commercial Realty Corp. and the Purchasers signatory thereto. (34)
10.6
Promissory Note, dated as of July 31, 2020, issued by ACRES Capital Corp. to RCC Real Estate, Inc. (16)
10.7(a)
Manager Incentive Plan. (23)
10.7(b)
Form of Stock Award Agreement Under the Manager Incentive Plan. (26)
10.8
Equity Distribution Agreement, dated October 4, 2021, by and among ACRES Commercial Realty Corp., ACRES Capital, LLC and JonesTrading Institutional Services LLC. (31)
10.9(a)
Building Loan Agreement, dated as of January 24, 2023 between Chapel Drive East, LLC and Oceanview Life and Annuity Company. (42)
10.9(b)
Guaranty Agreement executed January 24, 2023 by Jason Pollack, Frank Dellaglio and ACRES Realty Funding, Inc. for the benefit of Oceanview Life and Annuity Company. (39)
10.9(c)
Completion Guaranty Agreement executed January 24, 2023 by Jason Pollack, Frank Dellaglio and ACRES Realty Funding, Inc. for the benefit of Oceanview Life and Annuity Company. (39)
10.9(d)
Carry Guaranty Agreement executed January 24, 2023 by Jason Pollack, Frank Dellaglio and ACRES Realty Funding, Inc. for the benefit of Oceanview Life and Annuity Company. (39)
10.9(e)
Environmental Indemnity Agreement executed January 24, 2023 by Jason Pollack, Frank Dellaglio and ACRES Realty Funding, Inc. in favor of Oceanview Life and Annuity Company. (39)
16.1(a)
Letter from Grant Thornton LLP dated April 26, 2024. (46)
16.1(b)
Letter from Grant Thornton LLP dated May 8, 2024 (47)
31.1
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
31.2
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.
Certification Pursuant to 18 U.S.C. Section 1350.
32.2
97.1
Policy for the Recovery of Erroneously Awarded Compensation. (45)
99.1(a)
Master Repurchase Agreement for $250,000,000 between RCC Real Estate SPE 8, LLC, as Seller, and JPMorgan Chase Bank, National Association, as Buyer, dated October 26, 2018. (13)
99.1(b)
First Amendment to Uncommitted Master Repurchase Agreement dated as of August 14, 2020 between RCC Real Estate SPE 8, LLC and JPMorgan Chase Bank, National Association. (20)
99.1(c)
Amendment No. 2 to Master Repurchase Agreement, dated September 1, 2021 between RCC Real Estate SPE 8, LLC and JPMorgan Chase Bank, National Association. (30)
81
99.1(d)
Amendment No. 3 to Master Repurchase Agreement and Guarantee Agreement, dated October 26, 2021 between RCC Real Estate SPE 8, LLC, JPMorgan Chase Bank, National Association and ACRES Commercial Realty Corp., as guarantor (32)
99.1(e)
Amendment No. 4 to Master Repurchase Agreement, dated July 21, 2023, between RCC Real Estate SPE 8, LLC and JPMorgan Chase Bank, National Association. (43)
99.1(f)
Guarantee made by Exantas Capital Corp., as guarantor, in favor of JPMorgan Chase Bank, National Association, dated October 26, 2018. (13)
99.1(g)
First Amendment to Guarantee Agreement, dated May 6, 2020, between Exantas Capital Corp. and JPMorgan Chase Bank, National Association. (15)
99.1(h)
Amendment No. 2 To Guarantee Agreement, dated October 2, 2020 between Exantas Capital Corp. and JPMorgan Chase Bank, National Association. (19)
99.1(i)
Amendment No. 4 To Guarantee Agreement, dated November 17, 2022 between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. (41)
99.1(j)
Amendment No. 5 to Guarantee Agreement, dated July 21, 2023, between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. (43)
99.2(a)
Master Repurchase and Securities Contract Agreement between ACRES Real Estate SPE 10, LLC, as Seller, and Morgan Stanley Mortgage Capital Holdings LLC, as Administrative Agent, dated November 3, 2021. (33)
99.2(b)
First Amendment to Master Repurchase and Securities Contract Agreement, dated January 28, 2022, between ACRES Real Estate SPE 10, LLC and Morgan Stanley Mortgage Capital Holdings LLC, as Administrative Agent. (34)
99.2(c)
Guaranty made by ACRES Commercial Realty Corp., as Guarantor, in favor of Morgan Stanley Mortgage Capital Holdings LLC, dated November 3, 2021. (33)
99.2(d)
Amendment No. 1 to Guaranty, dated November 18, 2022 between ACRES Commercial Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC. (41)
99.2(e)
Amendment No. 2 to Guaranty, dated November 3, 2023 between ACRES Commercial Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC. (44)
99.2(f)
Amendment No. 3 to Guaranty, dated November 1, 2024 between ACRES Commercial Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC.
99.3
Material Federal Income Tax Considerations. (45)
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document With Embedded Linkbase Documents.
104
Cover Page Interactive Data File.
(1)
Filed previously as an exhibit to the Company’s Registration Statement on Form S-11, Registration No. 333-126517.
(2)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.
(3)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
(4)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.
(5)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 26, 2014.
(6)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
(7)
Filed previously as an exhibit to the Company’s Registration Statement on Form 8-A filed on June 9, 2014.
(8)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.
(9)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 1, 2015.
(10)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 8, 2017.
(11)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
(12)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on May 25, 2018.
(13)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 30, 2018.
(14)
Filed previously as an exhibit to the Company’s Proxy Statement filed on April 18, 2019.
(15)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
(16)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 3, 2020.
(17)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.
(18)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 22, 2020.
(19)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 7, 2020.
(20)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.
(21)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on February 18, 2021.
(22)
Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
(23)
Filed previously as an exhibit to the Company’s Proxy Statement filed on April 12, 2021.
(24)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on May 21, 2021.
(25)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 1, 2021.
(26)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 9, 2021.
(27)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.
(28)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 17, 2021.
(29)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 20, 2021.
(30)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 2, 2021.
(31)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 7, 2021.
(32)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 29, 2021.
(33)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.
(34)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on February 3, 2022.
(35)
Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
(36)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
(37)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on July 27, 2022.
(38)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 30, 2022.
(39)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on January 25, 2023.
(40)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on December 22, 2022.
(41)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on November 18, 2022.
(42)
Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
(43)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on July 25, 2023.
(44)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
(45)
Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
(46)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on April 26, 2024.
(47)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K/A filed on May 8, 2024.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
November 6, 2024
By:
/s/ Mark Fogel
Mark Fogel
President & Chief Executive Officer
/s/ Eldron C. Blackwell
Eldron C. Blackwell
Senior Vice President
Chief Financial Officer and Treasurer
/s/ Linda M. Kilpatrick
Linda M. Kilpatrick
Vice President
Chief Accounting Officer and Controller