ACRES Commercial Realty swings to $47.9M Q3 loss
Reported assets include the Consolidated Fund, in which ACR had a 13.38% indirect economic interest at September 30, 2026.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Rhea-AI Filing Summary
ACRES Commercial Realty Corp. (ACR) reported third-quarter 2026 revenue of $24.222 million, compared with $21.037 million a year earlier, and a net loss of $47.897 million, versus net income of $18.047 million. Net loss allocable to common shares was $56.326 million, compared with net income of $9.782 million. Merger and internalization costs were $38.282 million for the quarter.
On August 6, 2026, ACR completed its acquisition of ACRES Capital Corp. and internalized management, issuing 7,478,462 common shares as merger consideration. The existing management agreement was terminated for no additional consideration. Nine-month operating cash use was $30.880 million, versus $2.214 million in 2025.
At September 30, 2026, the consolidated balance sheet reported $4,565.913 million in assets and $3,375.404 million in liabilities. Those statements include the Consolidated Fund, in which ACR had a 13.38% indirect economic interest. CRE loans, net, were $2,110.003 million at September 30, 2026.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Major pointManagement internalization completed August 6, 2026; consideration included 7,478,462 common shares.
- Moderate pointThird-quarter revenue was $24.222 million, versus $21.037 million a year earlier.
Negative
- Major pointThird-quarter net loss: $47.897 million, versus $18.047 million net income.
- Moderate pointNine-month operating cash use was $30.880 million, versus $2.214 million in 2025.
- Minor pointMerger and internalization costs totaled $38.282 million for the third quarter.
Filing Explained
At
Key Figures
Key Terms
variable interest entities financial
acquisition method of accounting financial
valuation allowance financial
non-controlling interests financial
internalization financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What were ACR's third-quarter 2026 revenue and net income?
What exchange ratio applied in the ACR merger?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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incorporation or organization) |
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Identification No.) |
(Address of principal executive offices) (Zip Code) |
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Registrant’s telephone number, including area code: |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class |
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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.
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).
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 |
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Non-accelerated filer |
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Smaller reporting company |
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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
The number of outstanding shares of the registrant’s common stock on November 5, 2026 was
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
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PAGE |
PART I |
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3 |
Item 1: |
Financial Statements |
3 |
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Consolidated Balance Sheets – September 30, 2026 (unaudited) and December 31, 2025 |
3 |
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Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2026 and 2025 |
5 |
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Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the Three and Nine Months Ended September 30, 2026 and 2025 |
6 |
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Consolidated Statements of Changes in Equity (unaudited) for the Three Months Ended March 31, 2026 and 2025, June 30, 2026 and 2025 and September 30, 2026 and 2025 |
7 |
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Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2026 and 2025 |
9 |
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Notes to Consolidated Financial Statements – September 30, 2026 (unaudited) |
10 |
Item 2: |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
55 |
Item 3: |
Quantitative and Qualitative Disclosures About Market Risk |
94 |
Item 4: |
Controls and Procedures |
97 |
PART II |
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98 |
Item 1: |
Legal Proceedings |
98 |
Item 1A: |
Risk Factors |
98 |
Item 2: |
Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
103 |
Item 5: |
Other Information |
103 |
Item 6: |
Exhibits |
104 |
SIGNATURES |
110 |
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(Back to Index)
(Back to Index)
PART I
ITEM 1. FINANCIAL STATEMENTS
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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September 30, 2026 |
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December 31, 2025 |
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(unaudited) |
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ASSETS (1) |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accrued interest receivable |
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CRE loans |
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Less: allowance for credit losses |
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CRE loans, net |
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Investments in unconsolidated entities |
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Properties held for sale |
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Investments in real estate, net |
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Right of use assets |
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Intangible assets |
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Goodwill |
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Other assets |
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Assets of Consolidated Fund: |
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Investments, at fair value |
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Cash and cash equivalents |
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Restricted cash |
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— |
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Accrued interest, servicing receivables and other assets |
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— |
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Total assets |
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$ |
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$ |
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LIABILITIES (2) |
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Accounts payable and other liabilities |
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$ |
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$ |
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Accrued interest payable |
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Borrowings, net |
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Lease liabilities |
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Distributions payable |
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Accrued tax liability |
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Liabilities held for sale |
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Liabilities of Consolidated Fund: |
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Borrowings |
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— |
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Accrued interest, accounts payable and other liabilities |
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— |
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Total liabilities |
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EQUITY |
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Preferred stock, par value $ |
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Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Distributions in excess of earnings |
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Total stockholders’ equity |
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Non-controlling interests |
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Total equity |
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TOTAL LIABILITIES AND EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these statements
(Back to Index)
3
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)
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September 30, 2026 |
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December 31, 2025(3) |
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(unaudited) |
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(1) Assets of consolidated variable interest entities ("VIEs") included in total assets above: |
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Restricted cash |
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$ |
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$ |
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Accrued interest receivable |
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CRE loans, pledged as collateral (4) |
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Assets of Consolidated Fund: |
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Investments, at fair value |
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Cash and cash equivalents |
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Restricted cash |
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Accrued interest, servicing receivables and other assets |
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Total assets of consolidated VIEs |
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$ |
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$ |
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(2) Liabilities of consolidated VIEs included in total liabilities above: |
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Accounts payable and other liabilities |
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$ |
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$ |
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Accrued interest payable |
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Borrowings |
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Liabilities of Consolidated Fund: |
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Borrowings |
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Accrued interest, accounts payable and other liabilities |
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Total liabilities of consolidated VIEs |
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$ |
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$ |
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The accompanying notes are an integral part of these statements
(Back to Index)
4
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2026 |
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2025 |
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2026 |
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2025 |
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REVENUES |
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Interest income: |
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CRE loans |
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$ |
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$ |
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$ |
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$ |
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Other |
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Total interest income |
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Interest expense |
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Net interest income |
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Real estate income: |
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Hospitality |
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Rental |
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Total real estate income |
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Fee and other income |
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Other revenue |
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Total revenues |
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OPERATING EXPENSES |
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General and administrative |
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Compensation and benefits |
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Real estate expenses |
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Hospitality |
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Rental |
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Total Real estate expenses |
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Management fees - related party |
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Equity compensation |
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Merger and internalization costs |
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Corporate interest expense |
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||||
Provision for (reversal of) credit losses, net |
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( |
) |
|
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( |
) |
||
Total operating expenses |
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|
||||
|
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( |
) |
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( |
) |
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||
OTHER INCOME (EXPENSE) |
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Equity in earnings (losses) of unconsolidated subsidiaries |
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( |
) |
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( |
) |
||
Gain on sale of investment in real estate |
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Net realized and unrealized gains on investments of Consolidated Fund |
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( |
) |
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( |
) |
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Interest income of Consolidated Fund |
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||||
Interest expense of Consolidated Fund |
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( |
) |
|
|
|
|
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( |
) |
|
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|
||
Expenses of the Consolidated Fund |
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( |
) |
|
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( |
) |
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Other income (expense) |
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( |
) |
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( |
) |
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Total other income (expense) |
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INCOME (LOSS) BEFORE TAXES |
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( |
) |
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( |
) |
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Income tax expense |
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( |
) |
|
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( |
) |
|
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( |
) |
|
NET INCOME (LOSS) |
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( |
) |
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( |
) |
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Net income allocated to preferred shares |
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( |
) |
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( |
) |
|
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( |
) |
|
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( |
) |
Net income allocable to non-controlling interests, net of taxes |
|
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( |
) |
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( |
) |
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( |
) |
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( |
) |
NET INCOME (LOSS) ALLOCABLE TO COMMON SHARES |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
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NET INCOME (LOSS) PER COMMON SHARE - BASIC |
|
$ |
( |
) |
|
$ |
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|
$ |
( |
) |
|
$ |
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||
NET INCOME (LOSS) PER COMMON SHARE - DILUTED |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC |
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED |
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The accompanying notes are an integral part of these statements
(Back to Index)
5
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
|
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2026 |
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2025 |
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2026 |
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2025 |
|
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Net income (loss) |
|
$ |
( |
) |
|
$ |
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|
$ |
( |
) |
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$ |
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Other comprehensive income (loss): |
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Reclassification adjustments associated with net unrealized losses from interest rate swaps included in interest expense |
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Total other comprehensive income |
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Comprehensive income (loss) before allocation to preferred shares |
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( |
) |
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( |
) |
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Net income allocated to non-controlling interests |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
Net income allocated to preferred shares |
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( |
) |
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( |
) |
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|
( |
) |
|
|
( |
) |
Comprehensive income (loss) allocable to common shares |
|
$ |
( |
) |
|
$ |
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|
$ |
( |
) |
|
$ |
|
||
The accompanying notes are an integral part of these statements
(Back to Index)
6
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except share data)
(unaudited)
|
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Common Stock |
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Shares |
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Amount |
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Series C Preferred Stock |
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Series D Preferred Stock |
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Additional Paid-In Capital |
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Accumulated Other Comprehensive Loss |
|
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Retained Earnings (Distributions in Excess of Earnings) |
|
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Total Stockholders’ Equity |
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Non-Controlling Interest |
|
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Total Equity |
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Balance, December 31, 2025 |
|
|
|
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$ |
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|
$ |
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|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Stock-based compensation |
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— |
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|
— |
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|
— |
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— |
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— |
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— |
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|
— |
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— |
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|
— |
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|
Amortization of stock-based compensation |
|
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— |
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Contributions from non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Distributions and accrual of cumulative preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amortization of terminated derivatives |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance, March 31, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amortization of stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Contributions from non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Distributions and accrual of cumulative preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amortization of terminated derivatives |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance, June 30, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Consideration for the Merger |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Proceeds from preferred stock offerings, net of offering costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Amortization of stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Purchase and retirement of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net redemptions of non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Non-controlling interest acquired as part of the Merger |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Distributions and accrual of cumulative preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amortization of terminated derivatives |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance, September 30, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
The accompanying notes are an integral part of these statements
(Back to Index)
7
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - (Continued)
(in thousands, except share data)
(unaudited)
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
|
Shares |
|
|
|
Amount |
|
|
|
Series C Preferred Stock |
|
|
|
Series D Preferred Stock |
|
|
|
Additional Paid-In Capital |
|
|
|
Accumulated Other Comprehensive Loss |
|
|
|
Retained Earnings (Distributions in Excess of Earnings) |
|
|
|
Total Stockholders’ Equity |
|
|
|
Non-Controlling Interest |
|
|
|
Total Equity |
|
|||||||||||||||||||
Balance, December 31, 2024 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
$ |
( |
) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||||||||||||||||
Purchase and retirement of common stock |
|
|
( |
) |
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
|||||||||
Amortization of stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||||||||
Net loss |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
|||||||||
Distributions and accrual of cumulative preferred stock dividends |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
|||||||||
Amortization of terminated derivatives |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||||||||
Balance, March 31, 2025 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
$ |
( |
) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||||||||||||||||
Purchase and retirement of common stock |
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
|||||||||
Amortization of stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||||||||
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
||||||||||||
Distributions and accrual of cumulative preferred stock dividends |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
|||||||||
Amortization of terminated derivatives |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||||||||
Balance, June 30, 2025 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
$ |
( |
) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||||||||||||||||
Exercise of warrants at $ |
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
||||||||||
Purchase and retirement of common stock |
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
|||||||||
Amortization of stock-based compensation |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||||||||
Distributions to non-controlling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Distributions and accrual of cumulative preferred stock dividends |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
— |
|
|
|
|
( |
) |
|||||||||
Amortization of terminated derivatives |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
||||||||||||
Balance, September 30, 2025 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
$ |
( |
) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||||||||||||||||
The accompanying notes are an integral part of these statements
(Back to Index)
8
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
|
|
For the Nine Months Ended September 30, |
|||||||
|
|
2026 |
|
|
2025 |
|
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
||
Provision for (reversal of) credit losses, net |
|
|
|
|
|
( |
) |
|
|
Depreciation, amortization and accretion |
|
|
|
|
|
|
|
||
Amortization of stock-based compensation |
|
|
|
|
|
|
|
||
Gain on sale of investment in real estate |
|
|
( |
) |
|
|
( |
) |
|
Equity in (earnings) losses of unconsolidated subsidiaries |
|
|
( |
) |
|
|
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities of the Consolidated Fund: |
|
|
|
|
|
|
|
||
Net change in unrealized gains on investments |
|
|
|
|
|
|
|
||
Purchase and funding of loan notes, participations and equity interests |
|
|
( |
) |
|
|
|
|
|
Sales proceeds and principal payments received on loan notes and participations |
|
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
|
||
Deferred fees |
|
|
|
|
|
|
|
||
Amortization of deferred fees |
|
|
( |
) |
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
( |
) |
|
|
( |
) |
|
Changes in operating assets and liabilities of the Consolidated Fund |
|
|
( |
) |
|
|
|
|
|
Net cash (used in) operating activities |
|
|
( |
) |
|
|
( |
) |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
||
Principal fundings of CRE loans |
|
|
( |
) |
|
|
( |
) |
|
Principal payments received on CRE loans |
|
|
|
|
|
|
|
||
Proceeds from sale of CRE loans |
|
|
|
|
|
|
|
||
Investments in real estate |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of investments in real estate |
|
|
|
|
|
|
|
||
Investments in unconsolidated entities |
|
|
( |
) |
|
|
( |
) |
|
Purchases of furniture and fixtures |
|
|
|
|
|
( |
) |
|
|
Principal payments received on loan - due from Manager |
|
|
|
|
|
|
|
||
Net cash acquired in Merger |
|
|
|
|
|
|
|
||
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
||
Repurchase of common stock |
|
|
|
|
|
( |
) |
|
|
Proceeds from preferred stock offerings, net of offering costs |
|
|
|
|
|
— |
|
|
|
Proceeds from borrowings: |
|
|
|
|
|
|
|
||
Securitizations |
|
|
|
|
|
|
|
||
Senior secured financing facility |
|
|
|
|
|
|
|
||
CRE - term warehouse financing facilities |
|
|
|
|
|
|
|
||
CRE - term reinvestment financing facility |
|
|
|
|
|
|
|
||
8.625% Senior Secured Notes Due 2031 |
|
|
|
|
|
|
|
||
Mortgages payable |
|
|
|
|
|
|
|
||
Payments on borrowings: |
|
|
|
|
|
|
|
||
Securitizations |
|
|
|
|
|
( |
) |
|
|
Senior secured financing facility |
|
|
( |
) |
|
|
|
|
|
CRE - term warehouse financing facilities |
|
|
( |
) |
|
|
( |
) |
|
Mortgages payable |
|
|
( |
) |
|
|
( |
) |
|
5.75% Senior Unsecured Notes Due 2026 |
|
|
( |
) |
|
|
|
|
|
CRE - term reinvestment financing facility |
|
|
( |
) |
|
|
( |
) |
|
Payment of debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Distributions to non-controlling interests |
|
|
— |
|
|
|
( |
) |
|
Contributions from non-controlling interests |
|
|
|
|
|
|
|
||
Distributions paid on preferred stock |
|
|
( |
) |
|
|
( |
) |
|
Financing activities of the Consolidated Fund: |
|
|
|
|
|
|
|
||
Contributions from non-controlling interests in Consolidated Fund |
|
|
|
|
|
— |
|
|
|
Distributions to non-controlling interests in Consolidated Fund |
|
|
( |
) |
|
|
— |
|
|
Borrowings under loan obligations by Consolidated Fund |
|
|
|
|
|
— |
|
|
|
Repayments under loan obligations by Consolidated Fund |
|
|
( |
) |
|
|
— |
|
|
Payment of debt acquisition costs by Consolidated Fund |
|
|
( |
) |
|
|
— |
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
( |
) |
|
|
( |
) |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
$ |
|
|
$ |
|
|
||
The accompanying notes are an integral part of these statements
(Back to Index)
9
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(unaudited)
NOTE 1 - ORGANIZATION
ACRES Commercial Realty Corp., a Maryland corporation, along with its subsidiaries (collectively, the "Company"), is a real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate ("CRE") mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. Prior to August 6, 2026, the Company was externally managed by ACRES Capital, LLC ("the Manager"), a subsidiary of ACRES Capital Corp. ("ACC"). Effective as of August 6, 2026, the Company completed the merger and internalization with ACC, as further discussed below in Note 2, and the management agreement was terminated at that time.
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 investments in ACRES Realty Funding, Inc. ("ACRES RF"), a wholly-owned subsidiary, that holds CRE loans and CRE-related securities as well as special purpose subsidiaries established for securitization purposes, which are consolidated as variable interest entities ("VIEs") as discussed in Note 4.
Post merger, the Company provides investment management servicing through the Company's taxable REIT subsidiary, ACRES Capital, LLC, that is registered with the Securities and Exchange Commission as an investment adviser. ACRES Capital, LLC serves as the investment manager of ACRES Mortgage Fund, Ltd. ("AMF"), an exempted company under the laws of the Cayman Islands formed for the purpose of investing in CRE mortgage loans, as well as third-party separately managed accounts.
The Company consolidates AMF in the accompanying financial statements (the "Consolidated Fund"). Including the results of the Consolidated Fund significantly increases the reported amounts of the assets, liabilities, revenues, expenses and cash flows within the accompanying consolidated financial statements. Net income attributable to the Company includes only its proportionate share of the Consolidated Fund’s results, which reflects the Company’s
NOTE 2 - MERGER OF ACRES CAPITAL CORP. AND INTERNALIZATION OF MANAGEMENT
Overview of the Transaction
On August 6, 2026 (the "Merger Effective Time"), the Company completed the Merger (as defined below) and Internalization (as defined below) transactions pursuant to the terms of the Agreement and Plan of Merger, dated April 29, 2026, by and among the Company and ACRES Holdings Sub LLC ("Merger Sub"), a subsidiary of the Company, on the one hand, and ACC and ACRES Capital LLC, a subsidiary of ACC and the former external manager of the Company (the "Manager"), on the other hand.
The Company completed the Merger to internalize its management platform, align the interests of management and stockholders, eliminate future external management fees and related-party reimbursements, and provide the Company with direct control over personnel, infrastructure and operating capabilities used to manage its commercial real estate investment activities. Along with the Manager's CRE lending platform, the Merger provides the Company with increased third-party fee income earned from an evergreen fund vehicle, separately managed accounts and a growing insurance platform that will enhance Company’s financial profile. The Company obtained control of ACC upon the closing of the Merger through the acquisition of
At the Merger Effective Time, pursuant to the terms of the Merger Agreement, ACC merged with and into Merger Sub, with Merger Sub continuing as the surviving company and a wholly-owned subsidiary of the Company (the "Merger"). A special committee (the "Special Committee") of the Company’s board of directors (the "Board") consisting solely of independent directors considered, reviewed and negotiated the terms of the Merger and Internalization on behalf of the Board.
As a result of the Merger, among other things, (i) the Company acquired the Manager, (ii) the Manager ceased to perform any outside management services for the Company, (iii) the Company and the Manager terminated the existing Fourth Amended and
(Back to Index)
10
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Restated Management Agreement, dated as of July 31, 2020, as amended, by and among the Company, the Manager and ACC (the "Management Agreement"), for no additional consideration, and (iv) the Company became internally managed (the "Internalization").
At the Merger Effective Time, each outstanding share of ACC common stock, par value $
The Company accounted for the Merger as a business combination using the acquisition method of accounting. Accordingly, the identifiable assets acquired and liabilities assumed of ACC were recognized at their estimated acquisition-date fair values, with the excess of the consideration transferred over the estimated fair value of identifiable net assets acquired recognized as goodwill. The results of operations of ACC have been included in the Company’s unaudited condensed consolidated financial statements beginning on August 6, 2026.
Fair Value of Consideration Transferred
The following table presents the fair value of the consideration transferred to effect the Merger (in thousands, except share and per share data):
Outstanding shares of ACC Common Stock |
|
|
|
Exchange ratio |
|
|
|
Shares of ACR Common Stock issued |
|
|
|
Closing price of ACR Common Stock on August 6, 2026 |
$ |
|
|
Fair value of ACR Common Stock to be issued to the former holders of ACC Common Stock |
|
|
|
Settlement of preexisting relationships (1) |
|
|
|
Purchase of non-controlling interest |
|
( |
) |
Purchase of ACR’s shares held by ACC prior to the close of transaction ( |
|
( |
) |
Less fair value of ACC stock options attributable to post-combination costs (2) |
|
( |
) |
Total consideration transferred |
$ |
|
Purchase Price Allocation
The Merger and Internalization were conditioned upon each other and accordingly are considered “related” and treated as a single transaction for accounting and reporting purposes. The Merger is accounted for under the acquisition method for business combinations pursuant to GAAP, with the Company as the accounting acquirer of ACC. The consideration transferred by the Company in the Merger establishes a new accounting basis for the assets acquired, liabilities assumed and any non-controlling interests, measured at their respective fair value as of the Merger Effective Time. To the extent fair value of the consideration paid exceeds fair value of net assets acquired, any such excess represents goodwill. Adjustments to estimated fair value of identifiable assets and liabilities acquired in the Merger, as well as adjustments to the consideration paid may change the determination and amount of goodwill and may impact depreciation, amortization and accretion based on revised fair value of assets acquired and liabilities assumed.
(Back to Index)
11
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The following table summarizes the provisional recording of the assets acquired and liabilities assumed as of the Merger Effective Time (in thousands):
|
|
Amount |
|
|
Total preliminary purchase price |
|
$ |
|
|
Assets: |
|
|
|
|
Cash and cash equivalents and restricted cash |
|
$ |
|
|
Right of use assets |
|
|
|
|
Accounts receivable |
|
|
|
|
Other assets |
|
|
|
|
Assets of the Consolidated fund: |
|
|
|
|
Investments, at fair value |
|
|
|
|
Cash and cash equivalents and restricted cash |
|
|
|
|
Accrued interest, servicing receivables and other assets |
|
|
|
|
Total assets acquired |
|
$ |
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Borrowings |
|
$ |
|
|
Lease intangible liabilities |
|
|
|
|
Accounts payable, distribution payable and other liabilities |
|
|
|
|
Liabilities of the Consolidated fund: |
|
|
|
|
Borrowings |
|
|
|
|
Accrued interest, accounts payable and other liabilities |
|
|
|
|
Total liabilities assumed |
|
$ |
|
|
|
|
|
|
|
Equity: |
|
|
|
|
Non-controlling interest |
|
|
|
|
Total liabilities and equity assumed |
|
$ |
|
|
|
|
|
|
|
Preliminary fair value of net liabilities acquired |
|
$ |
( |
) |
Goodwill |
|
$ |
|
|
|
|
|
|
|
Goodwill
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Specifically, the goodwill recorded as part of the Merger includes the expected synergies and other benefits that the Company believes will result from the Internalization. Goodwill is not amortized and the Company has allocated the goodwill to its segments.
Pro Forma Impact of Acquisition
The following table presents unaudited supplemental pro forma information as if the Merger had occurred on January 1, 2025 for the three and nine months ended September 30, 2026 and 2025 (in thousands). The unaudited supplemental pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming the Merger had taken place on January 1, 2025, nor is it indicative of the results of operations for future periods.
(Back to Index)
12
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Total revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net income (loss) allocable to common shares |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Net income (loss) per common share - basic |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Net income (loss) per common share - diluted |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Our consolidated results of operations for both the three and nine months ended September 30, 2026 include $
Other Details
In addition, various other impacts to the Company’s financial statements occurred in connection with the Merger, which are discussed throughout these financial statements, including:
Merger and Internalization Costs
In conjunction with the Merger, the Company incurred $
NOTE 3 - 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 state the Company’s financial position, results of operations and cash flows. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
Certain prior period presentations were reclassified to ensure comparability with current period classifications.
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.
(Back to Index)
13
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
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, 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. From time to time, the Company may have bank balances in excess of federally insured amounts; however, the Company deposits its cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure.
Restricted cash includes required account balance minimums in the Company's various escrow and deposit accounts and the Company's consolidated CRE debt securitization has an expense reserve and reinvestment cash that is collateral to the senior notes.
The following table provides a reconciliation of cash, cash equivalents and restricted cash for the Consolidated Company Entities on the consolidated balance sheets to the total amount shown on the consolidated statements of cash flows (in thousands):
|
|
September 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Consolidated Fund; Cash and cash equivalents (1) |
|
|
|
|
|
— |
|
|
Consolidated Fund; Restricted cash (1) |
|
|
|
|
|
— |
|
|
Total cash, cash equivalents and restricted cash shown on the Company’s consolidated statements of cash flows |
|
$ |
|
|
$ |
|
||
(1) The Consolidated Fund's cash balances are included in the changes in operating assets and liabilities of the Consolidated Fund on the statement of cash flows.
Income Taxes
The Company previously recorded a full valuation allowance against its net deferred tax assets (tax effected expense of $
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.
Income Earned from Fee-Based Services
Income from fee-based services includes asset management fees, development fees, servicing fees, and incentive fees and is included in fee and other income on the consolidated statements of operations. Incentive fees are earned when specified financial hurdles are met for certain separately managed accounts. Revenues from fee-based services that the Company provides are recognized as earned over time in accordance with contractual agreements. The services the Company provides represent performance obligations that are satisfied over time.
(Back to Index)
14
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Accounting for Investment Company Activities
The Company’s Consolidated Fund is an investment company under GAAP based on the following characteristics: the Consolidated Fund obtains funds from one or more investors and the Consolidated Fund’s business purpose and substantive activities are investing funds for returns from investment income. Therefore, investments of the Consolidated Fund are recorded at fair value and the unrealized gain (loss) in an investment’s fair value is recognized on a current basis within the consolidated statements of operations. In the preparation of these consolidated financial statements, the Company has retained the investment company accounting for the Consolidated Fund under GAAP.
All of the investments held by the Consolidated Fund are presented at their estimated fair values within the Company’s consolidated balance sheets. Net income attributable to the economic ownership interest of the third-party investors in the Consolidated Fund are presented within net income attributable to non-controlling interest in Consolidated Fund within the consolidated statements of operations.
Goodwill
Goodwill represents the costs of business acquisitions in excess of the fair value of identifiable net assets acquired. The Company evaluates the recoverability of goodwill annually on the first day of the Company’s fiscal fourth quarter of each fiscal year, or more frequently, if events or changes in circumstances indicate that goodwill might be impaired. If the Company’s review indicates that the carrying amount of goodwill exceeds its fair value, the Company will reduce the carrying amount of goodwill to fair value. The annual impairment test will be performed as of October 1st each year. While we have not yet completed this analysis for 2026, we do
Recent Accounting Pronouncements
Accounting Standards to be Adopted in Future Periods
In November 2024, the Financial Accounting Standards Board ("FASB") issued guidance to improve transparency on certain costs and expenses. This guidance is effective for fiscal years beginning after December 15, 2026 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.
NOTE 4 - 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 variable interest entities ("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
ACR 2026-FL4 is a CRE securitization that was 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 the VIE was made at the VIE’s inception and is continually assessed. ACR 2026-FL4 is accounted for as a secured borrowing in accordance with GAAP.
(Back to Index)
15
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The Company has exposure to losses on its securitization to the extent of its investments in the subordinated debt and preferred equity of the 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 securitization, distributions with respect to its preferred equity interests. As a result of consolidation, the debt and equity interests the Company holds in its securitization have been eliminated; and the Company’s consolidated balance sheets reflect the assets held, debt issued by the securitization 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 securitization’s assets and liabilities as opposed to the Company’s net economic interests in the securitization. Assets and liabilities related to the securitization are disclosed, in the aggregate, on the Company’s consolidated balance sheets. For a discussion of the debt issued through the securitization, see Note 12.
AMF is considered and treated as a VIE because the investors of AMF, who are unaffiliated with the Company, do not have substantive rights to impact the ongoing governance and operating activities of AMF, including the ability to remove the Company as the investment manager without cause. The Company concluded its interest in AMF represented a potentially significant economic interest and the Company represented the primary beneficiary of AMF. As a result, the Company consolidated AMF as of September 30, 2026. As of September 30, 2026, the Company owns
Creditors of the Company’s Consolidated VIEs have
CS-ACRES FSU Student Venture, LLC
In April 2022, the Company contributed an initial investment of $
In September 2025, the Company distributed one of the underlying properties held by FSU Student Venture to a newly formed joint venture, CS-ACRES Osceola Student Joint Venture, LLC (the "FSU Osceola Student Venture"). See additional details below. Subsequent to this distribution, the Company sold its interest in the FSU Student Venture for $
As part of the transaction, the Company provided seller financing in the form of a $
CS-ACRES Osceola Student Joint Venture, LLC
In September 2025, the FSU Student Venture distributed one of its underlying properties to the FSU Osceola Student Venture at a carrying value of $
(Back to Index)
16
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
ACRES SPE 2025-1, LLC
ACRES SPE 2025-1, LLC ("SPE 2025-1") was formed in March 2025, to acquire and finance purchased assets. Subsequently, SPE 2025-1 entered into a master repurchase agreement with JPMorgan Chase ("JPMorgan Chase 2025 Facility") to finance existing vintage CRE loans and to potentially finance the origination of new CRE loans held by the Company. In the quarter ended December 31, 2025, ACRES Mortgage Fund Levered II, LLC ("AMF Levered II, LLC"), a wholly-owned subsidiary of AMF, purchased a $
Investments in Unconsolidated Entities (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 VIEs' economic performance and (ii) the obligation to absorb the losses of the VIEs or the right to receive the benefits from the VIEs, which could be significant to the VIEs. Accordingly, the following VIEs are not consolidated in the Company’s financial statements at September 30, 2026 and December 31, 2025. 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.
Unsecured Junior Subordinated Debentures
The Company has a
The Company records its investments in RCT I and RCT II’s common shares of $
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 (the "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 $
In September 2025, the Wacker JV completed a re-capitalization that included entering into a $
(Back to Index)
17
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
7720 McCallum JV, LLC
In September 2024, the Company contributed $
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 $
Pacmulti Affiliates, LLC
In March 2025, the Company contributed $
Upon formation of the Pacmulti JV, the Pacmulti JV took ownership of the multifamily property subject to a related CRE loan payable to the Company which was novated to allow the Pacmulti JV to replace the original obligor who was experiencing financial difficulty. The $
ACRES SPV LLC
ACRES SPV LLC, was a wholly-owned subsidiary of ACC and merged into the Company as part of the Merger discussed in Note 2. The Company completed a qualitative analysis to determine whether it is the primary beneficiary of ACRES SPV LLC, and determined that it was not the primary beneficiary as of September 30, 2026. ACRES SPV LLC is considered and treated as a VIE due to a lack of sufficient equity. The Company (including related parties) is not deemed to be the primary beneficiary of the VIE as the Company does not have the power to direct the activities most significant to ACRES SPV LLC which include the management of current investments and operating activity. Accordingly, ACRES SPV LLC is not consolidated into the Company’s consolidated financial statements as of September 30, 2026. The Company has no investment at risk as of September 30, 2026.
(Back to Index)
18
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The following table shows the classification, carrying value and maximum exposure to loss with respect to the Company’s unconsolidated VIEs at September 30, 2026 (in thousands):
|
|
Unsecured Junior Subordinated Debentures |
|
|
65 E Wacker Joint Venture, LLC |
|
|
7720 McCallum JV, LLC |
|
|
Pacmulti Affiliates, LLC |
|
|
FSU Preferred Equity Loan |
|
|
ACRES SPV LLC |
|
|
Total |
|
|
Maximum Exposure to Loss (1) |
|
||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Accrued interest receivable |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
CRE loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Investments in unconsolidated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Accrued interest payable |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
N/A |
|
|||
Borrowings |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
N/A |
|
|||
Total liabilities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Net (liability) asset |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
||||||
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes the Company’s supplemental disclosure of cash flow information (in thousands):
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Supplemental cash flows: |
|
|
|
|
|
|
||
Interest expense paid in cash |
|
$ |
|
|
$ |
|
||
Income taxes paid in cash |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Non-cash financing activities include the following: |
|
|
|
|
|
|
||
Distributions on preferred stock accrued but not paid |
|
$ |
|
|
$ |
|
||
Non-cash financing of Merger and Internalization |
|
|
|
|
|
|
||
Cashless exercise of warrants |
|
|
|
|
|
|
||
(Back to Index)
19
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
NOTE 6 - 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, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Whole loans (5)(6)(7) |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
1M Term SOFR to 1M Term SOFR + |
|
October 2026 to May 2030 |
||||
Preferred equity investment (see Note 4) (8) |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
October 2028 |
||||
Total |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Whole loans (5)(6)(7) |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
1M Term SOFR + |
|
January 2026 to May 2030 |
||||
Preferred equity investment (see Note 4) (8) |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
October 2028 |
||||
Total |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|||
(Back to Index)
20
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The following is a summary of the Company’s CRE loans held for investment by property type and geographic location (dollars in thousands):
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||
Property Type |
|
Carrying Value |
|
|
% of Loan Portfolio |
|
|
Carrying Value |
|
|
% of Loan Portfolio |
|
||||
Multifamily |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Office |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Hotel |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Mixed-Use |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Self-Storage |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
(Back to Index)
21
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||
Geographic Location |
|
Carrying Value |
|
|
% of Loan Portfolio |
|
|
Carrying Value |
|
|
% of Loan Portfolio |
|
||||
Southeast |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Southwest |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Northeast |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
East North Central |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Mountain |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Mid Atlantic |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Pacific |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
West North Central |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
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):
Description |
|
2026 |
|
|
2027 |
|
|
2028 and Thereafter |
|
|
Total |
|
||||
At September 30, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Whole loans (1)(2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Preferred equity investment |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
2026 |
|
|
2027 |
|
|
2028 and Thereafter |
|
|
Total |
|
||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Whole loans (1)(2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Preferred equity investment |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
At September 30, 2026 and December 31, 2025, no single loan or investment represented more than 10% of the Company's total assets, and one investor group representing five CRE loans generated 11% and 14% of the Company's revenue, respectively.
NOTE 7 - FINANCING RECEIVABLES
The following table shows the activity in the allowance for credit losses for the nine months ended September 30, 2026 and the year ended December 31, 2025 (in thousands):
|
|
Nine Months Ended September 30, 2026 |
|
|
Year Ended December 31, 2025 |
|
||
Allowance for credit losses at beginning of period |
|
$ |
|
|
$ |
|
||
Provision for (reversal of) credit losses |
|
|
|
|
|
( |
) |
|
Charge-offs |
|
|
|
|
|
( |
) |
|
Allowance for credit losses at end of period |
|
$ |
|
|
$ |
|
||
(Back to Index)
22
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
During the three months ended September 30, 2026, the Company recorded a provision for expected credit losses of $
In addition to the Company’s general estimate of credit losses, the Company may also be required to individually evaluate collateral-dependent loans for credit losses if it has determined that foreclosure or sale of the loan or the underlying collateral is probable. At both September 30, 2026 and December 31, 2025, based on the Company's evaluation no loans were identified for individual evaluation.
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 and, therefore, not every loan will have all of the characteristics described in each category below.
|
||
|
|
|
Risk Rating |
|
Risk Characteristics |
|
|
|
1 |
|
• 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. |
|
|
|
3 |
|
• Property performance lags behind underwritten expectations. |
|
|
• Occupancy is not stabilized and the property has some tenancy rollover. |
|
|
|
4 |
|
• 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. |
|
|
|
5 |
|
• 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 and preferred equity investments may experience greater credit risks due to their nature as subordinated investments.
(Back to Index)
23
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
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.
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) |
|
||||||
At September 30, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Whole loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Preferred equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Whole loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Preferred equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
(Back to Index)
24
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Credit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in the footnotes):
|
|
2026(1) |
|
|
2025 (2) |
|
|
2024 (3) |
|
|
2023 |
|
|
2022 |
|
|
Prior |
|
|
Total (4) |
|
|||||||
At September 30, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Whole loans: (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Rating 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total whole loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Preferred equity investment (rating 2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Current Period Gross Write-Offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
2025 (2) |
|
|
2024 (3) |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Total (4) |
|
|||||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Whole loans: (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Rating 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total whole loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Preferred equity investment (rating 2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Current Period Gross Write-Offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
(Back to Index)
25
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
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):
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Greater than 90 |
|
|
Total Past Due |
|
|
Current (2) |
|
|
Total Loans Receivable (3) |
|
|
Total Loans > 90 Days and Accruing |
|
|||||||
At September 30, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Whole loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Preferred equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Whole loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Preferred equity investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
At September 30, 2026 and December 31, 2025, the Company had
During the three and nine months ended September 30, 2026 and 2025, the Company did
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, 2026 and 2025, the Company did
NOTE 8 - INVESTMENTS IN REAL ESTATE AND OTHER ACQUIRED ASSETS AND ASSUMED LIABILITIES
At September 30, 2026, the Company held investments in
In March 2026, the Company sold unimproved land located in the Northeast region for $
(Back to Index)
26
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The following table summarizes the book value of the Company’s acquired assets and assumed liabilities (in thousands, except amounts in the footnotes):
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||||||||||
|
|
Cost Basis |
|
|
Accumulated Depreciation & Amortization |
|
|
Carrying Value |
|
|
Cost Basis |
|
|
Accumulated Depreciation & Amortization |
|
|
Carrying Value |
|
||||||
Assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate, equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate (1) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Right of use assets (2)(3) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Intangible assets (4) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Subtotal |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate from lending activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate (1) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Right of use assets (2)(3) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Intangible assets (4) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Subtotal |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Properties held for sale (5) |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate, equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage payables |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Lease liabilities (3)(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate from lending activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other liabilities |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Lease liabilities (3)(6) |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Subtotal |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities held for sale (7) |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total net investments in real estate and properties held for sale (8) |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
(Back to Index)
27
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
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 to the Company the right to use the land on which its hotel operates, and the ground lease payments increase
In December 2024, the Company entered into a parking lease at an asset acquired in August 2024. The parking lease allows the Company to have access to a designated amount of parking spots adjacent to the building which the Company operates. The lease payments increase
As part of the reclassification of assets held for investment, the Company holds a ground lease associated with a hotel property acquired through lending activities. This ground lease has an associated below-market lease intangible asset. The payments on the ground lease consist of air rights rent, retail rent and parking rent, the amounts of which are specifically determined in the executed lease agreement and subsequently increased based on the increase of the consumer price index over a specified number of periods. The Company acquired the original
The following table summarizes the expenses of intangible assets, right of use assets and leases related to investments in real estate and other acquired assets and assumed liabilities (in thousands):
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization related to intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amortization related to right of use assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accretion related to ground lease liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Lease payments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The following table summarizes the Company's expected fiscal year amortization expense on its intangible lease assets (in thousands):
|
|
Amortization Expense |
|
|
Remainder of 2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
2031 |
|
|
|
|
Total |
|
$ |
|
|
(Back to Index)
28
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
NOTE 9 - LEASES
In addition to the leases discussed in Note 8, the Company has operating leases for office space and office equipment. The leases have terms that expire between
The following table summarizes the Company’s operating leases (dollars in thousands):
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
Operating Leases: |
|
|
|
|
|
|
||
Right of use assets |
|
$ |
|
|
$ |
|
||
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
||
Weighted average remaining lease term: |
|
|
|
|
||||
Weighted average discount rate (1): |
|
|
% |
|
|
% |
||
The following table summarizes the Company’s operating lease costs and cash payments during the periods indicated (in thousands):
|
|
Three Months Ended September 30, 2026 |
|
|
Three Months Ended September 30, 2025 |
|
|
Nine Months Ended September 30, 2026 |
|
|
Nine Months Ended September 30, 2025 |
|
||||
Lease Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Information: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table summarizes the Company’s operating leases cash flow obligations on an undiscounted, annual basis (in thousands):
|
|
Operating Leases |
|
|
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Subtotal |
|
|
|
|
Less: impact of discount |
|
|
( |
) |
|
$ |
|
||
(Back to Index)
29
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
NOTE 10 - INVESTMENTS IN UNCONSOLIDATED ENTITIES
The following table summarizes the Company's investments in unconsolidated entities at September 30, 2026 and December 31, 2025 and equity in earnings (losses) of unconsolidated entities for the three and nine months ended September 30, 2026 and 2025 (dollars in thousands, except in the footnotes):
|
|
|
|
|
|
|
|
|
|
|
Earnings (Losses) of Unconsolidated Entities |
|||||||||||||||||
|
|
Ownership % |
|
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
|
|||||||||||||||||
|
|
at September 30, 2026 |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
||||||
Unsecured Junior Subordinated Debentures(1) |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|||||||
65 E. Wacker Joint Venture, LLC (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|||||
7720 McCallum JV, LLC (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
||||
Pacmulti Affiliates JV, LLC (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
||||
Total |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
||||
NOTE 11 - INVESTMENTS OF CONSOLIDATED FUND
The following tables summarize investments held in the Consolidated Fund (dollars in thousands):
|
|
|
|
September 30, 2026 |
|
|||||
Asset Type |
|
Asset Location |
|
Fair Value |
|
|
Percentage of Total Investments |
|
||
First mortgage loans |
|
|
|
|
|
|
|
|
||
Various |
|
Various |
|
$ |
|
|
|
% |
||
Equity Investments |
|
|
|
|
|
|
|
|
||
Various |
|
Various |
|
|
|
|
|
% |
||
Total investments, at fair value |
|
|
|
$ |
|
|
|
% |
||
(Back to Index)
30
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
NOTE 12 - BORROWINGS
The Company finances its investments, including CRE loans and real estate investments, through the use of secured and unsecured borrowings.
|
|
Principal Outstanding |
|
Unamortized Issuance Costs and Discounts |
|
Outstanding Borrowings |
|
Weighted Average Borrowing Rate |
|
Weighted Average Remaining Maturity |
|
Value of Collateral |
At September 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
ACR 2026-FL4 Senior Notes |
|
$ |
|
$ |
|
$ |
|
|
|
$ |
||
CRE - term reinvestment financing facility |
|
|
|
|
|
|
||||||
CRE - term warehouse financing facilities |
|
|
|
|
|
|
||||||
Mortgage payable |
|
|
|
|
|
|
||||||
Corporate credit facility(1) |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|||||||
Unsecured junior subordinated debentures |
|
|
|
|
|
|
||||||
Total |
|
$ |
|
$ |
|
$ |
|
|
|
$ |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Outstanding |
|
Unamortized Issuance Costs and Discounts |
|
Outstanding Borrowings |
|
Weighted Average Borrowing Rate |
|
Weighted Average Remaining Maturity |
|
Value of Collateral |
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
CRE - term reinvestment financing facility |
|
$ |
|
$ |
|
$ |
|
|
|
$ |
||
Senior secured financing facility |
|
|
|
|
|
|
||||||
CRE - term warehouse financing facilities |
|
|
|
|
|
|
||||||
Mortgage payable |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|||||||
Unsecured junior subordinated debentures |
|
|
|
|
|
|
||||||
Total |
|
$ |
|
$ |
|
$ |
|
|
|
$ |
Securitizations
The following table sets forth certain information with respect to the Company’s consolidated securitization at September 30, 2026 (in thousands):
|
|
Closing Date |
|
Maturity Date |
|
Reinvestment Period End (1) |
|
Total Note Paydowns from Closing Date through September 30, 2026 |
|
|
ACR 2026-FL4 |
|
|
|
|
$ |
|
||||
The investments held by the Company’s securitization collateralize the securitization’s borrowings and, as a result, are not available to the Company, its creditors, or stockholders. All senior notes of the securitization held by the Company at September 30, 2026 were eliminated in consolidation. The Company did
(Back to Index)
31
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
ACR 2026-FL4
In February 2026, the Company closed ACR 2026-FL4, a CRE debt securitization transaction that can finance up to $
At closing, the offered notes issued to investors consisted of the following classes: (i) $
All of the notes issued mature in
ACR 2021-FL1
In May 2021, the Company closed ACRES Commercial Realty 2021-FL1 Issuer, Ltd. ("ACR 2021-FL1"), an $
ACR 2021-FL2
In December 2021, the Company closed ACRES Commercial Realty 2021-FL2 Issuer, Ltd. ("ACR 2021-FL2"), a $
(Back to Index)
32
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Financing Arrangements
Borrowings under the Company’s financing arrangements are guaranteed by the Company or one or more of its subsidiaries.
|
|
September 30, 2026 |
|
December 31, 2025 |
||||||||||||||||||||||||
|
|
Outstanding Borrowings |
|
|
Value of Collateral |
|
|
Number of Positions as Collateral |
|
|
Weighted Average Interest Rate |
|
Outstanding Borrowings |
|
|
Value of Collateral |
|
|
Number of Positions as Collateral |
|
|
Weighted Average Interest Rate |
||||||
CRE - Term Reinvestment Financing Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
JPMorgan Chase Bank, N.A. (1) |
|
$ |
|
|
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Senior Secured Financing Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Massachusetts Mutual Life Insurance Company (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CRE - Term Warehouse Financing Facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
JPMorgan Chase Bank, N.A. (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
—% |
|
|
|
|
|
|
|
|
|
|
||||
Morgan Stanley Mortgage Capital Holdings LLC (4)(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage Payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
HGM CRE LP (6) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
—% |
||||
ReadyCap Commercial, LLC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
—% |
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
||||||
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 |
|
|
Weighted Average Remaining Maturity |
|
Weighted Average Interest Rate |
|
At September 30, 2026 |
|
|
|
|
|
|
|
|
CRE - Term Reinvestment Financing Facility (1)(2) |
|
|
|
|
|
|
|
|
JPMorgan Chase Bank, N. A. |
|
$ |
|
|
|
|||
CRE - Term Warehouse Financing Facilities (1)(2) |
|
|
|
|
|
|
|
|
JPMorgan Chase Bank, N. A. |
|
$ |
|
|
|
|||
Morgan Stanley Mortgage Capital Holdings LLC |
|
$ |
|
|
|
|||
Mortgage Payable |
|
|
|
|
|
|
|
|
HGM CRE LP(3) |
|
$ |
|
|
|
|||
(Back to Index)
33
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The Company was in compliance with all financial covenants in each of the respective agreements at September 30, 2026 and December 31, 2025.
CRE - Term Reinvestment Financing Facility
In March 2025, an indirect wholly-owned subsidiary of the Company entered into a master repurchase agreement (the “JPMorgan Chase 2025 Facility”) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”) to finance existing CRE loans and the origination of new CRE loans. The JPMorgan Chase 2025 Facility had an initial maximum facility amount of $
In connection with the JPMorgan Chase 2025 Facility, the Company provided "bad act" guaranties pursuant to a Guarantee Agreement, dated March 14, 2025 between the Company and JPMorgan Chase (the "2025 JPMorgan Chase Guarantee") where the Company is liable for
The JPMorgan Chase 2025 Facility specifies events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement, including but not limited to: payment defaults; bankruptcy or insolvency proceedings; a change of control of ACRES SPE 2025-1, LLC, (the "Seller SPE") or the Company; breaches of covenants and/or certain representations and warranties; and a judgment in an amount greater than $
Senior Secured Financing Facility
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 $
In December 2022, Holdings, the Borrower and the Lenders entered into an Amended and Restated Loan and Servicing Agreement (the "Amended and Restated Loan and Servicing Agreement"), which amended and restated the MassMutual Loan Agreement, and reflected a senior secured term loan facility, not to exceed $
(Back to Index)
34
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Borrower. The advance rate on portfolio assets was mutually agreed upon by the Lenders and Borrower. Each loan series had its own mutually agreed upon interest rate equal to one-month Term SOFR plus the applicable spread. In August 2026, the Company paid off the MassMutual Facility and terminated the MassMutual Loan Agreement.
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 JPMorgan Chase to finance the origination of CRE loans. As amended, the JPMorgan Chase Facility has a maximum facility amount of $
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 had a maximum facility amount of $
The Term Warehouse Financing Facilities are accounted for as secured borrowings in accordance with GAAP.
(Back to Index)
35
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Mortgage Payable
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 was interest only and had a maximum principal balance of $
In May 2026, Chapel Drive West, LLC, entered into a Loan Agreement (the "HGM Mortgage") with HGM CRE LP ("HGM") to finance an existing student housing complex. The HGM Mortgage is interest only and has a maximum principal balance of $
The HGM 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.
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 was interest only and had a maximum principal balance of $
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 had a maximum principal balance of $
Both the Construction Loan and the financing agreement with Florida Pace Funding Agency were paid off in connection with the sale of the student housing complex in September 2025.
Corporate Debt
Corporate Credit Facility
On August 6, 2026, immediately before the Merger Effective Time, certain indirectly wholly-owned subsidiaries of the Company entered into a First Amendment and Joinder to Loan and Servicing Agreement (the "First Amendment") with the administrative agent and Massachusetts Mutual Life Insurance Company and other lenders, pursuant to which ACRES Holdings, LLC, ACRES Capital, LLC and ACRES Insurance Agency, LLC became borrowers under a senior secured credit facility with an aggregate principal amount of $
The Corporate Credit Facility matures in
The obligations under the facility are unconditionally guaranteed, jointly and severally, by certain indirectly wholly-owned subsidiaries of the Company. The facility contains customary affirmative and negative covenants, including minimum asset value, maximum loan-to-value, interest coverage, minimum gross revenue and minimum fund share value requirements, and limitations on additional indebtedness, liens, investments, capital expenditures (including a limitation on capital expenditures of $
(Back to Index)
36
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
8.625% Senior Secured Notes Due 2031
On August 6, 2026, following the Merger Effective Time, the Company completed a private placement of $
Prior to July 31, 2028, the 8.625% Senior Secured Notes will be redeemable at
Year |
Redemption Price |
2028 |
|
2029 |
|
2030 |
The Company used a portion of the net proceeds from the 8.625% Senior Secured Notes to repay in full its 5.75% Senior Unsecured Notes at their
5.75% Senior Unsecured Notes Due 2026
On August 16, 2021, the Company issued $
Unsecured Junior Subordinated Debentures
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 $
There were no unamortized debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II outstanding at September 30, 2026 and December 31, 2025. The interest rates for RCT I and RCT II, at September 30, 2026, were
(Back to Index)
37
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Contractual maturity dates of the Company’s borrowings' principal outstanding by category and year are presented in the table below (in thousands):
|
|
Total |
|
|
2026 |
|
|
2027(1) |
|
|
2028(1) |
|
|
2029 |
|
|
2030 and Thereafter |
|
||||||
At September 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CRE securitization |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
CRE - term reinvestment financing facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CRE - term warehouse financing facilities(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate credit facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
8.625% Senior Secured Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Unsecured junior subordinated debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Borrowings of the Consolidated Fund
The Consolidated Fund finances the acquisition of its investments through the use of secured borrowings. The facility providers maintain security interests in the investments that serve as collateral under the applicable facility. Certain facilities bear a commitment fee based on unfunded commitments, a facility servicing fee based on average advances outstanding, agent fees, and/or commitment unused line fees. The facilities contain various affirmative and negative covenants and reporting obligations. As of September 30, 2026, the Consolidated Fund was in compliance with all covenants under such borrowings.
The Consolidated Fund had the following borrowings outstanding (in thousands):
At September 30, 2026 |
|
Principal Outstanding |
|
|
Unamortized Issuance Costs and Discounts |
|
|
Outstanding Borrowings |
|
|
Average Borrowings |
|
|
Borrowing Rate |
|
Maturity |
|
Wtd. Avg. Rate |
|
Fair Value of Collateral |
|
|||||
AMFL II Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
AMFE Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
AMF Levered 3 Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
ACRES 2025-FL3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|||||
(Back to Index)
38
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
NOTE 13 - SHARE ISSUANCE AND REPURCHASE
Common Shares
In July 2025, the Company issued
On August 6, 2026, the Company issued
Preferred Stock
On or after July 30, 2024, the Company may, at its option, redeem its
On August 10, 2026, the Company entered into a Securities Purchase Agreement with certain institutional investors pursuant to which the Company sold, in a registered direct offering an aggregate of
At September 30, 2026, the Company had
Equity Distribution Agreements
On September 3, 2026, the Company entered into an Equity Distribution Agreement with Raymond James & Associates, Inc., as sales agent, pursuant to which the Company may offer and sell, from time to time, shares of the Company’s common stock, par value $
Also on September 3, 2026, the Company entered into a separate Equity Distribution Agreement with Seaport Global Securities LLC, as sales agent, pursuant to which the Company may offer and sell, from time to time, up to
(Back to Index)
39
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
of up to
The Company intends to use the net proceeds from sales under the at-the-market offering programs for general corporate purposes, which may include the origination or acquisition of CRE loans and other target assets, repurchase or repayment of outstanding obligations, capital expenditures and working capital, and other purposes consistent with the Company’s investment strategy.
During the three and nine months ended September 30, 2026, the Company did
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
Share Repurchase Program
In November 2021, the Board authorized and approved the continued use of its existing share repurchase program to repurchase an additional $
In September 2026, the Board authorized and approved the repurchase of an additional $
NOTE 14 - 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
(Back to Index)
40
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The Omnibus Plan and the Manager Plan were 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 based upon the Company’s achievement of performance parameters using book value of the common stock as the appropriate benchmark. See Note 19 for a description of awards made under the Manager Plan.
The Company recognized stock-based compensation expense of $
In March 2026, the Company issued a total of
On June 22, 2026, the Company’s shareholders approved the adoption of the ACRES Commercial Realty Corp. 2026 Omnibus Equity Incentive Plan (the “2026 EIP”). The number of shares of common stock that may be issued under the 2026 EIP is
Under the Company’s Fourth Amended and Restated Management Agreement, as amended ("Management Agreement"), incentive compensation was paid quarterly. Up to
The Company did
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, 2026 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Issued |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Unvested shares at September 30, 2026 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
(Back to Index)
41
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The unvested shares of restricted common stock that are expected to vest during the following years:
|
|
Shares |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Total |
|
|
|
|
At September 30, 2026, total unrecognized compensation costs relating to unvested restricted stock was $
NOTE 15 - EMPLOYEE BENEFIT PLAN
401k Plan
As part of the Merger, the Company assumed ACC's defined contribution plan. The Company's employees participate in a 401(k) plan and all eligible employees may elect to contribute to the plan. Participants are entitled, upon termination or retirement, to their vested portions of the assets held by a trustee. The Company matches a portion of the employees’ 401(k) plan contributions, which vest immediately. For each of the three and nine months ended September 30, 2026, the plan expense for the Company was $
NOTE 16 - EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted earnings (losses) per common share for the periods presented (dollars in thousands, except per share amounts):
|
|
For the Three Months Ended September 30, |
|
For the Nine Months Ended September 30, |
|
||||||||||||
|
|
2026 |
|
|
2025 |
|
|
|
2026 |
|
|
2025 |
|
||||
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
||
Net income allocated to preferred shares |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
Net income allocable to non-controlling interest, net of taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
Net income (loss) allocable to common shares |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total weighted average number of common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive securities - unvested restricted stock(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares outstanding - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per common share - basic |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
||
Net income (loss) per common share - diluted |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
||
(Back to Index)
42
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
NOTE 17 - DISTRIBUTIONS
In order to qualify as a REIT, the Company must distribute at least
The Company’s 2026 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, 2026 and 2025, the Company did
The following table presents distributions declared (on a per share basis) for the nine months ended September 30, 2026 and the year ended December 31, 2025 with respect to the Company's Series C Preferred Stock and Series D Preferred Stock:
|
|
Series C Preferred Stock |
|
|
Series D Preferred Stock |
|
||||||||||||||
|
|
Date Paid |
|
Total Distribution Paid |
|
|
Distribution Per Share |
|
|
Date Paid |
|
Total Distribution Paid |
|
|
Distribution Per Share |
|
||||
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
||||
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
September 30 |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||||
June 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31 |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||||
September 30 |
|
|
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June 30 |
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||||||
March 31 |
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|
||||||
NOTE 18 - 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, 2026 (in thousands):
|
|
Accumulated Other Comprehensive Loss - Net Unrealized Loss on Derivatives |
|
|
Balance at January 1, 2026 |
|
$ |
( |
) |
Amounts reclassified from accumulated other comprehensive loss (1) |
|
|
|
|
Balance at September 30, 2026 |
|
$ |
( |
) |
NOTE 19 - RELATED PARTY TRANSACTIONS
Relationship with McCallum JV. In September 2024, ACRES RF, a direct, wholly-owned subsidiary, entered into a $
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43
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ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
2026, the McCallum JV loans were fully funded. The Company recorded interest income of $
Relationship with Pacmulti JV. In March 2025, ACRES RF, a direct, wholly-owned subsidiary, entered into a $
Relationship with ACRES Capital Corp. and certain of its Subsidiaries
Relationship with ACRES Capital Corp. and certain of its Subsidiaries. Prior to the Merger and Internalization, the Company was externally managed by the Manager, pursuant to the Management Agreement. The Manager was a subsidiary of ACC, of which Andrew Fentress, the Company’s Chairman and Managing Director - Capital Markets, served as Managing Partner, and Mark Fogel, the Company’s President and Director, served as Chief Executive Officer and President. Prior to the Merger and Internalization, the Company had a Management Agreement with the Manager pursuant to which the Manager provided the day-to-day management of the Company’s operations and received management fees.
Prior to the Merger and Internalization, the Manager and its affiliates provided the Company with a Chief Financial Officer and a sufficient number of additional accounting, finance, tax and investor relations professionals. The Company reimbursed 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 reimbursed out-of-pocket expenses and certain other costs incurred by the Manager that related directly to the Company’s operations. The costs were recorded in general and administrative expenses on the consolidated statements of operations.
Pursuant to the Merger Agreement, each share of ACC common stock outstanding immediately prior to the Merger Effective Time of the Merger was converted into the right to receive
The Company’s related party transactions with the Manager and its affiliates described in this section relate only to the period prior to termination of the Management Agreement on August 6, 2026. The Company did not incur external management fees under the Management Agreement after August 6, 2026.
For the three and nine months ended September 30, 2026, the Manager earned base management fees of $
For the three and nine months ended September 30, 2026 and 2025, the Manager did
At September 30, 2026 and December 31, 2025, there was
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44
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The Company reimbursed the Manager $
On July 31, 2020, ACRES RF, a direct, wholly-owned subsidiary of the Company, provided a $
The ACRES Loan accrued interest at
In March 2025, ACRES RF amended and restated the promissory note in connection with the ACRES Loan to provide for a six-month option for ACRES Holdings, LLC to draw an additional balance of $
On July 31, 2026, ACRES RF entered into a letter agreement (the "Letter Agreement") with ACC in connection with the ACRES Loan to extend the maturity date of the ACRES Loan to August 30, 2026 and waive the extension fee.
The Company recorded interest income of $
The Company retained equity in one securitization entity that was 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 Mortgage Loan Funding, LLC. In July 2025, the Company sold $
Relationship with ACRES Capital Servicing LLC. Under the MassMutual Loan Agreement, ACRES Capital Servicing LLC ("ACRES Capital Servicing"), an affiliate of ACC and the Manager, served as the portfolio servicer. Additionally, ACRES Capital Servicing served as special servicer of ACR 2021-FL1 and ACR 2021-FL2 prior to their liquidation in March 2025. In February 2026, the Company closed the 2026-FL4 securitization transaction and ACRES Capital Servicing served as special servicer.
During the three and nine months ended September 30, 2026, ACRES Capital Servicing received
Relationship with ACRES Collateral Manager, LLC. ACRES Collateral Manager, LLC, an affiliate of ACC and the Manager, served as the collateral manager of ACR 2021-FL1 and ACR 2021-FL2, a role for which it waived its fee. In March 2025, ACR 2021-FL1 and ACR 2021-FL2 were liquidated. In February 2026, the Company closed the 2026-FL4 securitization transaction and ACRES Collateral Manager, LLC served as collateral manager, a role for which it waived its fee.
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45
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ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Relationship with ACRES Development Management, LLC. ACRES Development Management, LLC ("DevCo") is a wholly-owned subsidiary of ACC, the parent of the Manager. DevCo acted in various capacities as a co-developer or owner’s representative for direct equity investments within the Company’s portfolio. The Company entered into three development agreements with DevCo (the "Development Agreements") between November 2021 and April 2022, between the joint venture entity of the CRE equity investments acquired through direct investment. At September 30, 2026, no development agreement remains active.
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
Relationship with ACRES Share Holdings, LLC. During the three and nine months ended September 30, 2026 and 2025, the Company did not issue any shares to ACRES Share Holdings, LLC in connection with the incentive compensation payable to the Manager under the Management Agreement.
Under the Manager Plan, the Company could issue restricted shares of common stock to ACRES Share Holdings, LLC after meeting the established per share book value hurdle. The grants would vest
In March 2026, the Company issued a total of
In April 2026, the Board approved the acceleration of the Manager's outstanding unvested shares upon shareholder approval of the share issuance in connection with the Merger. The Company's shareholders approved the issuance on June 22, 2026 and the
Relationship with AMF Levered II, LLC. During the year ended December 31, 2025, AMF Levered II, LLC, a wholly-owned subsidiary of ACRES Mortgage Fund, Ltd., purchased a $
Relationship with AMF Levered 3, LLC. In March 2026, the Company sold $
NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company had
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.
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46
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ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
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, 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
Preferred equity investments. The fair value of the Company's preferred equity investment is measured by discounting the expected cash flows using the future expected coupon rates. The Company's preferred equity investment is discounted at a rate of
Senior notes in CRE securitizations and junior subordinated notes. Fair values are estimated using a discounted cash flow model with implied yields based on trades for similar securities.
CRE term reinvestment financing facility, Senior secured financing facility, warehouse financing facilities and mortgage 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.
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47
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ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
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):
|
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|
|
Fair Value Measurements |
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||||||||||||||
|
|
Carrying Value |
|
|
Fair Value(1) |
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities |
|
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Significant Other Observable Inputs |
|
|
Significant Unobservable Inputs |
|
|||||
At September 30, 2026 |
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Assets: |
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|||||
CRE whole loans |
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$ |
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$ |
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$ |
|
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$ |
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$ |
|
|||||
CRE preferred equity investment |
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|
|||||
Liabilities: |
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|
|||||
Senior notes in CRE securitizations |
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|||||
CRE term reinvestment facility |
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|
|||||
Warehouse financing facilities |
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|||||
Mortgage payable |
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|||||
Senior credit facility |
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||||||
Junior subordinated notes |
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|||||
At December 31, 2025 |
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|||||
Assets: |
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|
|||||
CRE whole loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
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$ |
|
|||||
CRE preferred equity investment |
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|||||
Loan receivable - due from Manager |
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|
|||||
Liabilities: |
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|
|||||
CRE term reinvestment facility |
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|
|||||
Senior secured financing facility |
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|
|||||
Warehouse financing facilities |
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|||||
Mortgage payable |
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|||||
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||||||
Junior subordinated notes |
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|
|||||
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2026 for the Consolidated Fund (in thousands):
|
|
|
|
|
Fair Value Measurements |
|
||||||||||||||
|
|
Carrying Value |
|
|
Fair Value(1) |
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities |
|
|
Significant Other Observable Inputs |
|
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Significant Unobservable Inputs |
|
|||||
At September 30, 2026 |
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Assets: |
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|||||
Investments |
|
$ |
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|
$ |
|
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$ |
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$ |
|
|
$ |
|
|||||
Generally, increases in discount rates and capitalization rates result in lower fair value measurements, while increases in comparable sales values and estimated recoveries result in higher fair value measurements. Conversely, decreases in these assumptions
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48
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ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
would generally have the opposite effect. Changes in certain significant unobservable inputs may be interrelated and could either magnify or mitigate the overall impact on fair value.
The following tables summarize the quantitative inputs and assumptions used for the Consolidated Fund’s Level 3 measurements (in thousands):
At September 30, 2026 |
||||||||||
Level 3 Measurements of the |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Financial assets: |
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|
|
|
|
|
|
|
|
|
First mortgage loans |
|
$ |
|
|
Discounted cash flow |
|
Discount rate |
|
||
|
|
|
|
|
Comparable sales |
|
Sales price per key/unit |
|
$ |
|
Equity investments |
|
|
|
|
Discounted cash flow |
|
Discount rate |
|
||
|
|
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|
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|
Capitalization rate |
|
||
|
|
|
|
|
Comparable sales |
|
Sales price per square foot |
|
$ |
|
|
|
|
|
|
Comparable sales |
|
Sales price per key/unit |
|
$ |
|
|
|
|
|
|
Net recovery analysis |
|
Discount yield |
|
||
|
|
|
|
|
Income capitalization analysis |
|
Capitalization rate |
|
||
The following tables set forth a summary of changes in the fair value of the Level 3 measurements (in thousands):
Level 3 Assets of the Consolidated Fund |
|
Investments, at |
|
|
Balance as of August 6, 2026 |
|
$ |
|
|
Purchases (1) |
|
|
|
|
Sales/settlements (2) |
|
|
( |
) |
Unrealized loss, net (3) |
|
|
( |
) |
At September 30, 2026 |
|
$ |
|
|
NOTE 21 - GOODWILL AND INTANGIBLE ASSETS
On August 6, 2026, the Company completed its previously disclosed Merger and Internalization. The Internalization and Merger are accounted for as a business combination under the acquisition method of accounting, with the Company treated as the accounting acquirer.
The Company’s acquisition accounting is preliminary. The final purchase price allocation may differ materially from the preliminary estimates as additional information becomes available, including changes in the fair value allocations to identifiable intangible assets and goodwill.
Goodwill represents the excess of consideration transferred over the fair values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized. Based on the Company’s preliminary purchase price allocation, preliminary goodwill recognized in connection with the Internalization and Merger was $
The Company evaluates goodwill for impairment at least annually or upon the occurrence of a triggering event. A triggering event is an event or circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The annual impairment test will be performed as of October 1st each year. While we have not yet completed this analysis for 2026, we do
(Back to Index)
49
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
NOTE 22 - 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 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 $
For the three and nine months ended September 30, 2025, the Company recorded accretion income, reported in interest expense on the consolidated statements of operations, of $
The following table presents the effect of the derivative instruments on the consolidated statements of operations during the nine months ended September 30, 2026 and 2025 (in thousands):
|
|
|
|
Realized and Unrealized Gain (Loss) (1) |
|
|||||
|
|
Consolidated Statements of Operations Location |
|
Nine Months Ended September 30, 2026 |
|
|
Nine Months Ended September 30, 2025 |
|
||
Interest rate swap contracts, hedging |
|
Interest expense |
|
$ |
( |
) |
|
$ |
( |
) |
NOTE 23 - 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, 2026.
The Company did
Other Guarantees
See description of 65 E. Wacker Joint Venture, LLC in Note 4.
(Back to Index)
50
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ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Unfunded Commitments
The Company's CRE loans had $
NOTE 24 - SEGMENT INFORMATION
On August 6, 2026, the Company completed the previously disclosed Merger and Internalization and as a result of the transaction, the Company acquired its Manager, the management agreement was terminated for no additional consideration and the Company became internally managed. The Current Report on Form 8-K filed on August 6, 2026 did not disclose segment information.
The Company now evaluates its business through
Prior to the Merger and Internalization, the Company reported
Beginning after the Merger and Internalization, the Company’s reportable segments are as follows:
The accounting policies of the reportable segments are the same as those described in the Company’s summary of significant accounting policies included elsewhere in these condensed consolidated financial statements. Intersegment revenues and expenses are eliminated in consolidation. Corporate-level items that are not allocated to segments are included in the reconciliation of total reportable segment amounts to consolidated amounts.
Net income is used to monitor budget versus actual results. The CODM also uses net income in competitive analysis by benchmarking to the reportable segment's competitors.
The Company discloses significant segment expenses that are regularly provided to the CODM and included in the reported measure of segment profit or loss. In determining significant expense categories, the Company considers both quantitative and qualitative factors, including expenses that are easily computable from the information regularly provided to the CODM.
(Back to Index)
51
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
Prior to the Merger and Internalization, the Company identified interest expense, general and administrative expenses and provision for credit losses as significant segment expenses for its single CRE lending operations segment. Following the Merger and Internalization, the Company’s significant expense categories by reportable segment are interest expense, general and administrative expenses, and provision for credit losses.
The following tables present segment revenues, significant segment expenses, other segment items and reported segment profit or loss for the periods presented (in thousands):
|
|
Principal Investing |
|
|
Investment Management |
|
|
Strategic Holdings |
|
|
Corporate & Other |
|
|
Total |
|
|||||
For the Three Months Ended September 30, 2026 |
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|
|||||
Revenues |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|||||
Net interest income |
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|
|||||
Real estate income |
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|
|||||
Fee and other income |
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|
|
|
|
|
|
( |
) |
(1) |
|
|
||||
Other revenue |
|
|
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|
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|
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|
|||||
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Operating Expenses |
|
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|
|
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|
|||||
General and administrative |
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|
|||||
Compensation and benefits |
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|
|||||
Real estate expenses |
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|
|||||
Management fees - related party |
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|
|||||
Equity compensation |
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|
|||||
Merger and internalization costs |
|
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|
|||||
Corporate interest expense |
|
|
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|
|
|
|
|
|
|
|||||
Provision for (reversal of) credit losses, net |
|
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|
|
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|
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|
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|
|||||
Total operating expenses |
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|
|||||
Other Income (Expense) |
|
|
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|
|
|
|
|
|
|
|
|
|||||
Equity in earnings (losses) of unconsolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
(2) |
|
|
||||
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
(3) |
|
( |
) |
|||
Net interest income of Consolidated Fund |
|
|
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|
|
|
|
|
|
|||||
Expenses of the Consolidated Fund |
|
|
|
|
|
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|
|
( |
) |
|
|
|
(1) |
|
( |
) |
|||
Other income (expense) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Total other income (expense) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Income (Loss) before Taxes |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Net Income (Loss) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
Net income allocated to preferred shares |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Net (income) loss allocable to non-controlling interest, net of taxes |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
(2)(3) |
|
( |
) |
||
Net Income (Loss) Allocable to Common Shares |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||
(Back to Index)
52
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
|
|
Principal Investing |
|
|
Investment Management |
|
|
Strategic Holdings |
|
|
Corporate & Other |
|
|
Total |
|
|||||
For the Nine Months Ended September 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fee and other income |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
(1) |
|
|
||||
Other revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Compensation and benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Management fees - related party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Merger and internalization costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Corporate interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Provision for (reversal of) credit losses, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity in earnings (losses) of unconsolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
(2) |
|
|
||||
Gain on sale of real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net realized and unrealized gain on investments |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
(3) |
|
( |
) |
|||
Net interest income of Consolidated Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Expenses of the Consolidated Fund |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
(1) |
|
( |
) |
|||
Other income (expense) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Total other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Income (Loss) before Taxes |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Income tax (expense) benefit |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Net Income (Loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||
Net income allocated to preferred shares |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||
Net (income) loss allocable to non-controlling interest |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
(2)(3) |
|
( |
) |
|
Net Income (Loss) Allocable to Common Shares |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||
(Back to Index)
53
(Back to Index)
ACRES COMMERCIAL REALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
September 30, 2026
(unaudited)
The following table presents total assets by reportable segment as of the dates presented (in thousands):
|
|
Principal Investing |
|
|
Investment Management |
|
|
Strategic Holdings |
|
|
Corporate & Other |
|
|
Total |
|
|||||
As of September 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Investments in unconsolidated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
As of December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Investments in unconsolidated entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
NOTE 25 - 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 12 that have occurred that would require adjustments to or disclosures in the consolidated financial statements.
(Back to Index)
54
(Back to Index)
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. Factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include:
• changes in our industry, interest rates, the debt securities markets, real estate markets or the general economy;
• increased rates of default and/or decreased recovery rates on our investments;
• the performance and financial condition of our borrowers;
• our ability to successfully integrate the operations of ACRES Capital, LLC and ACRES Capital Corp. following the completion of the Merger and Internalization (each as defined below) and to achieve the expected cost savings or other benefits therefrom;
•our ability to successfully operate as an internally managed company following the Internalization, including our ability to retain key personnel formerly employed by our Manager and to realize the anticipated benefits of internal management in a timely manner, or at all;
• the cost and availability of our financings, which depend in part on our asset quality, the nature of our relationships with our lenders and other capital providers, our business prospects and outlook and general market conditions;
• the availability and attractiveness of terms of additional debt repurchases;
• availability, terms and deployment of short-term and long-term capital;
• events giving rise to increases in our current expected credit loss reserve, including the impact of the current economic environment;
• availability of, and ability to retain, qualified personnel;
• changes in our business strategy;
• the degree and nature of our competition;
• the resolution of our non-performing and sub-performing assets;
• our ability to comply with financial covenants in our debt instruments;
• the adequacy of our cash reserves and working capital;
• the timing of cash flows, if any, from our investments;
• unanticipated increases in financial and other costs, including a rise in interest rates;
• our ability to maintain compliance with over-collateralization and interest coverage tests in our collateralized loan obligations ("CLOs");
• environmental and/or safety requirements;
• our ability to satisfy complex rules in order for us to qualify as a real estate investment trust ("REIT"), for federal income tax purposes and qualify for our exemption under the Investment Company Act of 1940, as amended, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;
• legislative and regulatory changes (including changes to laws governing the taxation of REITs or the exemptions from registration as an investment company); and
• the factors described in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, including those set forth under the sections captioned "Risk Factors," "Business" and "Management’s Discussion and Analysis of Financial Conditions and Results of Operations," as applicable.
We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
(Back to Index)
55
(Back to Index)
Overview
We are a Maryland corporation and an internally-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. On August 6, 2026, we completed our acquisition of ACRES Capital Corp. ("ACC") and the internalization of the management function previously performed by ACRES Capital, LLC, our former external manager and a subsidiary of ACC (together with ACC, "ACRES"), a commercial real estate lender historically 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. We continue to draw upon the experience of the ACRES management team, who are now our direct employees, to provide these 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.
Currently, markets are grappling with trade tensions, geopolitical tensions, the risk of increased tariffs, inflation and labor volatility. 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.
Between September 2024 and December 2025, the U.S. Federal Reserve lowered the Federal Funds rate by 1.75% in six rate cuts, reaching its lowest levels since 2022. However, the Federal Reserve reversed course in September 2026, raising the Federal Funds rate by 0.25% to a target range of 3.75% to 4.00%, its first increase since 2023, citing persistent inflationary pressures. The Federal Reserve's updated projections indicate the possibility of additional rate increases before the end of 2026 and into 2027. An increase in rates and borrowing costs may dampen consumer spending and corporate profit growth, which may negatively impact the credit profile of the collateral underlying our loans and our borrowers' ability to sell or refinance in the current market; higher rates would also correlate to an increase in our net income to the extent our floating rate assets exceed our floating rate liabilities. There is also no certainty with respect to the direction, timing, or pace of change for future interest rates.
The multifamily real estate market continues to be a competitive and the market for those assets continues to experience spread compression on newly originated deals. Furthermore, 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, 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 stand by 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 management team also continuously monitors for new capital opportunities and selectively executes on agreements that are expected to enhance our returns.
On August 6, 2026 (the "Closing"), we completed the Merger (as defined below) and Internalization (as defined below) transactions pursuant to the terms of the Agreement and Plan of Merger (the "Merger Agreement") by and among us and ACRES Holdings Sub LLC ("Merger Sub"), our subsidiary, on the one hand, and ACC and ACRES Capital LLC, a subsidiary of ACC and our former external manager (the “Manager”), on the other hand. Pursuant to the terms of the Merger Agreement, ACC merged with and into Merger Sub, with Merger Sub continuing as the surviving company and our wholly-owned subsidiary (the "Merger"). As a result of the Merger, among other things, (i) we acquired the Manager, (ii) the Manager ceased to perform any outside management services for us, (iii) we and the Manager terminated the existing Fourth Amended and Restated Management Agreement, dated as of July 31, 2020, as amended, by and among us, the Manager and ACC (the "Management Agreement"), for no additional consideration, and (iv) we became internally managed (the "Internalization"). In connection with the Closing, we issued approximately 7.5 million shares of our common stock to former ACC stockholders as Merger consideration, resulting in a net increase of approximately 6.3 million shares of our common stock outstanding after giving effect to the elimination of shares held by ACC in consolidation. We also assumed ACC's credit facility, with $185.0 million outstanding at Closing, and completed a private placement of $200.0 million aggregate principal amount of 8.625% Senior Secured Notes due 2031 (the "8.625% Senior Secured Notes"), the proceeds of which were used in part to refinance $150.0 million of our previously outstanding 5.75% Senior Unsecured Notes due 2026 (the "5.75% Senior Unsecured Notes") and for general corporate purposes. Being internally managed further aligns the interests of our seasoned management team with those of our stockholders. Along with the Manager's CRE lending platform, the Merger is expected to enhance our financial profile through
(Back to Index)
56
(Back to Index)
the recognition of third-party fee income earned from an evergreen fund vehicle, separately managed accounts and a growing insurance platform, diversifying our earnings and supporting greater stability in earnings available for distribution.
The Merger and Internalization materially affected the comparability of our results of operations, financial condition and cash flows for the three and nine months ended September 30, 2026 as compared to the corresponding periods in 2025. The results of operations of ACC have been included in our condensed consolidated financial statements only for the period beginning August 6, 2026, the closing date of the Merger and Internalization. Accordingly, our results for the three and nine months ended September 30, 2026 include only a partial period of activity from the acquired management, servicing and related businesses, while the comparable 2025 periods do not include such activity.
The consolidation of the Consolidated Fund significantly increases the reported amounts of consolidated assets, liabilities, revenues, expenses and cash flows; however, the economic ownership interests of third-party investors in the Consolidated Fund are reflected as non-controlling interests. Accordingly, the Consolidated Fund’s gross revenues, expenses and cash flows should not be viewed as having the same economic effect on our common stockholders as revenues, expenses and cash flows generated by wholly-owned operations.
Following the Closing, we became internally managed, the Manager became our wholly-owned subsidiary, and the Manager’s personnel became our employees. As a result, our post-closing results reflect changes in the nature and presentation of our revenues and expenses, including the elimination of external base management fees and incentive compensation payable to a third-party manager, the addition of employee compensation and other operating costs previously borne by the Manager, and the inclusion of third-party management, servicing and related fee income generated by the acquired platform.
In addition, after the Merger and Internalization, we evaluate our business through three reportable segments: Principal Investing, Investment Management and Strategic Holdings. Prior to the Merger and Internalization, we reported one operating segment, CRE operations. These changes should be considered when reviewing the period-to-period comparisons below, as our historical results may not be indicative of our future operating results or financial condition.
The discussion below is based on our historical results of operations and financial condition as presented in the unaudited condensed consolidated financial statements included in this Quarterly Report. The results of ACC are included beginning August 6, 2026, and our historical results for periods prior to that date do not include the acquired management, servicing and related activities. Accordingly, the discussion below should be read with the comparability considerations described above and the notes to the unaudited condensed consolidated financial statements.
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, 2026, we originated ten new CRE floating-rate whole loans, purchased one new CRE floating-rate whole loan and purchased a participation in an existing CRE floating-rate whole loan, with total commitments of $530.9 million and funded $42.1 million of loan commitments. These increases were offset by loan payoffs and sales during the nine months ended September 30, 2026 in the amount of $239.1 million and unfunded commitments of $25.2 million, producing a net increase to the portfolio of $308.7 million. During the year ended December 31, 2025, we originated 14 new CRE floating-rate whole loans, with total commitments of $733.0 million, one new $15.0 million CRE mezzanine loan, one new $9.3 million CRE preferred equity investment and net funded commitments of $3.1 million. Loan payoffs and sales during the year ended December 31, 2025 were $418.9 million, producing a net increase to the portfolio of $341.5 million.
Our CRE loan portfolio, which had carrying values of $2.1 billion and $1.8 billion at September 30, 2026 and December 31, 2025, respectively, comprised:
(Back to Index)
57
(Back to Index)
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, 2026, 62% of the par value of our CRE loan portfolio had interest rate caps or funded debt service reserves in place. Our interest rate caps have a weighted-average maturity of 15 months.
At September 30, 2026, our par-value $2.1 billion floating-rate CRE loan portfolio had a weighted average benchmark floor of 2.33%. At December 31, 2025, our par value $1.8 billion floating rate CRE loan portfolio had a weighted average benchmark floor of 1.78%. With the current trend of decreasing benchmark rates, we have seen the coupons on all of our floating-rate assets and debt decrease 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 decrease in interest rates resulted in a decrease in our net interest income. See "Interest Rate Risk" in "Item 3: Quantitative and Qualitative Disclosures About Market Risk."
Our portfolio comprises loans with a diverse array of collateral types and locations. Multifamily continues to comprise the majority of our portfolio, with 80.9% of our portfolio allocated to multifamily at September 30, 2026 and 81.9% at December 31, 2025. The following charts show our portfolio allocation at carrying value by property type at September 30, 2026 and December 31, 2025:
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58
(Back to Index)
From time to time, we may acquire real estate property through direct equity investments or as a result of our lending activities. We did not acquire any real estate property in the three months ended September 30, 2026.
At September 30, 2026, the net carrying value of our net real estate-related assets and liabilities was $96.2 million on five properties owned, four of which are included in investments in real estate and one of which is included in properties held for sale on our consolidated balance sheets. We reclassified two properties in the third quarter of 2026 to properties held for investment.
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, 2026 and December 31, 2025, our financing arrangements were as follows (dollars in thousands):
|
|
Outstanding Borrowings |
|
|
Percentage of Borrowings |
|
||
At September 30, 2026 |
|
|
|
|
|
|
||
CRE debt securitization (1)(2) |
|
$ |
874,011 |
|
|
|
44.2 |
% |
CRE - term reinvestment financing facility (1)(3) |
|
|
582,758 |
|
|
|
29.4 |
% |
CRE - term warehouse financing facilities(1) |
|
|
68,818 |
|
|
|
3.5 |
% |
Mortgage payable(1) |
|
|
21,032 |
|
|
|
1.1 |
% |
Corporate credit facility |
|
|
185,000 |
|
|
|
9.3 |
% |
8.625% Senior Secured Notes |
|
|
195,397 |
|
|
|
9.9 |
% |
Unsecured junior subordinated debentures |
|
|
51,548 |
|
|
|
2.6 |
% |
Total |
|
$ |
1,978,564 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
||
|
|
Outstanding Borrowings |
|
|
Percentage of Borrowings |
|
||
At December 31, 2025: |
|
|
|
|
|
|
||
CRE - term reinvestment financing facility (1)(2) |
|
$ |
728,167 |
|
|
|
47.1 |
% |
CRE - term warehouse financing facilities(1) |
|
|
533,862 |
|
|
|
34.6 |
% |
Senior secured financing facility(1) |
|
|
61,645 |
|
|
|
4.0 |
% |
Mortgage payable(1) |
|
|
20,185 |
|
|
|
1.3 |
% |
5.75% Senior Unsecured Notes |
|
|
149,531 |
|
|
|
9.7 |
% |
Unsecured junior subordinated debentures |
|
|
51,548 |
|
|
|
3.3 |
% |
Total |
|
$ |
1,544,938 |
|
|
|
100.0 |
% |
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59
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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, 2026, the CECL allowance on our CRE loan portfolio was $29.4 million, or 1.4% of our $2.1 billion loan portfolio. During the nine months ended September 30, 2026, we recorded a net provision for credit losses primarily attributable to a decline in macroeconomic factors both generally and locally as they relate to our CRE loans, compounded by increased modeled credit risk in our loan portfolio.
At December 31, 2025, the CECL allowance on our CRE loan portfolio was $20.4 million, or 1.1% of our $1.8 billion loan portfolio. During the year ended December 31, 2025, we recorded a reversal of credit losses primarily driven by net improvements in the modeled credit risk of our loan portfolio as well as loan payoffs. These reversals were offset by a general decline in projected macroeconomic factors. We also recorded a charge-off of $4.7 million for one mezzanine loan that was fully reserved for in 2022.
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, 2026 of $29.4 million, or 1.4% of the par balance of our CRE loan portfolio, was attributable to the following: the successful resolution of our individually evaluated loans with specific reserves, except for the charge-off noted above, the overall newer vintage of our CRE loan portfolio (with only 6.5% of the portfolio, at September 30, 2026, 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 at carrying value has grown from 58.4% at June 30, 2020 to 80.9% at September 30, 2026.
Common stock book value was $16.81 per share at September 30, 2026, a $13.20 per share decrease from December 31, 2025. (See "Balance Sheet - Book Value Reconciliation" section below for further discussion)
Results of Operations
Our net loss allocable to common shares for the three months ended September 30, 2026 was $56.3 million, or ($5.16) per share-basic (($5.16) per share-diluted) as compared to net income allocable to common shares for the three months ended September 30, 2025 of $9.8 million or $1.38 per share-basic ($1.34 per share-diluted). Our net loss allocable to common shares for the nine months ended September 30, 2026 was $69.9 million, or ($8.65) per share-basic (($8.65) per share-diluted), as compared to net income allocable to common shares for the nine months ended September 30, 2025 of $3.2 million, or $0.44 per share-basic ($0.42 per share-diluted).
Segment Results
Following the Merger and Internalization, we evaluate our business through three reportable segments: Principal Investing, Investment Management and Strategic Holdings. Prior to the Merger and Internalization, we reported one operating segment, CRE lending operations. Accordingly, segment results for the three and nine months ended September 30, 2026 include the Investment Management and Strategic Holdings segments only for the period beginning August 6, 2026, and comparable segment information for the prior-year period is limited.
Principal Investing. Our Principal Investing segment originates, holds and manages commercial real estate mortgage loans and related assets. Segment results for the three and nine months ended September 30, 2026 were primarily affected by net interest income, loan repayments, CECL provision and borrowing costs.
Investment Management. Our Investment Management segment includes the management, servicing and related activities acquired in the Merger and Internalization. Segment results for the post-closing period were driven primarily by management, servicing and related fee income, partially offset by other operating expenses associated with the internalized platform. Results for this segment may vary in future periods based on assets under management, servicing volumes, transaction activity, fund performance, capital raising and retention of key personnel.
Strategic Holdings. Our Strategic Holdings segment includes equity method investments. Segment results for the post-closing period were primarily affected by income/loss from strategic investments and fair value changes. Because this segment was added as part of the Merger and Internalization and was included only from August 6, 2026, results for the three and nine months ended September 30, 2026 are not necessarily indicative of future results.
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60
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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, 2026 and 2025 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, 2026 Compared to Three Months Ended September 30, 2025 |
|
|||||||||||||
|
|
|
|
|
|
|
|
Due to Changes in |
|
|||||||
|
|
Net Change |
|
|
Percent Change (1) |
|
|
Volume |
|
|
Rate |
|
||||
Increase (decrease) in interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CRE whole loans (2) |
|
$ |
9,805 |
|
|
|
36 |
% |
|
$ |
14,202 |
|
|
$ |
(4,397 |
) |
CRE mezzanine loans |
|
|
(687 |
) |
|
|
(100 |
)% |
|
|
(687 |
) |
|
|
— |
|
CRE preferred equity loan |
|
|
266 |
|
|
|
100 |
% |
|
|
266 |
|
|
|
— |
|
Other |
|
|
13 |
|
|
|
5 |
% |
|
|
48 |
|
|
|
(35 |
) |
Total increase (decrease) in interest income |
|
|
9,397 |
|
|
|
33 |
% |
|
|
13,829 |
|
|
|
(4,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Increase (decrease) in interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securitized borrowings |
|
|
12,481 |
|
|
|
100 |
% |
|
|
12,481 |
|
|
|
— |
|
Senior secured financing facility |
|
|
(944 |
) |
|
|
(63 |
)% |
|
|
(909 |
) |
|
|
(35 |
) |
CRE - term warehouse financing facilities |
|
|
(405 |
) |
|
|
(31 |
)% |
|
|
(237 |
) |
|
|
(168 |
) |
CRE - term reinvestment financing facility |
|
|
(4,739 |
) |
|
|
(36 |
)% |
|
|
(3,431 |
) |
|
|
(1,308 |
) |
5.75% Senior Unsecured Notes |
|
|
(1,188 |
) |
|
|
(51 |
)% |
|
|
(1,188 |
) |
|
|
— |
|
Unsecured junior subordinated debentures |
|
|
(70 |
) |
|
|
(6 |
)% |
|
|
— |
|
|
|
(70 |
) |
Hedging (3) |
|
|
(154 |
) |
|
|
(38 |
)% |
|
|
(154 |
) |
|
|
— |
|
Total increase (decrease) in interest expense |
|
|
4,981 |
|
|
|
25 |
% |
|
|
6,562 |
|
|
|
(1,581 |
) |
Net increase (decrease) in net interest income |
|
$ |
4,416 |
|
|
|
|
|
$ |
7,267 |
|
|
$ |
(2,851 |
) |
|
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61
(Back to Index)
|
|
Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025 |
|
|||||||||||||
|
|
|
|
|
|
|
|
Due to Changes in |
|
|||||||
|
|
Net Change |
|
|
Percent Change (1) |
|
|
Volume |
|
|
Rate |
|
||||
Increase (decrease) in interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CRE whole loans (2) |
|
$ |
24,281 |
|
|
|
29 |
% |
|
$ |
36,818 |
|
|
$ |
(12,537 |
) |
CRE mezzanine loans |
|
|
(1,429 |
) |
|
|
(100 |
)% |
|
|
(1,429 |
) |
|
|
— |
|
CRE preferred equity loan |
|
|
770 |
|
|
|
100 |
% |
|
|
770 |
|
|
|
— |
|
Other |
|
|
978 |
|
|
|
119 |
% |
|
|
910 |
|
|
|
68 |
|
Total increase (decrease) in interest income |
|
|
24,600 |
|
|
|
29 |
% |
|
|
37,069 |
|
|
|
(12,469 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Increase (decrease) in interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Securitized borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
ACR 2026-FL4 Senior Notes |
|
|
30,925 |
|
|
|
100 |
% |
|
|
30,925 |
|
|
|
— |
|
ACR 2021-FL1 Senior Notes |
|
|
(6,535 |
) |
|
|
(100 |
)% |
|
|
(6,535 |
) |
|
|
— |
|
ACR 2021-FL2 Senior Notes |
|
|
(6,554 |
) |
|
|
(100 |
)% |
|
|
(6,554 |
) |
|
|
— |
|
Senior secured financing facility |
|
|
(494 |
) |
|
|
(11 |
)% |
|
|
(263 |
) |
|
|
(231 |
) |
CRE - term warehouse financing facilities |
|
|
613 |
|
|
|
12 |
% |
|
|
1,419 |
|
|
|
(806 |
) |
CRE - term reinvestment financing facility |
|
|
(1,662 |
) |
|
|
(6 |
)% |
|
|
1,340 |
|
|
|
(3,002 |
) |
5.75% Senior Unsecured Notes |
|
|
(1,166 |
) |
|
|
(17 |
)% |
|
|
(1,166 |
) |
|
|
— |
|
Unsecured junior subordinated debentures |
|
|
(233 |
) |
|
|
(7 |
)% |
|
|
— |
|
|
|
(233 |
) |
Hedging (3) |
|
|
(305 |
) |
|
|
(26 |
)% |
|
|
(305 |
) |
|
|
— |
|
Total increase (decrease) in interest expense |
|
|
14,589 |
|
|
|
23 |
% |
|
|
18,861 |
|
|
|
(4,272 |
) |
Net increase (decrease) in net interest income |
|
$ |
10,011 |
|
|
|
|
|
$ |
18,208 |
|
|
$ |
(8,197 |
) |
|
Net Change in Interest Income for the Comparative three and nine months ended September 30, 2026 and 2025:
Aggregate interest income increased by $9.4 million and $24.6 million for the comparative three and nine months ended September 30, 2026 and 2025. We attribute the change to the following:
CRE whole loans. The increase of $9.8 million and $24.3 million for the comparative three and nine months ended September 30, 2026 and 2025 was primarily attributable to an increase in the daily average par value of our CRE portfolio resulting from loan production, offset by a decrease in the benchmark rate over the comparative period.
CRE mezzanine loans. The decrease of $687,000 and $1.4 million for the comparative three and nine months ended September 30, 2026 and 2025 was attributable to the origination and payoff of a mezzanine loan during the fiscal year 2025.
CRE preferred equity loan. The increase of $266,000 and $770,000 for the comparative three and nine months ended September 30, 2026 and 2025 was attributable to the origination of a preferred equity loan in September 2025.
Other. The increase of $13,000 and $978,000 for the comparative three and nine months ended September 30, 2026 and 2025, was primarily attributable to an increase in restricted cash from the close of our new CRE securitization, ACRES Commercial Realty 2026-FL4 Issuer, LLC ("ACR 2026-FL4"), and increase in yields on our interest earning money market accounts during the first quarter of fiscal year 2026.
Net Change in Interest Expense for the Comparative three and nine months ended September 30, 2026 and 2025:
Aggregate interest expense increased by $5.0 million and $14.6 million for the comparative three and nine months ended September 30, 2026 and 2025. We attribute the change to the following:
Securitized borrowings. The net increase of $12.5 million and $17.8 million for the comparative three and nine months ended September 30, 2026 and 2025 was primarily attributable to the issuance of our ACR 2026-FL4 securitization, offset by the redemptions of our ACR 2021-FL1 and ACR 2021-FL2 securitizations and a decrease in borrowings and the benchmark rate over the comparative periods.
(Back to Index)
62
(Back to Index)
Senior secured financing facility. The decrease of $944,000 and $494,000 for the comparative three and nine months ended September 30, 2026 and 2025, was primarily attributable to the payoff of our senior secured facility in August 2026.
CRE - term warehouse financing facilities. The decrease of $405,000 for the comparative three months ended September 30, 2026 and 2025 was primarily attributable to a decrease in the average daily borrowings balance and benchmark rate. The increase of $613,000 for the comparative nine months ended September 30, 2026 and 2025, was primarily attributable to an increase in the average daily borrowings balance during the first quarter of fiscal year 2026, offset by a decrease in the benchmark rate over the comparative periods.
CRE - term reinvestment financing facility. The decrease of $4.7 million and $1.7 million for the comparative three and nine months ended September 30, 2026 and 2025 was attributable to a decrease in borrowings and benchmark rate.
5.75% Senior Unsecured Notes. The decrease of $1.2 million for the comparative three and nine months ended September 30, 2026 and 2025 was attributable to the payoff of the 5.75% Senior Unsecured Notes in conjunction with the close of the 8.625% Senior Secured Notes in August 2026.
Unsecured junior subordinated debentures. The decrease of $70,000 and $233,000 for the comparative three and nine months ended September 30, 2026 and 2025 was primarily attributable to a decrease in the benchmark rate over the comparative periods.
Hedging. The decrease of $154,000 and $305,000 for the comparative three and nine months ended September 30, 2026 and 2025 was attributable to a portion of our terminated swaps being fully amortized.
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, 2026 and 2025 (dollars in thousands, except amounts in footnotes):
|
|
Three Months Ended September 30, 2026 |
|
|
Three Months Ended September 30, 2025 |
|
||||||||||||||||||
|
|
Average Amortized Cost |
|
|
Interest Income (Expense) |
|
|
Average Net Yield (Cost of Funds) (1) |
|
|
Average Amortized Cost |
|
|
Interest Income (Expense) |
|
|
Average Net Yield (Cost of Funds) (1) |
|
||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CRE whole loans, floating-rate (2) |
|
$ |
2,121,260 |
|
|
$ |
37,174 |
|
|
|
6.95 |
% |
|
$ |
1,321,391 |
|
|
$ |
27,369 |
|
|
|
8.22 |
% |
CRE mezzanine loans |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
19,419 |
|
|
|
686 |
|
|
|
13.82 |
% |
CRE preferred equity loan |
|
|
10,020 |
|
|
|
265 |
|
|
|
10.51 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
Other |
|
|
33,510 |
|
|
|
246 |
|
|
|
2.90 |
% |
|
|
27,478 |
|
|
|
233 |
|
|
|
3.37 |
% |
Total interest income/average net yield |
|
|
2,164,790 |
|
|
|
37,685 |
|
|
|
6.90 |
% |
|
|
1,368,288 |
|
|
|
28,288 |
|
|
|
8.20 |
% |
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Collateralized by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CRE whole loans (3) |
|
|
1,529,654 |
|
|
|
(22,453 |
) |
|
|
(5.82 |
)% |
|
|
953,121 |
|
|
|
(16,058 |
) |
|
|
(6.62 |
)% |
General corporate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
5.75% Senior Unsecured Notes (4) |
|
|
78,238 |
|
|
|
(1,148 |
) |
|
|
(5.82 |
)% |
|
|
149,257 |
|
|
|
(2,336 |
) |
|
|
(6.21 |
)% |
Unsecured junior subordinated debentures |
|
|
51,548 |
|
|
|
(1,050 |
) |
|
|
(7.97 |
)% |
|
|
51,548 |
|
|
|
(1,121 |
) |
|
|
(8.51 |
)% |
Hedging (5) |
|
|
— |
|
|
|
(247 |
) |
|
|
— |
% |
|
|
— |
|
|
|
(402 |
) |
|
|
— |
% |
Total interest expense/average cost of funds |
|
|
1,659,440 |
|
|
|
(24,898 |
) |
|
|
(5.89 |
)% |
|
|
1,153,926 |
|
|
|
(19,917 |
) |
|
|
(6.65 |
)% |
Total net interest income |
|
|
|
|
$ |
12,787 |
|
|
|
|
|
|
|
|
$ |
8,371 |
|
|
|
|
||||
(Back to Index)
63
(Back to Index)
|
|
Nine Months Ended September 30, 2026 |
|
|
Nine Months Ended September 30, 2025 |
|
||||||||||||||||||
|
|
Average Amortized Cost |
|
|
Interest Income (Expense) |
|
|
Average Net Yield (Cost of Funds) (1) |
|
|
Average Amortized Cost |
|
|
Interest Income (Expense) |
|
|
Average Net Yield (Cost of Funds) (1) |
|
||||||
Interest-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CRE whole loans, floating-rate (2) |
|
$ |
2,037,039 |
|
|
$ |
107,874 |
|
|
|
7.08 |
% |
|
$ |
1,364,348 |
|
|
$ |
83,593 |
|
|
|
8.19 |
% |
CRE mezzanine loans |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
15,062 |
|
|
|
1,428 |
|
|
|
12.51 |
% |
CRE preferred equity loan |
|
|
9,766 |
|
|
|
769 |
|
|
|
10.53 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
Other |
|
|
63,569 |
|
|
|
1,802 |
|
|
|
3.79 |
% |
|
|
35,120 |
|
|
|
824 |
|
|
|
3.14 |
% |
Total interest income/average net yield |
|
|
2,110,374 |
|
|
|
110,445 |
|
|
|
7.00 |
% |
|
|
1,414,530 |
|
|
|
85,845 |
|
|
|
8.11 |
% |
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Collateralized by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CRE whole loans (3) |
|
|
1,538,629 |
|
|
|
(68,072 |
) |
|
|
(5.92 |
)% |
|
|
987,674 |
|
|
|
(51,778 |
) |
|
|
(7.01 |
)% |
General corporate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
5.75% Senior Unsecured Notes (4) |
|
|
125,630 |
|
|
|
(5,836 |
) |
|
|
(6.21 |
)% |
|
|
149,080 |
|
|
|
(7,001 |
) |
|
|
(6.28 |
)% |
Unsecured junior subordinated debentures |
|
|
51,548 |
|
|
|
(3,099 |
) |
|
|
(7.93 |
)% |
|
|
51,548 |
|
|
|
(3,333 |
) |
|
|
(8.53 |
)% |
Hedging (5) |
|
|
— |
|
|
|
(886 |
) |
|
|
— |
% |
|
|
— |
|
|
|
(1,192 |
) |
|
|
— |
% |
Total interest expense/average cost of funds |
|
|
1,715,807 |
|
|
|
(77,893 |
) |
|
|
(6.00 |
)% |
|
|
1,188,302 |
|
|
|
(63,304 |
) |
|
|
(6.98 |
)% |
Total net interest income |
|
|
|
|
$ |
32,552 |
|
|
|
|
|
|
|
|
$ |
22,541 |
|
|
|
|
||||
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):
|
|
For the Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2026 |
|
|
2025 |
|
|
Dollar Change |
|
|
Percent Change |
|
||||
Real estate income and other revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate income - Hospitality |
|
$ |
9,579 |
|
|
$ |
8,179 |
|
|
$ |
1,400 |
|
|
|
17 |
% |
Real estate income - Rental |
|
|
1,673 |
|
|
|
4,453 |
|
|
|
(2,780 |
) |
|
|
(62 |
)% |
Fee and other income |
|
|
152 |
|
|
|
— |
|
|
|
152 |
|
|
|
100 |
% |
Other revenue |
|
|
31 |
|
|
|
34 |
|
|
|
(3 |
) |
|
|
(9 |
)% |
Total |
|
$ |
11,435 |
|
|
$ |
12,666 |
|
|
$ |
(1,231 |
) |
|
|
(10 |
)% |
|
|
For the Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2026 |
|
|
2025 |
|
|
Dollar Change |
|
|
Percent Change |
|
||||
Real estate income and other revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate income - Hospitality |
|
$ |
25,296 |
|
|
$ |
23,822 |
|
|
$ |
1,474 |
|
|
|
6 |
% |
Real estate income - Rental |
|
|
4,933 |
|
|
|
13,449 |
|
|
|
(8,516 |
) |
|
|
(63 |
)% |
Fee and other income |
|
|
152 |
|
|
|
— |
|
|
|
152 |
|
|
|
100 |
% |
Other revenue |
|
|
93 |
|
|
|
100 |
|
|
|
(7 |
) |
|
|
(7 |
)% |
Total |
|
$ |
30,474 |
|
|
$ |
37,371 |
|
|
$ |
(6,897 |
) |
|
|
(18 |
)% |
Aggregate real estate income and other revenue decreased by $1.2 million and $6.9 million for the comparative three and nine months ended September 30, 2026 and 2025
Real estate income - hospitality and rental: The decrease in aggregate real estate income in the comparative three and nine months of $1.4 million and $7.0 million was attributed to: (i) a decrease in revenue related to a student housing property that was sold in September 2025 and (ii) a decrease in revenue at an office property that was sold in December 2025, partially offset by an increase in revenues at our hospitality properties that had increased occupancy and rates in the comparative period.
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64
(Back to Index)
Fee and other income: The Merger and Internalization added management, servicing and related activities that were not included in our historical results prior to August 6, 2026. Beginning at the Closing, our results include fee income generated by the acquired ACC platform, including fees from third-party management and servicing arrangements, the management of ACRES Mortgage Fund, Ltd. ("AMF") and other accounts, and related insurance and strategic platform activities, to the extent such fees are earned from third parties and are not eliminated in consolidation.
For the period from August 6, 2026 through September 30, 2026, we recognized $2.0 million of fee and other income attributable to the acquired management, servicing and related activities, of which $1.8 million of such fees are related to AMF and are eliminated in consolidation to a net fee and other income of $152,000.
A portion of the fee income generated by the acquired platform is recurring in nature, including management fees and servicing fees, while other fee income may be transactional or performance-based and may vary based on assets under management, loan origination and repayment activity, capital raising, investment realizations, and market conditions. We expect fee income from these activities to be influenced by our ability to retain and grow third-party assets under management, maintain servicing relationships, and execute on our strategic initiatives following the Internalization. Because management, servicing and related activities was added as part of the Merger and Internalization and was included only from August 6, 2026, results for the three and nine months ended September 30, 2026 are not necessarily indicative of future results.
Operating Expenses
The following tables set forth information relating to our operating expenses for the periods presented (dollars in thousands):
|
|
For the Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2026 |
|
|
2025 |
|
|
Dollar Change |
|
|
Percent Change |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
$ |
4,189 |
|
|
$ |
2,490 |
|
|
$ |
1,699 |
|
|
|
68 |
% |
Compensation and benefits |
|
|
2,436 |
|
|
|
— |
|
|
|
2,436 |
|
|
|
100 |
% |
Real estate expenses - Hospitality |
|
|
14,590 |
|
|
|
7,960 |
|
|
|
6,630 |
|
|
|
83 |
% |
Real estate expenses - Rental |
|
|
4,143 |
|
|
|
7,495 |
|
|
|
(3,352 |
) |
|
|
(45 |
)% |
Management fees - related party |
|
|
613 |
|
|
|
1,581 |
|
|
|
(968 |
) |
|
|
(61 |
)% |
Equity compensation |
|
|
115 |
|
|
|
374 |
|
|
|
(259 |
) |
|
|
(69 |
)% |
Corporate depreciation and amortization |
|
|
— |
|
|
|
19 |
|
|
|
(19 |
) |
|
|
(100 |
)% |
Merger and internalization costs |
|
|
38,282 |
|
|
|
— |
|
|
|
38,282 |
|
|
|
100 |
% |
Corporate interest expense |
|
|
5,236 |
|
|
|
— |
|
|
|
5,236 |
|
|
|
100 |
% |
Provision for (reversal of) credit losses, net |
|
|
8,295 |
|
|
|
(3,960 |
) |
|
|
12,255 |
|
|
|
309 |
% |
Total |
|
$ |
77,899 |
|
|
$ |
15,959 |
|
|
$ |
61,940 |
|
|
|
388 |
% |
(Back to Index)
65
(Back to Index)
|
|
For the Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2026 |
|
|
2025 |
|
|
Dollar Change |
|
|
Percent Change |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
$ |
9,984 |
|
|
$ |
8,385 |
|
|
$ |
1,599 |
|
|
|
19 |
% |
Compensation and benefits |
|
|
2,436 |
|
|
|
— |
|
|
|
2,436 |
|
|
|
100 |
% |
Real estate expenses - Hospitality |
|
|
30,709 |
|
|
|
24,793 |
|
|
|
5,916 |
|
|
|
24 |
% |
Real estate expenses - Rental |
|
|
8,257 |
|
|
|
17,353 |
|
|
|
(9,096 |
) |
|
|
(52 |
)% |
Management fees - related party |
|
|
3,738 |
|
|
|
4,813 |
|
|
|
(1,075 |
) |
|
|
(22 |
)% |
Equity compensation |
|
|
5,548 |
|
|
|
1,774 |
|
|
|
3,774 |
|
|
|
213 |
% |
Corporate depreciation and amortization |
|
|
— |
|
|
|
57 |
|
|
|
(57 |
) |
|
|
(100 |
)% |
Merger and internalization costs |
|
|
43,393 |
|
|
|
— |
|
|
|
43,393 |
|
|
|
100 |
% |
Corporate interest expense |
|
|
5,236 |
|
|
|
— |
|
|
|
5,236 |
|
|
|
100 |
% |
Provision for (reversal of) credit losses, net |
|
|
9,011 |
|
|
|
(6,457 |
) |
|
|
15,468 |
|
|
|
240 |
% |
Total |
|
$ |
118,312 |
|
|
$ |
50,718 |
|
|
$ |
67,594 |
|
|
|
133 |
% |
Aggregate operating expenses increased by $61.9 million for the comparative three months ended September 30, 2026 and 2025 and increased by $67.6 million for the comparative nine months ended September 30, 2026 and 2025. We attribute the changes to the following:
General and administrative. General and administrative expenses increased by $1.7 million and $1.6 million for the comparative three and nine months ended September 30, 2026 and 2025. The following table summarizes the information relating to our general and administrative expenses for the periods presented (dollars in thousands):
|
|
For the Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2026 |
|
|
2025 |
|
|
Dollar Change |
|
|
Percent Change |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Professional services |
|
$ |
2,057 |
|
|
$ |
1,288 |
|
|
$ |
769 |
|
|
|
60 |
% |
Wages and benefits |
|
|
172 |
|
|
|
325 |
|
|
|
(153 |
) |
|
|
(47 |
)% |
D&O insurance |
|
|
247 |
|
|
|
250 |
|
|
|
(3 |
) |
|
|
(1 |
)% |
Operating expenses |
|
|
838 |
|
|
|
234 |
|
|
|
604 |
|
|
|
258 |
% |
Servicing expense |
|
|
414 |
|
|
|
— |
|
|
|
414 |
|
|
|
100 |
% |
Dues and subscriptions |
|
|
211 |
|
|
|
174 |
|
|
|
37 |
|
|
|
21 |
% |
Director fees |
|
|
215 |
|
|
|
204 |
|
|
|
11 |
|
|
|
5 |
% |
Tax penalties, interest & franchise tax |
|
|
8 |
|
|
|
6 |
|
|
|
2 |
|
|
|
33 |
% |
Travel |
|
|
27 |
|
|
|
9 |
|
|
|
18 |
|
|
|
200 |
% |
Total |
|
$ |
4,189 |
|
|
$ |
2,490 |
|
|
$ |
1,699 |
|
|
|
68 |
% |
|
|
For the Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2026 |
|
|
2025 |
|
|
Dollar Change |
|
|
Percent Change |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Professional services |
|
$ |
4,894 |
|
|
$ |
4,396 |
|
|
$ |
498 |
|
|
|
11 |
% |
Wages and benefits |
|
|
814 |
|
|
|
1,024 |
|
|
|
(210 |
) |
|
|
(21 |
)% |
D&O insurance |
|
|
733 |
|
|
|
736 |
|
|
|
(3 |
) |
|
|
(0 |
)% |
Operating expenses |
|
|
1,655 |
|
|
|
865 |
|
|
|
790 |
|
|
|
91 |
% |
Servicing expense |
|
|
414 |
|
|
|
— |
|
|
|
414 |
|
|
|
100 |
% |
Dues and subscriptions |
|
|
605 |
|
|
|
567 |
|
|
|
38 |
|
|
|
7 |
% |
Director fees |
|
|
623 |
|
|
|
611 |
|
|
|
12 |
|
|
|
2 |
% |
Tax penalties, interest & franchise tax |
|
|
140 |
|
|
|
118 |
|
|
|
22 |
|
|
|
19 |
% |
Travel |
|
|
106 |
|
|
|
68 |
|
|
|
38 |
|
|
|
56 |
% |
Total |
|
$ |
9,984 |
|
|
$ |
8,385 |
|
|
$ |
1,599 |
|
|
|
19 |
% |
(Back to Index)
66
(Back to Index)
The increase in general and administrative expense for the comparative three and nine months ended September 30, 2026 and 2025 was primarily attributable to additions from the Merger and Internalization. Office rent, IT expenses, insurance expenses and other operating expenses and professional service expenses that used to be included in allocated expenses from the Manager are now fully expensed post Merger and Internalization. Additionally, servicing expenses are now included in our general and administrative expenses when they were not included as an expense category prior to the Merger and Internalization.
Compensation and benefits. The increase of $2.4 million for both the comparative three and nine months ended September 30, 2026 and 2025, respectively, was due to the completion of the Merger and Internalization which resulted in us now accounting for payroll. In prior periods, compensation and costs related to the Company were reimbursed to the Manager pursuant to the Management Agreement and were included in wages and benefits in the general and administrative expense line item.
Real estate expenses - hospitality and rental. The increase of $3.3 million for the three months ended September 30, 2026 was primarily related to a catch-up adjustment of depreciation and amortization at two properties that were reclassified as held for investment in the third quarter and partially offset by a decrease in expenses related to a student housing property that was sold in September 2025. The decrease in aggregate of $3.2 million for the nine months ended September 30, 2026 was primarily related to (i) a decrease in expenses related to a student housing property that was sold in September 2025, (ii) a decrease in expenses at an office property that was sold in December 2025, and (iii) a decrease in expenses at a student housing property related to a decrease in marketing and other operating expenses in the comparative periods. This was partially offset by a pickup in depreciation and amortization at two properties that were reclassified as held for investment in the third quarter and an increase in overall operating expenses at a hotel property in both three and nine months ended September 30, 2026 and 2025.
Equity compensation. The decrease of $259,000 and increase of $3.8 million for the comparative three and nine months ended September 30, 2026 and 2025 was primarily related to the acceleration of amortization related to the Manager's shares in connection with the Merger, which was completed on August 6, 2026.
Management fees - related party. The decrease of $968,000 and $1.1 million for the comparative three and nine months ended September 30, 2026 and 2025 was primarily related to the termination of the Management Agreement as part of the Merger and Internalization of the Manager on August 6, 2026.
Merger and internalization costs. The increase of $38.3 million and $43.4 million for the comparative three and nine months ended September 30, 2026 and 2025, respectively, was due to the completion of the Merger and Internalization, and includes various professional fees and post-combination share-based compensation expenses pertaining to the transaction. No Merger and Internalization costs occurred prior to the second quarter of 2026.
Corporate interest expense. The increase of $5.2 million for the comparative three and nine months ended September 30, 2026 and 2025 was attributable to the assumption of the senior secured credit facility (the "Corporate Credit Facility") in connection with the Merger and the close of the 8.625% Senior Secured Notes due 2031 during the third quarter of 2026.
Provision for (reversal of) credit losses. The increase of $12.3 million and $15.5 million for the comparative three and nine months ended September 30, 2026 and 2025 was primarily due to a decline in macroeconomic factors both generally and locally as they relate to our CRE loans, including a qualitative adjustment for local macroeconomic factors on one loan, compounded by increased modeled credit risk in our loan portfolio.
(Back to Index)
67
(Back to Index)
Other Income (Expense)
The following table sets forth information relating to our other income (expense) incurred for the periods presented (dollars in thousands):
|
|
For the Three Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2026 |
|
|
2025 |
|
|
Dollar Change |
|
|
Percent Change |
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings (losses) of unconsolidated subsidiaries |
|
$ |
18 |
|
|
$ |
(827 |
) |
|
$ |
845 |
|
|
|
102 |
% |
Gain on sale of investment in real estate |
|
|
— |
|
|
|
13,141 |
|
|
|
(13,141 |
) |
|
|
(100 |
)% |
Net realized and unrealized gains on investments in Consolidated Fund |
|
|
(480 |
) |
|
|
— |
|
|
|
(480 |
) |
|
|
(100 |
)% |
Interest income of Consolidated Fund |
|
|
20,942 |
|
|
|
— |
|
|
|
20,942 |
|
|
|
100 |
% |
Interest expense of Consolidated Fund |
|
|
(13,923 |
) |
|
|
— |
|
|
|
(13,923 |
) |
|
|
(100 |
)% |
Expenses of the Consolidated Fund |
|
|
(601 |
) |
|
|
— |
|
|
|
(601 |
) |
|
|
(100 |
)% |
Other income |
|
|
(174 |
) |
|
|
655 |
|
|
|
(829 |
) |
|
|
(127 |
)% |
Total |
|
$ |
5,782 |
|
|
$ |
12,969 |
|
|
$ |
(7,187 |
) |
|
|
(55 |
)% |
|
|
For the Nine Months Ended September 30, |
|
|
|
|
|
|
|
|||||||
|
|
2026 |
|
|
2025 |
|
|
Dollar Change |
|
|
Percent Change |
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity in earnings (losses) of unconsolidated subsidiaries |
|
$ |
693 |
|
|
$ |
(1,988 |
) |
|
$ |
2,681 |
|
|
|
135 |
% |
Gain on sale of investment in real estate |
|
|
3,336 |
|
|
|
13,141 |
|
|
|
(9,805 |
) |
|
|
(75 |
)% |
Net realized and unrealized gains on investments in Consolidated Fund |
|
|
(480 |
) |
|
|
— |
|
|
|
(480 |
) |
|
|
(100 |
)% |
Interest income of Consolidated Fund |
|
|
20,942 |
|
|
|
— |
|
|
|
20,942 |
|
|
|
100 |
% |
Interest expense of Consolidated Fund |
|
|
(13,923 |
) |
|
|
— |
|
|
|
(13,923 |
) |
|
|
(100 |
)% |
Expenses of the Consolidated Fund |
|
|
(601 |
) |
|
|
— |
|
|
|
(601 |
) |
|
|
(100 |
)% |
Other income |
|
|
(69 |
) |
|
|
1,377 |
|
|
|
(1,446 |
) |
|
|
(105 |
)% |
Total |
|
$ |
9,898 |
|
|
$ |
12,530 |
|
|
$ |
(2,632 |
) |
|
|
(21 |
)% |
Aggregate other income (expense) decreased $7.2 million and $2.6 million for the comparative three and nine months ended September 30, 2026 and 2025. We attribute the change to the following:
Equity in earnings (losses) of unconsolidated subsidiaries. The increase of $845,000 and $2.7 million for the comparative three and nine months ended September 30, 2026 and 2025, respectively, was primarily related to recognizing income at one unconsolidated entity. The two unconsolidated entities with losses are off-balance sheet and losses are only recognized when contributions are made. In 2025, more losses were recognized until the entity became off-balance sheet.
Gain on sale of investment in real estate. The decrease of $13.1 million and $9.8 million during the comparative three and nine months ended September 30, 2026 and 2025, was primarily attributed to the sale of a property generating a gain of $13.1 million in the third quarter of 2025 which was partially offset in the comparative nine months by a property sale generating a gain of $3.3 million in the first quarter of 2026.
Other income. The decrease of $829,000 during the comparative three months ended September 30, 2026 was primarily related to the loss of income on a related party loan that was settled as part of the Merger consideration. The decrease of $1.4 million during the comparative nine months ended September 30, 2026 was primarily attributed to the one-time settlements of reserves and escrows related to CRE loans that occurred in the second quarter of 2025 and the loss of revenues on the related party loan that was settled as part of the Merger consideration.
Results of operations for the Consolidated Fund. As a result of the Merger and Internalization, ACRES Capital LLC (the "Capital LLC") serves as investment manager of AMF, and we consolidate AMF in our condensed consolidated financial statements as
(Back to Index)
68
(Back to Index)
the “Consolidated Fund.” The Consolidated Fund’s results are included in our consolidated revenues, expenses, assets, liabilities and cash flows beginning August 6, 2026.
The consolidation of the Consolidated Fund significantly increases the reported amounts of consolidated assets, liabilities, revenues, expenses and cash flows; however, the economic ownership interests of third-party investors in the Consolidated Fund are reflected as non-controlling interests. Accordingly, the Consolidated Fund’s gross revenues, expenses and cash flows should not be viewed as having the same economic effect on our common stockholders as revenues, expenses and cash flows generated by wholly-owned operations. For the period from August 6, 2026 through September 30, 2026, the Consolidated Fund contributed $601,000 of expenses, $480,000 of net realized and unrealized losses, $20.9 million of interest income and $13.9 million of interest expense.
The Consolidated Fund finances the acquisition of its investments through secured borrowings, and as of September 30, 2026, the Consolidated Fund was in compliance with all covenants under such borrowings. Changes in the Consolidated Fund’s investment activity, financing costs, leverage and third-party ownership interests may affect our consolidated results and cash flows in future periods, although substantially all of the third-party investors’ economics will continue to be reflected through non-controlling interests.
Financial Condition
Summary
Our total assets were $4.6 billion (which includes $2.0 billion from the acquired Consolidated Fund as described below) and $2.2 billion at September 30, 2026 and December 31, 2025, 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, 2026 and December 31, 2025 as follows (dollars in thousands, except amounts in footnotes):
At September 30, 2026 |
|
Amortized Cost |
|
|
Net Carrying Amount (1) |
|
|
Percent of Portfolio |
|
|
Weighted Average Coupon |
|||
Loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|||
CRE whole loans |
|
$ |
2,129,218 |
|
|
$ |
2,100,057 |
|
|
|
93.91 |
% |
|
7.11% |
CRE preferred equity investment |
|
|
10,194 |
|
|
|
9,946 |
|
|
|
0.44 |
% |
|
10.00% |
|
|
|
2,139,412 |
|
|
|
2,110,003 |
|
|
|
94.35 |
% |
|
|
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|||
Investments in unconsolidated entities |
|
|
30,271 |
|
|
|
30,271 |
|
|
|
1.35 |
% |
|
N/A(4) |
Investments in real estate(2) |
|
|
75,302 |
|
|
|
75,302 |
|
|
|
3.37 |
% |
|
N/A(4) |
Properties held for sale |
|
|
20,900 |
|
|
|
20,900 |
|
|
|
0.93 |
% |
|
N/A(4) |
|
|
|
126,473 |
|
|
|
126,473 |
|
|
|
5.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total investment portfolio |
|
$ |
2,265,885 |
|
|
$ |
2,236,476 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
At December 31, 2025 |
|
Amortized Cost |
|
|
Net Carrying Amount (1) |
|
|
Percent of Portfolio |
|
|
Weighted Average Coupon |
|||
Loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|||
CRE whole loans |
|
$ |
1,820,942 |
|
|
$ |
1,800,784 |
|
|
|
91.74 |
% |
|
7.32% |
CRE preferred equity investment |
|
|
9,425 |
|
|
|
9,185 |
|
|
|
0.47 |
% |
|
10.00% |
|
|
|
1,830,367 |
|
|
|
1,809,969 |
|
|
|
92.21 |
% |
|
|
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|||
Investments in unconsolidated entities |
|
|
29,237 |
|
|
|
29,237 |
|
|
|
1.49 |
% |
|
N/A(4) |
Investments in real estate(2) |
|
|
56,277 |
|
|
|
56,277 |
|
|
|
2.86 |
% |
|
N/A(4) |
Properties held for sale(3) |
|
|
67,509 |
|
|
|
67,509 |
|
|
|
3.44 |
% |
|
N/A(4) |
|
|
|
153,023 |
|
|
|
153,023 |
|
|
|
7.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total investment portfolio |
|
$ |
1,983,390 |
|
|
$ |
1,962,992 |
|
|
|
100.00 |
% |
|
|
(Back to Index)
69
(Back to Index)
CRE loans. During the nine months ended September 30, 2026, we originated ten new CRE floating-rate whole loans, purchased one new CRE floating-rate whole loan and purchased a participation in an existing CRE floating-rate whole loan, with total commitments of $530.9 million of floating-rate CRE whole loan commitments, and funded $42.1 million of loan commitments. These increases were offset by $239.1 million in proceeds from loan payoffs and sales and unfunded loan commitments of $25.2 million, producing a net increase of $308.7 million in the par balance of the portfolio.
The following is a summary of our loans (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, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Whole loans (5)(6)(7) |
|
56 |
|
$ |
2,137,041 |
|
|
$ |
(7,823 |
) |
|
$ |
2,129,218 |
|
|
$ |
(29,161 |
) |
|
$ |
2,100,057 |
|
|
1M Term SOFR to 1M Term SOFR + 7.00% |
|
October 2026 to May 2030 |
Preferred equity investment (see Note 4) (8) |
|
|
|
|
10,257 |
|
|
|
(63 |
) |
|
|
10,194 |
|
|
|
(248 |
) |
|
|
9,946 |
|
|
10.00% |
|
October 2028 |
Total |
|
|
|
$ |
2,147,298 |
|
|
$ |
(7,886 |
) |
|
$ |
2,139,412 |
|
|
$ |
(29,409 |
) |
|
$ |
2,110,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Whole loans (5)(6)(7) |
|
53 |
|
$ |
1,828,299 |
|
|
$ |
(7,357 |
) |
|
$ |
1,820,942 |
|
|
$ |
(20,158 |
) |
|
$ |
1,800,784 |
|
|
1M Term SOFR + 2.50% to 1M Term SOFR + 7.00% |
|
January 2026 to May 2030 |
Preferred equity investment (see Note 4) (8) |
|
|
|
|
9,511 |
|
|
|
(86 |
) |
|
|
9,425 |
|
|
|
(240 |
) |
|
|
9,185 |
|
|
10.00% |
|
October 2028 |
Total |
|
|
|
$ |
1,837,810 |
|
|
$ |
(7,443 |
) |
|
$ |
1,830,367 |
|
|
$ |
(20,398 |
) |
|
$ |
1,809,969 |
|
|
|
|
|
At September 30, 2026, 18.2%, 16.2% and 15.0% of our CRE loan portfolio based on carrying value was concentrated in the Southeast, Southwest and Northeast regions, respectively, as defined by the NCREIF. At December 31, 2025, 24.2%, 20.6% and 14.0% of our CRE loan portfolio based on carrying value was concentrated in the Southwest, Southeast, and Pacific regions, respectively. At September 30, 2026 and December 31, 2025, no single loan or investment group represented more than 10% of our total assets and one investment group generated 11% and 14% of our revenue, respectively.
(Back to Index)
70
(Back to Index)
Investments in unconsolidated entities.
The following table summarizes our investments in unconsolidated entities at September 30, 2026 and December 31, 2025 and equity in earnings (losses) of unconsolidated entities for the three and nine months ended September 30, 2026 and 2025 (dollars in thousands, except in the footnotes):
|
|
|
|
|
|
|
|
|
|
|
Earnings (Losses) of Unconsolidated Entities |
|||||||||||||||||
|
|
Ownership % |
|
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
|
|||||||||||||||||
|
|
at September 30, 2026 |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
||||||
Unsecured Junior Subordinated Debentures(1) |
|
3% |
|
$ |
1,548 |
|
|
$ |
1,548 |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
65 E. Wacker Joint Venture, LLC |
|
90% |
|
|
28,723 |
|
|
|
27,689 |
|
|
|
|
18 |
|
|
|
(294 |
) |
|
|
1,034 |
|
|
|
(1,035 |
) |
|
7720 McCallum JV, LLC |
|
50% |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
(187 |
) |
|
|
(129 |
) |
|
|
(339 |
) |
|
Pacmulti Affiliates JV, LLC |
|
50% |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
(346 |
) |
|
|
(212 |
) |
|
|
(614 |
) |
|
Total |
|
|
|
$ |
30,271 |
|
|
$ |
29,237 |
|
|
|
$ |
18 |
|
|
$ |
(827 |
) |
|
$ |
693 |
|
|
$ |
(1,988 |
) |
|
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, the McCallum JV and the Pacmulti JV as equity method investments.
(Back to Index)
71
(Back to Index)
Investments in real estate and properties held for sale. At September 30, 2026, we held investments in five real estate properties, four of which are included in investments in real estate and one of which is included in properties held for sale on the consolidated balance sheets. We reclassified two properties in the third quarter to real estate held for investment. We sold a property in March 2026 for $20.0 million, generating a gain on sale of $3.3 million, net of selling costs.
The following table summarizes the book value of our investments in real estate and related intangible assets at September 30, 2026 and December 31, 2025 (in thousands, except amounts in the footnotes):
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||||||||||||||||||
|
|
Cost Basis |
|
|
Accumulated Depreciation & Amortization |
|
|
Carrying Value |
|
|
Cost Basis |
|
|
Accumulated Depreciation & Amortization |
|
|
Carrying Value |
|
||||||
Assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate, equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate (1) |
|
$ |
86,735 |
|
|
$ |
(12,625 |
) |
|
$ |
74,110 |
|
|
$ |
74,468 |
|
|
$ |
(7,797 |
) |
|
$ |
66,671 |
|
Right of use assets (2)(3) |
|
|
19,664 |
|
|
|
(1,228 |
) |
|
|
18,436 |
|
|
|
19,665 |
|
|
|
(1,024 |
) |
|
|
18,641 |
|
Intangible assets (4) |
|
|
9,748 |
|
|
|
(4,181 |
) |
|
|
5,567 |
|
|
|
9,469 |
|
|
|
(3,342 |
) |
|
|
6,127 |
|
Subtotal |
|
|
116,147 |
|
|
|
(18,034 |
) |
|
|
98,113 |
|
|
|
103,602 |
|
|
|
(12,163 |
) |
|
|
91,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate from lending activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate (1) |
|
|
47,761 |
|
|
|
(8,023 |
) |
|
|
39,738 |
|
|
|
10,025 |
|
|
|
(281 |
) |
|
|
9,744 |
|
Right of use assets (2)(3) |
|
|
5,914 |
|
|
|
(280 |
) |
|
|
5,634 |
|
|
|
399 |
|
|
|
(63 |
) |
|
|
336 |
|
Intangible assets (4) |
|
|
3,700 |
|
|
|
(1,660 |
) |
|
|
2,040 |
|
|
|
364 |
|
|
|
(270 |
) |
|
|
94 |
|
Subtotal |
|
|
57,375 |
|
|
|
(9,963 |
) |
|
|
47,412 |
|
|
|
10,788 |
|
|
|
(614 |
) |
|
|
10,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Properties held for sale (5) |
|
|
20,900 |
|
|
|
— |
|
|
|
20,900 |
|
|
|
90,825 |
|
|
|
— |
|
|
|
90,825 |
|
Total |
|
$ |
194,422 |
|
|
$ |
(27,997 |
) |
|
$ |
166,425 |
|
|
$ |
205,215 |
|
|
$ |
(12,777 |
) |
|
$ |
192,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate, equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage payables |
|
$ |
20,306 |
|
|
$ |
726 |
|
|
$ |
21,032 |
|
|
$ |
19,565 |
|
|
$ |
620 |
|
|
$ |
20,185 |
|
Lease liabilities (3)(6) |
|
|
45,520 |
|
|
|
— |
|
|
|
45,520 |
|
|
|
44,958 |
|
|
|
— |
|
|
|
44,958 |
|
Subtotal |
|
|
65,826 |
|
|
|
726 |
|
|
|
66,552 |
|
|
|
64,523 |
|
|
|
620 |
|
|
|
65,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Investments in real estate from lending activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other liabilities |
|
|
41 |
|
|
|
(41 |
) |
|
|
— |
|
|
|
41 |
|
|
|
(41 |
) |
|
|
— |
|
Lease liabilities (3)(6) |
|
|
3,671 |
|
|
|
— |
|
|
|
3,671 |
|
|
|
378 |
|
|
|
— |
|
|
|
378 |
|
Subtotal |
|
|
3,712 |
|
|
|
(41 |
) |
|
|
3,671 |
|
|
|
419 |
|
|
|
(41 |
) |
|
|
378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Liabilities held for sale (7) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,131 |
|
|
|
— |
|
|
|
3,131 |
|
Total |
|
$ |
69,538 |
|
|
$ |
685 |
|
|
$ |
70,223 |
|
|
$ |
68,073 |
|
|
$ |
579 |
|
|
$ |
68,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total net investments in real estate and properties held for sale (8) |
|
$ |
124,884 |
|
|
|
|
|
$ |
96,202 |
|
|
$ |
137,142 |
|
|
|
|
|
$ |
123,786 |
|
||
(Back to Index)
72
(Back to Index)
Assets of Consolidated Fund.
The following table summarizes the investments held in the Consolidated Fund as of September 30, 2026. (dollars in thousands):
Asset Type |
|
Asset Location |
|
Fair Value |
|
|
Percentage of Total Investments |
|
||
First mortgage loans |
|
|
|
|
|
|
|
|
||
Various |
|
Various |
|
$ |
1,534,420 |
|
|
|
80.0 |
% |
Equity Investments |
|
|
|
|
|
|
|
|
||
Various |
|
Various |
|
|
383,691 |
|
|
|
20.0 |
% |
Total investments, at fair value |
|
|
|
$ |
1,918,111 |
|
|
|
100.0 |
% |
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 table shows the activity in the allowance for credit losses for the nine months ended September 30, 2026 and year ended December 31, 2025 (in thousands):
|
|
Nine Months Ended September 30, 2026 |
|
|
Year Ended December 31, 2025 |
|
||
Allowance for credit losses at beginning of period |
|
$ |
20,398 |
|
|
$ |
32,847 |
|
Provision for (reversal of) credit losses |
|
|
9,011 |
|
|
|
(7,749 |
) |
Charge-offs |
|
|
— |
|
|
|
(4,700 |
) |
Allowance for credit losses at end of period |
|
$ |
29,409 |
|
|
$ |
20,398 |
|
During the three and nine months ended September 30, 2026, we recorded a provision for expected credit losses of $8.3 million and $9.0 million, respectively, primarily attributable to a decline in macroeconomic factors both generally and locally as they relate to our CRE loans, compounded by increased modeled credit risk in the our loan portfolio.
At both September 30, 2026 and December 31, 2025, we were not required to individually evaluate any CRE loans for credit loss.
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 the 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.
(Back to Index)
73
(Back to Index)
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.
Risk Rating |
|
Risk Characteristics |
|
|
|
1 |
|
• 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. |
|
|
|
3 |
|
• Property performance lags behind underwritten expectations. |
|
|
• Occupancy is not stabilized and the property has some tenancy rollover. |
|
|
|
4 |
|
• 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. |
|
|
|
5 |
|
• 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 and preferred equity investments 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, 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):
|
|
Rating 1 |
|
|
Rating 2 |
|
|
Rating 3 |
|
|
Rating 4 |
|
|
Rating 5 |
|
|
Total (1) |
|
||||||
At September 30, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Whole loans |
|
$ |
— |
|
|
$ |
1,225,804 |
|
|
$ |
514,422 |
|
|
$ |
383,378 |
|
|
$ |
5,614 |
|
|
$ |
2,129,218 |
|
Preferred equity investment |
|
|
— |
|
|
|
10,194 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,194 |
|
Total |
|
$ |
— |
|
|
$ |
1,235,998 |
|
|
$ |
514,422 |
|
|
$ |
383,378 |
|
|
$ |
5,614 |
|
|
$ |
2,139,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Whole loans |
|
$ |
28,137 |
|
|
$ |
938,416 |
|
|
$ |
470,871 |
|
|
$ |
377,904 |
|
|
$ |
5,614 |
|
|
$ |
1,820,942 |
|
Preferred equity investment |
|
|
— |
|
|
|
9,425 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,425 |
|
Total |
|
$ |
28,137 |
|
|
$ |
947,841 |
|
|
$ |
470,871 |
|
|
$ |
377,904 |
|
|
$ |
5,614 |
|
|
$ |
1,830,367 |
|
(Back to Index)
74
(Back to Index)
Credit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in footnotes):
|
|
2026(1) |
|
|
2025 (2) |
|
|
2024 (3) |
|
|
2023 |
|
|
2022 |
|
|
Prior |
|
|
Total (4) |
|
|||||||
At September 30, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Whole loans: (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 1 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Rating 2 |
|
|
449,061 |
|
|
|
638,324 |
|
|
|
— |
|
|
|
29,506 |
|
|
|
— |
|
|
|
108,913 |
|
|
|
1,225,804 |
|
Rating 3 |
|
|
16,605 |
|
|
|
— |
|
|
|
30,802 |
|
|
|
— |
|
|
|
215,385 |
|
|
|
251,630 |
|
|
|
514,422 |
|
Rating 4 |
|
|
32,928 |
|
|
|
141,516 |
|
|
|
88,266 |
|
|
|
15,996 |
|
|
|
59,471 |
|
|
|
45,201 |
|
|
|
383,378 |
|
Rating 5 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,614 |
|
|
|
5,614 |
|
Total whole loans |
|
|
498,594 |
|
|
|
779,840 |
|
|
|
119,068 |
|
|
|
45,502 |
|
|
|
274,856 |
|
|
|
411,358 |
|
|
|
2,129,218 |
|
Preferred equity investment (rating 2) |
|
|
— |
|
|
|
10,194 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,194 |
|
Total loans |
|
$ |
498,594 |
|
|
$ |
790,034 |
|
|
$ |
119,068 |
|
|
$ |
45,502 |
|
|
$ |
274,856 |
|
|
$ |
411,358 |
|
|
$ |
2,139,412 |
|
Current Period Gross Write-Offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
2025 (2) |
|
|
2024 (3) |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Total (4) |
|
|||||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Whole loans: (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Rating 1 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
28,137 |
|
|
$ |
— |
|
|
$ |
28,137 |
|
Rating 2 |
|
|
649,712 |
|
|
|
22,249 |
|
|
|
49,376 |
|
|
|
— |
|
|
|
203,263 |
|
|
|
13,816 |
|
|
|
938,416 |
|
Rating 3 |
|
|
10,283 |
|
|
|
— |
|
|
|
— |
|
|
|
235,271 |
|
|
|
214,356 |
|
|
|
10,961 |
|
|
|
470,871 |
|
Rating 4 |
|
|
137,906 |
|
|
|
87,370 |
|
|
|
15,991 |
|
|
|
91,675 |
|
|
|
— |
|
|
|
44,962 |
|
|
|
377,904 |
|
Rating 5 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,614 |
|
|
|
5,614 |
|
Total whole loans |
|
|
797,901 |
|
|
|
109,619 |
|
|
|
65,367 |
|
|
|
326,946 |
|
|
|
445,756 |
|
|
|
75,353 |
|
|
|
1,820,942 |
|
Preferred equity investment (rating 2) |
|
|
9,425 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,425 |
|
Total loans |
|
$ |
807,326 |
|
|
$ |
109,619 |
|
|
$ |
65,367 |
|
|
$ |
326,946 |
|
|
$ |
445,756 |
|
|
$ |
75,353 |
|
|
$ |
1,830,367 |
|
Current Period Gross Write-Offs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(4,700 |
) |
|
$ |
(4,700 |
) |
(Back to Index)
75
(Back to Index)
Loan Portfolio Aging Analysis
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):
|
|
30-59 Days |
|
|
60-89 Days |
|
|
Greater than 90 |
|
|
Total Past Due |
|
|
Current (2) |
|
|
Total Loans Receivable (3) |
|
|
Total Loans > 90 Days and Accruing |
|
|||||||
At September 30, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Whole loans |
|
$ |
— |
|
|
$ |
29,833 |
|
|
$ |
65,084 |
|
|
$ |
94,917 |
|
|
$ |
2,034,301 |
|
|
$ |
2,129,218 |
|
|
$ |
38,250 |
|
Preferred equity investment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,194 |
|
|
|
10,194 |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
29,833 |
|
|
$ |
65,084 |
|
|
$ |
94,917 |
|
|
$ |
2,044,495 |
|
|
$ |
2,139,412 |
|
|
$ |
38,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
At December 31, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Whole loans |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
26,834 |
|
|
$ |
26,834 |
|
|
$ |
1,794,108 |
|
|
$ |
1,820,942 |
|
|
$ |
— |
|
Preferred equity investment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,425 |
|
|
|
9,425 |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
26,834 |
|
|
$ |
26,834 |
|
|
$ |
1,803,533 |
|
|
$ |
1,830,367 |
|
|
$ |
— |
|
At September 30, 2026 and December 31, 2025, we had four and three CRE whole loans, with total amortized costs of $94.9 million and $59.1 million, respectively, in payment default.
During the three and nine months ended September 30, 2026 and 2025, we did not recognize interest income on CRE whole loans that were placed on nonaccrual status.
Loan Modifications
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, 2026 and 2025, we did not enter into any loan modifications for borrowers that were experiencing financial difficulty.
Restricted Cash
At September 30, 2026, we had restricted cash of $2.1 million held in required account balance minimums in our various escrow and deposit accounts and our consolidated CRE debt securitization that has an expense reserve and reinvestment cash that is collateral to the senior notes, and the Consolidated Fund had $8.4 million. At December 31, 2025, we had restricted cash of $2.2 million held in required account balance minimums in our various escrow and deposit accounts.
(Back to Index)
76
(Back to Index)
Accrued Interest Receivable
The following table summarizes our accrued interest receivable at September 30, 2026 and December 31, 2025 (in thousands):
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
|
Net Change |
|
|||
Accrued interest receivable from loans |
|
$ |
36,966 |
|
|
$ |
27,232 |
|
|
$ |
9,734 |
|
Accrued interest receivable from promissory note, escrow, sweep and reserve accounts |
|
|
40 |
|
|
|
27 |
|
|
|
13 |
|
Total |
|
$ |
37,006 |
|
|
$ |
27,259 |
|
|
$ |
9,747 |
|
The increase of $9.7 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, 2026 and December 31, 2025 (in thousands):
|
|
September 30, 2026 |
|
|
December 31, 2025 |
|
|
Net Change |
|
|||
Tax receivables and prepaid taxes |
|
$ |
815 |
|
|
$ |
376 |
|
|
$ |
439 |
|
Other receivables |
|
|
4,110 |
|
|
|
2,987 |
|
|
|
1,123 |
|
Prepaid expenses |
|
|
4,291 |
|
|
|
1,890 |
|
|
|
2,401 |
|
Fixed assets - non real estate |
|
|
716 |
|
|
|
325 |
|
|
|
391 |
|
Other assets, miscellaneous |
|
|
1,140 |
|
|
|
982 |
|
|
|
158 |
|
Total |
|
$ |
11,072 |
|
|
$ |
6,560 |
|
|
$ |
4,512 |
|
The increase of $4.5 million in other assets was primarily attributable to increases in prepaid expenses and other receivables related to prepaid insurance and other receivables acquired in the Merger.
Goodwill
We accounted for the Merger and Internalization as a business combination using the acquisition method of accounting. Accordingly, the identifiable assets acquired and liabilities assumed of ACC were recognized at their estimated acquisition-date fair values, with the excess of consideration transferred over the estimated fair value of identifiable net assets acquired recognized as goodwill. Based on our preliminary purchase price allocation, we recognized preliminary goodwill of $175.1 million in connection with the Internalization and Merger.
Goodwill represents the future economic benefits arising from assets acquired that could not be individually identified and separately recognized, including expected synergies and other benefits from the Internalization, and goodwill is not amortized. The purchase price allocation is preliminary and may change as additional information becomes available, including information related to the valuation of acquired assets, assumed liabilities, intangible assets, non-controlling interests and related tax effects. Any adjustments to the preliminary purchase price allocation could affect the amount of goodwill, intangible assets, amortization expense, deferred tax amounts, segment reporting and future impairment analyses.
As of September 30, 2026, we had allocated preliminary goodwill of $78.3 million to our CRE Lending segment and $96.8 million to our Investment Management segment. This allocation may change as the purchase price allocation is finalized. We will continue to evaluate the preliminary purchase accounting during the measurement period and will record adjustments, if any, in the period in which the amounts are determined.
(Back to Index)
77
(Back to Index)
Deferred Tax Assets
At both September 30, 2026 and December 31, 2025, our net deferred tax asset was zero, resulting from a full valuation allowance of $21.8 million and $20.3 million, respectively, on our gross deferred tax assets as we believed it was more likely than not that 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.
We terminated all of our 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, 2026 and December 31, 2025, we had losses of $717,000 and $1.6 million, respectively, recorded in accumulated other comprehensive loss, which will be amortized into earnings over the remaining life of the debt. During the three months ended September 30, 2026 and 2025, we recorded amortization expense of $248,000 and $425,000, respectively, reported in interest expense on the consolidated statements of operations. During the nine months ended September 30, 2026 and 2025, we recorded amortization expense of $886,000 and $1.3 million, respectively, reported in interest expense on the consolidated statements of operations.
For each of the three and nine months ended September 30, 2025 we recorded accretion income, reported in interest expense on the consolidated statements of operations, of $23,000 and $68,000, respectively, to accrete the accumulated other comprehensive income on the terminated swap agreements. At December 31, 2025, we fully accreted the unrealized balance from the gain attributable to two terminated interest rate swaps, and therefore no accretion income was recorded for the three and nine months ended September 30, 2026.
The following table presents the effect of derivative instruments on our consolidated statements of operations for the nine months ended September 30, 2026 and 2025 (in thousands):
|
|
|
|
Realized and Unrealized Gain (Loss) (1) |
|
|||||
|
|
Consolidated Statements of Operations Location |
|
Nine Months Ended September 30, 2026 |
|
|
Nine Months Ended September 30, 2025 |
|
||
Interest rate swap contracts, hedging |
|
Interest expense |
|
$ |
(886 |
) |
|
$ |
(1,191 |
) |
(Back to Index)
78
(Back to Index)
Financing Arrangements
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):
|
|
September 30, 2026 |
|
December 31, 2025 |
||||||||||||||||||||||||
|
|
Outstanding Borrowings |
|
|
Value of Collateral |
|
|
Number of Positions as Collateral |
|
|
Weighted Average Interest Rate |
|
Outstanding Borrowings |
|
|
Value of Collateral |
|
|
Number of Positions as Collateral |
|
|
Weighted Average Interest Rate |
||||||
CRE - Term Reinvestment Financing Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
JPMorgan Chase Bank, N.A. (1) |
|
$ |
582,758 |
|
|
$ |
881,929 |
|
|
|
28 |
|
|
5.58% |
|
$ |
728,167 |
|
|
$ |
1,009,622 |
|
|
|
34 |
|
|
5.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Senior Secured Financing Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Massachusetts Mutual Life Insurance Company (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
—% |
|
|
61,645 |
|
|
|
166,526 |
|
|
|
5 |
|
|
7.53% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
CRE - Term Warehouse Financing Facilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
JPMorgan Chase Bank, N.A. (3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
—% |
|
|
116,488 |
|
|
|
149,000 |
|
|
|
3 |
|
|
5.50% |
Morgan Stanley Mortgage Capital Holdings LLC (4)(5) |
|
|
68,818 |
|
|
|
99,100 |
|
|
|
2 |
|
|
5.67% |
|
|
417,374 |
|
|
|
544,937 |
|
|
|
12 |
|
|
5.55% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Mortgage Payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
HGM CRE LP (6) |
|
|
21,032 |
|
|
|
25,265 |
|
|
|
1 |
|
|
7.38% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
—% |
ReadyCap Commercial, LLC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
—% |
|
|
20,185 |
|
|
|
26,964 |
|
|
|
1 |
|
|
7.57% |
Total |
|
$ |
672,608 |
|
|
$ |
1,006,294 |
|
|
|
|
|
|
|
$ |
1,343,859 |
|
|
$ |
1,897,049 |
|
|
|
|
|
|
||
We were in compliance with all covenants in the respective agreements at September 30, 2026 and December 31, 2025.
CRE - Term Reinvestment Financing Facility
In March 2025, an indirect wholly-owned subsidiary of ours entered into a master repurchase agreement (the "JPMorgan Chase 2025 Facility") with JPMorgan Chase Bank, N.A. ("JPMorgan Chase") to finance existing CRE loans and the origination of CRE loans. The JPMorgan Chase 2025 Facility had an initial maximum facility amount of $939.9 million, provides match term funding, charges interest of one-month benchmark plus a 1.75% spread and matures as of the latest maturity date of any purchased asset. The JPMorgan Chase 2025 Facility includes a two-year reinvestment period enabling the reinvestment of principal proceeds from asset repayments into qualifying replacement assets. The reinvestment period for the JPMorgan Chase 2025 Facility ends in March 2027.
In connection with the JPMorgan Chase 2025 Facility, we provided "bad act" guaranties pursuant to a Guarantee Agreement, dated March 14, 2025 between us and JPMorgan Chase (the "2025 JPMorgan Chase Guarantee") where we are liable for 100% of the repurchase price of the purchased assets and JPMorgan Chase’s losses, costs and expenses only upon the occurrence of certain customary bad acts. The JPMorgan Chase 2025 Guarantee includes certain financial covenants required of us, including required liquidity, required capital, ratios of total indebtedness to equity and EBITDA requirements. The JPMorgan Chase 2025 Facility also includes minimum interest coverage requirements and maximum look through LTV requirements. Also, ACRES Realty Funding, Inc. ("ACRES RF"), the direct owner of the wholly-owned subsidiary borrower, executed a pledge agreement with JPMorgan Chase pursuant to which it pledged and granted to JPMorgan Chase a continuing security interest in any and all of its right, title and interest in and to the wholly-owned subsidiary, including all distributions, proceeds, payments, income and profits from its interests in the wholly-owned subsidiary. In November 2026, we entered into Amendment No. 1 to 2025 JPMorgan Chase Guarantee, by and between us and JPMorgan Chase, which makes certain amendments and modifications to the 2025 JPMorgan Chase Guarantee to amend certain financial covenants.
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79
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The JPMorgan Chase 2025 Facility specifies events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement, including but not limited to: payment defaults; bankruptcy or insolvency proceedings; a change of control of the ACRES SPE 2025-1, LLC, ("Seller SPE") or of us; breaches of covenants and/or certain representations and warranties; and a judgment in an amount greater than $250,000 against the Seller SPE or ACRES RF or $10.0 million against us. The remedies for such events of default are also customary for this type of financing arrangement and include the acceleration of the principal amount outstanding under the JPMorgan Chase 2025 Facility and the liquidation by JPMorgan Chase of purchased assets then subject to the JPMorgan Chase 2025 Facility. In October 2025, the JPMorgan Chase 2025 Facility was amended to allow ACRES Mortgage Fund Levered II, LLC ("AMF Levered II, LLC"), a wholly-owned subsidiary of ACRES Mortgage Fund, Ltd., to purchase a non-controlling interest in the Seller SPE. At September 30, 2026, AMF Levered II, LLC owned a $116.8 million non-controlling interest, or 43.2%, of the Seller SPE and assumed a proportionate share of risk in the portfolio.
Senior Secured Financing Facility
In July 2020, our indirect, wholly-owned subsidiary ("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"). The asset-based revolving loan facility (the "MassMutual Facility") provided under the MassMutual Loan Agreement had been used to finance our core CRE lending business.
In December 2022, Holdings, the Borrower and the Lenders entered into an Amended and Restated Loan and Servicing Agreement (the "Amended and Restated Loan and Servicing Agreement"), which amended and restated the MassMutual Loan Agreement, and reflected 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 was available for three months after the closing date agreed upon by the Borrower and Lenders ("Commitment Period"), subject to the maximum dollar amount agreed upon for that series. The Commitment Period was subject to immediate termination upon the occurrence of an event of default. Each loan series had a final maturity of five years from the issuance date for the loan series unless an additional time was mutually agreed upon by the Lenders and Borrower. The advance rate on portfolio assets was mutually agreed upon by the Lenders and Borrower. Each loan series had its own mutually agreed upon interest rate equal to one-month Term SOFR plus the applicable spread. In August 2026, we paid off the MassMutual Facility and terminated the MassMutual Loan Agreement.
CRE - Term Warehouse Financing Facilities
In October 2018, an indirect, wholly-owned subsidiary of ours entered into a master repurchase agreement (the "JPMorgan Chase Facility") with JPMorgan 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 was set to mature in July 2026. In March 2025, we entered into Amendment No. 6 to Guarantee, by and between us and JPMorgan Chase, which makes certain amendments and modifications to the JPM Guarantee, dated October 26, 2018 between us and JPMorgan Chase, as amended (the "JPM Guarantee") including but not limited to amending (capitalized terms each as defined in the JPM Guarantee) (i) minimum unencumbered Liquidity requirement, (ii) the ratio of Total Indebtedness to Total Equity, (iii) ratio of Adjusted Total Indebtedness to Total Equity, and (iv) EBITDA to Interest Expense ratio. In August 2025, we entered into Amendment No. 7 to Guarantee, by and between us and JPMorgan Chase, which makes certain amendments and modifications to the JPM Guarantee, dated October 26, 2018 between us and JPMorgan Chase, as amended the JPM Guarantee to amend the terms of the debt service coverage period. In July 2026, we entered into Amendment No. 5 to the JPMorgan Chase Facility, extending its maturity to July 2028. We also have the right to request two one-year extensions. In November 2026, we entered into Amendment No. 8 to the JPM Guarantee, by and between us and JPMorgan Chase, which makes certain amendments and modifications to the JPM Guarantee to amend certain financial covenants.
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80
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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 was scheduled to mature in November 2025. We also have the right to request an extension for an additional one-year period. In March 2025, we entered into Amendment No. 4 to Guaranty (the "Morgan Stanley Amendment") by and between us and Morgan Stanley, which makes certain amendments and modifications to the Guaranty between us and Morgan Stanley as amended (the "MS Guaranty"), including but not limited to (capitalized terms each as defined in the MS Guaranty) (i) minimum unencumbered Liquidity requirement, (ii) ratio of Total Indebtedness to Total Equity, (iii) ratio of Adjusted Total Indebtedness to Total Equity, and (iv) EBITDA to Interest Expense ratio. In November 2025, we entered into Amendment No. 3 to the Morgan Stanley Facility extending its maturity to November 2026 and entered into Amendment No. 4 to the Morgan Stanley Facility to increase the facility amount to $400.0 million, as increased from time to time, provided the amount shall be automatically reduced to $250.0 million on the earlier of May 2026 or when we send a request for a reduction in the facility amount. In December 2025, we entered into Amendment No. 5 to the Morgan Stanley Facility to increase the facility amount to $500.0 million. In March 2026, we entered into Amendment No. 6 to the Morgan Stanley Facility to decrease the facility amount to $250.0 million. In November 2026, we entered into Amendment No. 7 to the Morgan Stanley Facility and Amendment No. 5 to the MS Guaranty extending its maturity to November 2027 and to amend certain financial covenants.
Mortgage Payable
In April 2022, Chapel Drive West, LLC, a wholly-owned subsidiary of CS – ACRES FSU Student Venture, LLC (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 was interest only and had a maximum principal balance of $20.4 million, of which, $18.7 million was advanced in the initial funding. The Mortgage charged interest of one-month Term SOFR plus a spread of 3.80%. The Mortgage was paid off in May 2026.
In May 2026, Chapel Drive West, LLC, entered into a Loan Agreement (the "HGM Mortgage") with HGM CRE LP ("HGM") to finance an existing student housing complex. The HGM Mortgage is interest only and has a maximum principal balance of $23.8 million, of which, $21.7 million was advanced in the initial funding. The HGM Mortgage charges interest of one-month Term SOFR plus a spread of 3.50%. The HGM Mortgage is scheduled to mature in June 2029, subject to two one-year extension options.
The HGM 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.
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 was interest only and has a maximum principal balance of $48.0 million. The Construction Loan charged one-month Term SOFR plus a spread of 6.00%. In February 2025, the Construction Loan was amended to bifurcate the first one-year extension option into two separate extension options and periods: a seven month extension period ended September 2025 and a five month extension ended February 2026. The Construction Loan had a maturity of September 2025.
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 had a maximum principal balance of $15.5 million. This agreement charged fixed interest of 7.26% and was scheduled to mature in July 2053.
In September 2025, the Construction Loan and the financing agreement with Florida Pace Funding Agency were paid off in connection with the sale of the student housing complex.
Securitizations
ACR 2026-FL4
In February 2026, we closed ACR 2026-FL4, a CRE debt securitization transaction that can finance up to $1.0 billion of CRE loans. ACR 2026-FL4 issued a total of $879.5 million of non-recourse, floating-rate notes to third parties at par. Additionally, we retained 100% of the Class F notes, Class G notes and Income notes. ACR 2026-FL4 includes a 180-day ramp up acquisition period that allows it to acquire CRE loans using unused proceeds from the issuance of the non-recourse floating-rate notes, which the Company fully utilized for new loan originations as of March 31, 2026. Additionally, ACR 2026-FL4 includes a reinvestment period, which ends in August 2028, that allows it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds.
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At closing, the offered notes issued to investors consisted of the following classes: (i) $589.7 million of Class A notes bearing interest at one-month SOFR plus 1.45%, increasing to 1.70% in August 2031; (ii) $104.2 million of Class A-S notes bearing interest at one-month SOFR plus 1.70%, increasing to 1.95% in August 2031; (iii) $72.4 million of Class B notes bearing interest at one-month SOFR plus 1.95%, increasing to 2.45% in August 2031; (iv) $58.5 million of Class C notes bearing interest at one-month SOFR plus 2.25%, increasing to 2.75% in August 2031; (v) $36.9 million of Class D notes bearing interest at one-month SOFR plus 2.85%, increasing to 3.35% in August 2031 and (vi) $17.8 million of Class E notes bearing interest at one-month SOFR plus 3.60%, increasing to 4.10% in August 2031. All of the notes issued mature in August 2044, although we have the right to call the notes beginning on the payment date in August 2028 and thereafter.
ACR 2021-FL1
In May 2021, we closed ACR 2021-FL1, an $802.6 million CRE debt securitization transaction that provided financing for CRE loans. In March 2025, we exercised the optional redemption on ACR 2021-FL1 in conjunction with the closing of the JPMorgan Chase 2025 Facility.
ACR 2021-FL2
In December 2021, we closed ACR 2021-FL2, a $700.0 million CRE debt securitization transaction that provided financing for CRE loans. In March 2025, we exercised the optional redemption on ACR 2021-FL2 in conjunction with the closing of the JPMorgan Chase 2025 Facility.
Corporate Debt
Corporate Credit Facility
On August 6, 2026, immediately before the closing of the Merger, certain indirectly wholly-owned subsidiaries of the Company entered into a First Amendment and Joinder to Loan and Servicing Agreement with the administrative agent and Massachusetts Mutual Life Insurance Company and other lenders, pursuant to which ACRES Holdings, LLC, ACRES Capital, LLC and ACRES Insurance Agency, LLC became borrowers under the Corporate Credit Facility with an aggregate principal amount of $185.0 million. We accounted for the amendment and joinder as a new borrowing, resulting in no gain or loss recognized during the three months ended September 30, 2026.
The Corporate Credit Facility matures on July 25, 2033 and advances under the facility bear interest at a fixed rate of 8.749% per annum. Scheduled principal payments of $46.3 million are required in each of July 2030, July 2031, July 2032 and July 2033.
The obligations under the facility are unconditionally guaranteed, jointly and severally, by certain indirectly wholly-owned subsidiaries of the Company. The facility contains customary affirmative and negative covenants, including minimum asset value, maximum loan-to-value, interest coverage, minimum gross revenue and minimum fund share value requirements, and limitations on additional indebtedness, liens, investments, capital expenditures (including a limitation on capital expenditures of $1.0 million per calendar year) and dispositions, subject to specified exceptions. As of September 30, 2026, we were in compliance with all applicable covenants.
8.625% Senior Secured Notes Due 2031
On August 6, 2026, following the closing of the Merger, we completed a private placement of $200.0 million aggregate principal amount of 8.625% Senior Secured Notes pursuant to a Note Purchase Agreement, by and among us, the purchasers named therein and UMB Bank, N.A., as collateral agent. The 8.625% Senior Secured Notes mature on July 31, 2031 and bear interest at a fixed rate of 8.625% per annum, payable semi-annually. The 8.625% Senior Secured Notes are secured on a first lien basis by a pledge of certain capital stock of our subsidiaries, residual equity interests in certain of our securitization financing vehicles and other CRE assets, and are guaranteed by certain of our subsidiaries.
Prior to July 31, 2028, the 8.625% Senior Secured Notes will be redeemable at 100% of the principal amount plus a "make-whole" premium, plus any accrued and unpaid interest on the principal amount being redeemed, fees, expenses, indemnities and other amounts to, but excluding, the redemption date. On or after July 31, 2028, the 8.625% Senior Secured Notes will be redeemable at the following prepayment prices (expressed as a percentage of the principal amount of the Notes redeemed), plus any accrued and unpaid interest on the principal amount being redeemed, fees, expenses, indemnities and other amounts to, but excluding, the redemption date), if redeemed during the 12-month period beginning on July 31 of the year set forth below:
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82
(Back to Index)
Year |
Redemption Price |
2028 |
104.3125% |
2029 |
102.15625% |
2030 |
100.000% |
We used a portion of the net proceeds from the 8.625% Senior Secured Notes to repay in full our 5.75% Senior Unsecured Notes at their August 2026 maturity, with the remaining net proceeds used for general corporate purposes.
5.75% Senior Unsecured Notes Due 2026
On August 16, 2021, we issued $150.0 million of our 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"). The 5.75% Senior Unsecured Notes were repaid in full at their scheduled maturity in August 2026.
Unsecured Junior Subordinated Debentures
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.
There were no unamortized debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II outstanding at September 30, 2026 and December 31, 2025. The interest rates for RCT I and RCT II, at September 30, 2026, were 7.94% and 8.05%, respectively. The interest rates for RCT I and RCT II, at December 31, 2025, were 7.90% and 8.05%, respectively.
Equity
Total equity at September 30, 2026 was $1.2 billion compared to total equity at December 31, 2025 of $550.6 million. The increase in equity during the nine months ended September 30, 2026 was primarily attributable to the net issuance of 6.3 million shares of common stock as Merger consideration, issuance of 2.2 million shares of the Company's 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock, and non-controlling interests acquired as part of the Merger partially offset by net losses in the third quarter of 2026 and net redemptions of non-controlling interests.
Our preferred equity is composed of the following at September 30, 2026:
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83
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Balance Sheet - Book Value Reconciliation
The following table rolls forward our common stock book value for the three and nine months ended September 30, 2026 (in thousands, except per share data and amounts in footnotes):
|
|
Three Months Ended September 30, 2026 |
|
|
Nine Months Ended September 30, 2026 |
|
||||||||||
|
|
Total Amount |
|
|
Per Share Amount |
|
|
Total Amount |
|
|
Per Share Amount |
|
||||
Common stock book value at beginning of period (1) |
|
$ |
189,327 |
|
|
$ |
26.76 |
|
|
$ |
196,804 |
|
|
$ |
30.01 |
|
Net loss allocable to common shares (2)(3) |
|
|
(56,326 |
) |
|
|
(4.21 |
) |
|
|
(69,868 |
) |
|
|
(5.22 |
) |
Change in other comprehensive income on derivatives |
|
|
247 |
|
|
|
0.02 |
|
|
|
886 |
|
|
|
0.07 |
|
Issuance of common shares in consideration for Merger(3) |
|
|
91,886 |
|
|
|
(5.77 |
) |
|
|
91,886 |
|
|
|
(7.59 |
) |
Impact to equity of share-based compensation |
|
|
115 |
|
|
|
0.01 |
|
|
|
5,541 |
|
|
|
(0.46 |
) |
Total net decrease |
|
|
35,922 |
|
|
|
(9.95 |
) |
|
|
28,445 |
|
|
|
(13.20 |
) |
Common stock book value at end of period (1)(4) |
|
$ |
225,249 |
|
|
$ |
16.81 |
|
|
$ |
225,249 |
|
|
$ |
16.81 |
|
Management Agreement Equity
Prior to the termination of our Management Agreement in connection with the Closing of the Merger and Internalization on August 6, 2026, our monthly base management fee, as defined in our Management Agreement, was equal to 1/12th of the amount of our equity multiplied by 1.50% and was calculated and paid monthly in arrears. Following the Closing, we no longer incur or pay a base management fee or incentive compensation to a third-party manager, as our Manager became our wholly-owned subsidiary and its personnel became our employees.
The following table summarizes the calculation of equity, as defined in the Management Agreement (in thousands):
|
|
Amount |
|
|
At August 6, 2026: |
|
|
|
|
Proceeds from capital stock issuances, net (1) |
|
$ |
1,330,472 |
|
Retained earnings, net (2) |
|
|
(641,971 |
) |
Payments for repurchases of capital stock |
|
|
(279,678 |
) |
Total |
|
$ |
408,823 |
|
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.
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84
(Back to Index)
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 in place prior to the Closing of the Merger and Internalization we calculated incentive compensation using EAD that excluded incentive compensation payable to our Manager, we included incentive compensation payable to our Manager in calculating EAD for reporting purposes.
The following table provides a reconciliation from GAAP net (loss) income allocable to common shares to EAD allocable to common shares for the periods presented (in thousands, except per share data):
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
2026 |
|
|
Per Share |
|
|
2025 |
|
|
Per Share |
|
|
2026 |
|
|
Per Share |
|
|
2025 |
|
|
Per Share |
|
||||||||
Net (loss) income allocable to common shares - GAAP |
|
$ |
(56,326 |
) |
|
$ |
(5.16 |
) |
|
$ |
9,782 |
|
|
$ |
1.34 |
|
|
$ |
(69,868 |
) |
|
$ |
(8.65 |
) |
|
$ |
3,191 |
|
|
$ |
0.42 |
|
Adjustment for gain on sale of investment in real estate(1) |
|
|
— |
|
|
|
— |
|
|
|
(9,477 |
) |
|
|
(1.30 |
) |
|
|
(3,336 |
) |
|
|
(0.41 |
) |
|
|
(9,477 |
) |
|
|
(1.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Reconciling Items from Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Non-cash equity compensation expense |
|
|
115 |
|
|
|
0.01 |
|
|
|
374 |
|
|
|
0.05 |
|
|
|
5,753 |
|
|
|
0.71 |
|
|
|
1,774 |
|
|
|
0.23 |
|
Non-cash provision for (reversal of) CRE loan losses(2) |
|
|
5,070 |
|
|
|
0.47 |
|
|
|
(3,960 |
) |
|
|
(0.55 |
) |
|
|
5,766 |
|
|
|
0.71 |
|
|
|
(6,457 |
) |
|
|
(0.85 |
) |
Realized net gain on core activities(1),(3) |
|
|
— |
|
|
|
— |
|
|
|
9,477 |
|
|
|
1.30 |
|
|
|
3,336 |
|
|
|
0.41 |
|
|
|
8,777 |
|
|
|
1.16 |
|
Non-cash amortization of discount on borrowings |
|
|
156 |
|
|
|
0.01 |
|
|
|
— |
|
|
|
— |
|
|
|
156 |
|
|
|
0.02 |
|
|
|
— |
|
|
|
— |
|
Fair value of ACC stock options attributable to post-combination costs |
|
|
13,720 |
|
|
|
1.26 |
|
|
|
— |
|
|
|
— |
|
|
|
13,720 |
|
|
|
1.70 |
|
|
|
— |
|
|
|
— |
|
Real estate depreciation and amortization |
|
|
8,425 |
|
|
|
0.77 |
|
|
|
1,223 |
|
|
|
0.17 |
|
|
|
10,821 |
|
|
|
1.34 |
|
|
|
3,591 |
|
|
|
0.48 |
|
Earnings (Loss) Available for Distribution allocable to common shares |
|
$ |
(28,840 |
) |
|
$ |
(2.64 |
) |
|
$ |
7,419 |
|
|
$ |
1.01 |
|
|
$ |
(33,652 |
) |
|
$ |
(4.17 |
) |
|
$ |
1,399 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares - diluted on Earnings Available for Distribution allocable to common shares |
|
|
10,923 |
|
|
|
|
|
|
7,314 |
|
|
|
|
|
|
8,075 |
|
|
|
|
|
|
7,558 |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Earnings (Loss) Available for Distribution per common share - diluted |
|
$ |
(2.64 |
) |
|
|
|
|
$ |
1.01 |
|
|
|
|
|
$ |
(4.17 |
) |
|
|
|
|
$ |
0.19 |
|
|
|
|
||||
For the three and nine months ended September 30, 2026, EAD in accordance with the Management Agreement in place prior to the Closing of the Merger and Internalization was a loss of $27.8 million and $32.6 million, respectively, or ($2.64) and ($4.17), respectively, per common share outstanding. There was no incentive compensation payable incurred by us for the three and nine months ended September 30, 2026.
Incentive Compensation Hurdle
Prior to the Closing of the Merger and Internalization, with respect to each fiscal quarter commencing with the quarter ended December 31, 2022, an incentive management fee was calculated and payable in arrears. This incentive management fee arrangement contained in the Management Agreement was terminated as part of the Merger and Internalization on August 6, 2026 and no further fees will be calculated.
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85
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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. Our ability to meet our on-going liquidity needs is subject to our ability to generate cash from operating activities, which was a net use of $30.9 million for the nine months ended September 30, 2026, and our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to below.
At September 30, 2026, our liquidity consisted of $53.3 million of unrestricted cash and cash equivalents and $43.0 million of potential proceeds from unlevered financeable CRE loans.
The Merger and Internalization affected our liquidity and capital resources through the assumption of additional indebtedness, the payment or accrual of transaction-related costs, and the transition from an externally managed to an internally managed operating model. In connection with the Closing, we assumed ACC’s credit facility, with approximately $185.0 million outstanding at Closing.
During the nine months ended September 30, 2026, our principal sources of liquidity were: (i) gross financing proceeds of $879.5 million from the CRE securitization; (ii) net proceeds of $200.0 million from our Senior Secured Notes; (iii) $125.5 million from our CRE warehouse facilities; (iv) $50.4 million proceeds related to the issuance of Series C Preferred Stock; (v) net proceeds of $35.9 million from repayments on our CRE loan portfolio; (vi) proceeds of $29.1 million from a CRE loan sale, (vii) proceeds of $20.0 million from the sale of an investment in real estate; (viii) proceeds of $13.6 million from our senior secured financing facility; and (ix) $1.3 million contribution by our non-controlling interest.
These sources of liquidity were offset by the paydowns on our term warehouse facilities and senior secured financing facility, deployments in CRE loan portfolio and real estate investments, repayment of senior unsecured notes, distributions on our preferred stock and ongoing operating expenses and substantially resulted in the $53.3 million of unrestricted cash we held at September 30, 2026.
The outstanding balance of our loan to ACC was $10.4 million at December 31, 2025. The note accrued interest at 3.00% per annum, payable monthly, and was scheduled to mature in July 2026, subject to two one-year extensions, at ACC’s option, and amortized at a rate of $25,000 per month. In July 2026, the loan was amended to extend the maturity date to August 2026. The loan to ACC was settled as part of the Merger consideration.
At September 30, 2026, $10.5 million of interest receivable is current and the remaining $26.5 million of interest receivable is deferred, which we deem fully collectible.
Cash Flows
For the nine months ended September 30, 2026, our restricted and unrestricted cash and cash equivalents balance decreased from $86.0 million to $55.4 million. The cash movements can be summarized by the following:
Cash flows from operating activities. For the nine months ended September 30, 2026, operating activities decreased our cash balances by $30.9 million, primarily driven by net cash flow impact from the Merger. Cash inflows from operating activities are down as we work with our borrowers to structure loan repayment terms that allow our borrowers to successfully complete their underwritten plans and that allow us to ultimately maximize our investment. Some of these structures have deferred loan components that impact our current cash position. We expect to be repaid these deferred amounts as our borrowers create value in the underlying collateral through the execution and completion of their project plans and exit our loans through sales or refinance transactions.
Cash flows from investing activities. For the nine months ended September 30, 2026, investing activities decreased our cash balances by $279.9 million, primarily driven by deployments in CRE whole loans, funding of existing commitments on CRE whole loans, deployments in our investment in real estate and investments in unconsolidated entities with underlying real estate collateral, partially offset by repayments of CRE loans, proceeds from sales of CRE loans and proceeds from the sales of investments in real estate.
Cash flows from financing activities. For the nine months ended September 30, 2026, financing activities increased our cash balances by $280.3 million, primarily driven by proceeds received on our CRE securitization notes, 8.625% Senior Secured Notes, term warehouse financing facilities, term reinvestment financing facility and senior secured financing facility offset by repayments on our term warehouse financing facilities, term reinvestment financing facility, 5.75% Senior Unsecured Notes, senior secured financing facility and distributions on our preferred stock.
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86
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Financing Availability
We utilize a variety of financing arrangements to finance certain assets. We generally utilize the following types of financing arrangements:
The issuance of ACR 2026-FL4 includes a reinvestment period, which ends in August 2028, that allows it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds. The reinvestment feature of the securitization will allow us to extend the useful life of the securitization financing by extending the life of the senior notes and return liquidity to fund our forward loan pipeline that would otherwise pay down the senior notes of the securitization. The securitization also provides for the acquisition of future funding participations.
We were in compliance with all of our covenants at September 30, 2026 in accordance with the terms provided in agreements with our lenders.
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87
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At September 30, 2026, we had financing arrangements as summarized below (in thousands, except amounts in footnotes):
|
|
Execution Date |
|
Maturity Date |
|
Maximum Capacity |
|
|
Facility Principal |
|
|
Availability |
|
|||
CRE - term reinvestment financing facility (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
JPMorgan Chase Bank, N.A. |
|
March 2025 |
|
November 2030 |
|
$ |
605,794 |
|
|
$ |
585,089 |
|
|
$ |
20,705 |
|
CRE - term warehouse financing facilities (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
JPMorgan Chase Bank, N.A. |
|
October 2018 |
|
July 2028 |
|
|
250,000 |
|
|
|
- |
|
|
|
250,000 |
|
Morgan Stanley Mortgage Capital Holdings LLC |
|
November 2021 |
|
November 2026 |
|
|
250,000 |
|
|
|
70,032 |
|
|
|
179,968 |
|
Mortgage payable (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
HGM CRE, LP |
|
May 2026 |
|
June 2029 |
|
|
23,750 |
|
|
|
21,731 |
|
|
|
2,019 |
|
Total |
|
|
|
|
|
|
|
|
$ |
676,852 |
|
|
|
|
||
The following table summarizes the average principal outstanding during the three months ended September 30, 2026 and December 31, 2025 and the principal outstanding on our financing arrangements at September 30, 2026 and December 31, 2025 (in thousands, except amounts in footnotes):
|
|
Three Months |
|
|
September 30, 2026 |
|
|
Three Months |
|
|
December 31, 2025 |
|
||||
|
|
Average Principal Outstanding |
|
|
Principal Outstanding |
|
|
Average Principal Outstanding |
|
|
Principal Outstanding |
|
||||
Financing Arrangement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
CRE - term reinvestment financing facility (1) |
|
$ |
588,593 |
|
|
$ |
585,089 |
|
|
$ |
784,225 |
|
|
$ |
731,002 |
|
Senior secured financing facility (2) |
|
|
22,110 |
|
|
|
- |
|
|
|
63,099 |
|
|
|
63,099 |
|
CRE - term warehouse financing facilities (3) |
|
|
37,197 |
|
|
|
70,032 |
|
|
|
361,988 |
|
|
|
534,760 |
|
Total |
|
$ |
647,900 |
|
|
$ |
655,121 |
|
|
$ |
1,209,312 |
|
|
$ |
1,328,861 |
|
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 |
|
||||
|
|
Nine Months Ended September 30, 2026 |
|
Year-Ended-December 31, 2025 |
|
||
|
|
||||||
Financing Arrangement |
|
|
|
|
|
||
CRE - term reinvestment financing facility |
|
$ |
711,875 |
|
$ |
891,098 |
|
Senior secured financing facility |
|
|
63,099 |
|
|
63,099 |
|
CRE - term warehouse financing facilities |
|
|
534,760 |
|
|
534,760 |
|
Historically, we have financed the acquisition of our investments through collateralized loan obligations ("CLO") 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 CLOs and securitizations, which will cease if the CLOs and securitizations fail to meet certain tests. Through September 30, 2026, we did not experience difficulty in maintaining our CLO and securitization financing and passed all of the critical tests required by these financings. Our securitization had a principal balance of $879.5 million at September 30, 2026.
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88
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The following table sets forth the distributions received by us and coverage test summaries for our active securitization and financing facility for the periods presented (in thousands):
|
|
Cash Distributions |
|
|
Overcollateralization Cushion(1) |
|
|
Look Through LTV Cushion (2) |
|
|
Annualized Interest Coverage Cushion (3)(4) |
|
|
|
||||||||
Name |
|
For the Nine Months Ended September 30, 2026 |
|
|
At September 30, 2026 |
|
|
Initial Measurement Date |
|
|
At September 30, 2026 |
|
|
At September 30, 2026 |
|
|
Reinvestment Period End |
|||||
ACR 2026-FL4 |
|
$ |
9,487 |
|
|
$ |
20,378 |
|
|
$ |
20,378 |
|
|
n/a |
|
|
$ |
11,674 |
|
|
August 2028 |
|
CRE - term reinvestment financing facility |
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
$ |
58,638 |
|
|
$ |
19,705 |
|
|
n/a |
|||
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, 2026 and December 31, 2025, our leverage ratio under GAAP was 2.7 times and 2.8 times, respectively. The leverage ratio decreased during the period primarily due to the net increase in borrowings offset by the net increase to total equity.
Contractual Obligations and Commitments
|
|
Contractual Commitments |
|
|||||||||||||||||
|
|
(dollars in thousands, except amounts in footnotes) |
|
|||||||||||||||||
|
|
Payments due by Period |
|
|||||||||||||||||
|
|
Total |
|
|
Less than 1 year |
|
|
1 - 3 years |
|
|
3 - 5 years |
|
|
More than 5 years |
|
|||||
At September 30, 2026: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
CRE securitization |
|
$ |
879,499 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
879,499 |
|
CRE - term reinvestment financing facility (1) |
|
|
585,089 |
|
|
|
— |
|
|
|
— |
|
|
|
585,089 |
|
|
|
— |
|
CRE - term warehouse financing facilities (2) |
|
|
70,032 |
|
|
|
70,032 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Mortgage payable (3) |
|
|
21,731 |
|
|
|
— |
|
|
|
21,731 |
|
|
|
— |
|
|
|
— |
|
Corporate credit facility |
|
|
185,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
185,000 |
|
8.625% Senior secured notes (4) |
|
|
200,000 |
|
|
|
— |
|
|
|
— |
|
|
|
200,000 |
|
|
|
— |
|
Unsecured junior subordinated debentures (5) |
|
|
51,548 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51,548 |
|
Lease liabilities (6) |
|
|
890,274 |
|
|
|
2,074 |
|
|
|
4,730 |
|
|
|
5,016 |
|
|
|
878,454 |
|
Unfunded commitments on CRE loans (7) |
|
|
78,233 |
|
|
|
24,070 |
|
|
|
37,406 |
|
|
|
16,757 |
|
|
|
— |
|
Total |
|
$ |
2,961,406 |
|
|
$ |
96,176 |
|
|
$ |
63,867 |
|
|
$ |
806,862 |
|
|
$ |
1,994,501 |
|
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89
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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 |
|
|
Operating |
|
|
Capital |
|
|||||
Net Operating Loss Carryforwards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cumulative as of 2025 |
|
2025 Return |
|
$ |
36.9 |
|
|
$ |
— |
|
|
$ |
65.0 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Capital Loss Carryforwards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cumulative as of 2025 |
|
2025 Return |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20.8 |
|
Total tax asset estimates |
|
|
|
$ |
36.9 |
|
|
$ |
— |
|
|
$ |
65.0 |
|
|
$ |
20.8 |
|
Useful life |
|
|
|
Unlimited |
|
|
5 years |
|
|
Various |
|
|
5 years |
|
||||
At September 30, 2026, we had $36.9 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.
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, 2026, our TRS had $65.0 million of NOLs comprising: $39.8 million of pre-TCJA NOLs, some of which are set to expire beginning in 2044 and $25.2 million of NOLs with an indefinite carryforward period. Additionally, our TRS had cumulative total net capital losses of $20.8 million, which are set to expire at December 31, 2029.
Distributions
We did not pay distributions on our common shares during the nine months ended September 30, 2026 as we were able to utilize NOL carryforwards and net capital loss carryforwards to offset our REIT taxable income. This enabled us to grow our investable equity base. Our Board is responsible for the establishment and evaluation of 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.
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90
(Back to Index)
Off-Balance Sheet Arrangements
General
At September 30, 2026, 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 that were not established for those purposes. At September 30, 2026, 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, other than those discussed in the "Guarantees and Indemnifications" section below.
Unfunded Commitments
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 $78.2 million and $88.6 million in unfunded loan commitments at September 30, 2026 and December 31, 2025, 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 September 2025, we entered into guaranties related to a $62.4 million construction loan and a $10.9 million bridge loan made to a borrower that is held by a joint venture in which we have a 90% membership interest (the "Borrower"). Pursuant to the Guaranty of Completion, executed September 2025, by the individual principals of the partnership and us (collectively, the "Guarantors") for the benefit of DL RCF I Loan Holdings, LLC and DL RCF I Loan Holdings (Evergreen), LLC (collectively, the "Lender"), the Guarantors guarantee to the Lender, the Borrower’s obligation to commence, construct, develop and complete the construction project in a good and workmanlike manner in accordance with the terms and conditions of the Loan Agreement, dated September 12, 2025 by and among the Borrower, DL RCF I Loan Holdings, LLC (the "Agent") and the Lender (the "Loan Agreement") and to perform all other work contemplated or required to be completed pursuant to the loan documentation through final completion.
In September 2025, the Guarantors also entered into a Guaranty of Retail Space to guarantee the payment and performance of all of the obligations for the payment of debt and the performance of the obligations under the Loan Agreement and a Guaranty of Recourse Obligations to guarantee the payment and performance of certain liabilities ("bad boy") and payment obligations set forth in the Loan Agreement and agree to be liable for the guaranteed obligations as a primary obligor. Also in September 2025, the Guarantors entered into the Guaranty of Interest and Carry Costs to guarantee the payment and performance of the Borrower’s obligation to timely pay all Carry Costs and Debt Service and its obligation to make deposits into the Carry Cost Account (each as defined in the agreement) in accordance with the Loan Agreement, and all interest due to the Bridge Lender (defined below) and/or preferred return due pursuant to the Master Tenant Operating Agreement. The Guarantors also unconditionally covenant and agree to be liable for these guaranteed obligations as a primary obligor. Additionally, the Guarantors with the Borrower also entered into an Environmental Indemnity Agreement jointly and severally in favor of the Lender and Agent whereby the Guarantors serving as Indemnitors provided environmental representations and warranties, covenants and indemnification.
In connection with the $10.9 million bridge loan from Hoyne Savings Bank ("Bridge Lender") to Borrower, we entered into the Repayment and Completion Guaranty in September 2025, in favor of Bridge Lender subject to the Bridge Loan Agreement between Borrower and Bridge Lender (the "Bridge Loan Agreement") to guarantee the prompt payment of all indebtedness under the Bridge Loan Agreement and the prompt performance of all other covenants, obligations and agreements of Borrower under the Bridge Loan Agreement, including but not limited to, construction of the improvements and completion before the completion date and material compliance with all environmental covenants and indemnities set forth in the Bridge Loan Agreement.
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91
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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 allowance for credit losses, investments in real estate, revenue recognition and variable interest entities ("VIEs"). We have reviewed these accounting policies with our Board and believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made based upon information available to us at the time.
Allowance for Credit Losses
We maintain an allowance for credit losses 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.
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.
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92
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Investments in Real Estate
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 U.S. 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.
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:
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Income Earned from Fee-Based Services
Income from fee-based services includes asset management fees, development fees, servicing fees, and incentive fees. Such fees are included in fee and other income on the consolidated statements of operations. Incentive fees are earned when specified financial hurdles are met for certain separately managed accounts. Revenues from fee-based services that we provide are recognized as earned over time in accordance with contractual agreements. The services we provide represent performance obligations that are satisfied over time.
Goodwill
Goodwill represents the costs of business acquisitions in excess of the fair value of identifiable net assets acquired. We evaluate the recoverability of goodwill annually on the first day of our fiscal fourth quarter of each fiscal year, or more frequently, if events or changes in circumstances indicate that goodwill might be impaired. If our review indicates that the carrying amount of goodwill exceeds its fair value, we will reduce the carrying amount of goodwill to fair value. The annual impairment test will be performed as of October 1st each year. While we have not yet completed this analysis for 2026, we do not anticipate that goodwill will be impaired, nor were there events or changes in circumstances indicating impairment at September 30, 2026.
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, 2026, we determined that there were two VIEs to be consolidated.
Recent Accounting Standards
Accounting Standards to be Adopted in Future Periods
In November 2024, the Financial Accounting Standards Board issued guidance to improve transparency on certain costs and expenses. This guidance is effective for fiscal years beginning after December 15, 2026 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2026, 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, 2025 and Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q 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, our 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.
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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, 2026, 62% of the par value of our CRE loan portfolio had interest rate caps with a weighted-average maturity of 15.0 months or debt service reserves in place.
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, and other macroeconomic factors on our loans secured by properties experiencing cash flow pressure. These conditions may be exacerbated by recent changes in global tariff policies and escalating global trade tensions, which may introduce uncertainty in supply chains and contribute to market volatility. 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 CRE - term reinvestment financing facility, a senior secured financing facility, warehouse financing facilities, a mortgage payable and construction loans. 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, 2026, 97.0% 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 3.0% 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 $2.1 billion had a weighted-average benchmark floor of 2.33% at September 30, 2026.
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):
|
|
|
Three Months Ended September 30, 2026 |
|
||||||||||||||
|
|
|
100 Basis Point Decrease (4) |
|
|
100 Basis Point Increase |
|
|||||||||||
Net Assets Subject to Interest Rate Sensitivity (1)(2)(3) |
|
|
Increase (Decrease) to Net Interest Income |
|
|
Increase (Decrease) to Net Interest Income Per Share |
|
|
Increase (Decrease) to Net Interest Income |
|
|
Increase (Decrease) to Net Interest Income Per Share |
|
|||||
$ |
495,864 |
|
|
$ |
(1,413 |
) |
|
$ |
(0.03 |
) |
|
$ |
4,687 |
|
|
$ |
0.11 |
|
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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, as amended, or the Exchange Act, 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 Managing Director – Capital Markets who serves as our principal executive officer (the "PEO") 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 PEO 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 PEO 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
We merged with ACC on August 6, 2026, which is discussed in detail in Note 2, Merger of ACRES Capital Corp. and Internalization of Management to the consolidated financial statements. Our assessment of the effectiveness of our disclosure controls and procedures did not encompass the internal controls over financial reporting of ACC. This decision aligns with the general guidance from the SEC Staff, allowing the exclusion of an assessment of a recently acquired business from management’s scope for an internal controls audit for up to one year post-acquisition.
With the completion of the Merger and Internalization of ACC , we are in the process of implementing internal controls over significant processes at ACC, which we consider appropriate and necessary given the integration level. As the integration progresses, we will continuously evaluate ACC's internal controls and processes, further integrating them with ours within a year of the Merger.
Other than the ongoing integration of ACC described above, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
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, 2026.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes to the risk factors previously disclosed in Part I, Item 1A. "Risk Factors" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and Part II, Item 1A. "Risk Factors" of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2026.
Risks Relating to the Completed Merger and Internalization
On August 6, 2026, we completed the merger of ACRES Capital Corp. ("ACC") with and into ACRES Holdings Sub LLC ("Merger Sub"), our subsidiary, with Merger Sub continuing as the surviving company and our wholly-owned subsidiary (the "Merger"), pursuant to the Agreement and Plan of Merger, dated April 29, 2026 (the "Merger Agreement"). As a result of the Merger, among other things, (i) we acquired ACRES Capital LLC, our former external manager (the "Manager"), (ii) the Manager ceased to perform any outside management services for us, (iii) we and the Manager terminated the Fourth Amended and Restated Management Agreement, dated as of July 31, 2020, as amended, by and among us, the Manager and ACC (the "Management Agreement"), for no additional consideration, and (iv) we became internally managed (the "Internalization").
The issuance of shares of our common stock in the Merger and Internalization substantially increased the number of shares outstanding and may dilute existing stockholders or adversely affect the market price of our common stock.
Pursuant to the Merger Agreement, as of August 6, 2026, each outstanding share of common stock of ACC was converted into the right to receive 2.61882 shares of our common stock, and we issued 7,478,462 shares of our common stock as Merger consideration, resulting in 13,452,489 shares of our common stock outstanding as of August 6, 2026. The issuance of these shares significantly increased our outstanding common stock and diluted the ownership and voting interests of our pre-Merger stockholders.
The additional shares may adversely affect the market price of our common stock, particularly if former ACC stockholders sell a significant number of shares, if investors expect such sales to occur, or if the market perceives that the Merger and Internalization will not produce the expected benefits. If the market price of our common stock declines, our ability to raise capital on favorable terms, maintain investor confidence or pursue strategic transactions may be adversely affected. The increased number of shares outstanding also may reduce earnings per share, book value per share or other per-share metrics, depending on our post-Closing results, transaction costs, integration costs and the value of the acquired business. In addition, the issuance of shares to former owners of ACC may affect voting dynamics and governance matters.
We may not realize the anticipated benefits of the Merger and Internalization and may not improve our operating results, cost structure or stockholder value to the extent anticipated.
We completed the Merger and Internalization with the expectation that becoming internally managed would provide operational and strategic benefits, including the alignment of management with stockholders, greater control over personnel, investment processes and operating infrastructure, and potential cost savings over time. We may not realize these anticipated benefits in the expected amounts or within the expected time periods, or at all. The extent of any benefits will depend on a number of factors, including our ability to integrate ACRES Capital LLC’s operations, personnel, systems, investment processes, accounting functions, compliance programs and internal controls into our business, as well as our ability to manage our expenses as an internally managed REIT.
Our actual costs of operating as an internally managed REIT may exceed the fees and expenses previously paid or reimbursed under the former Management Agreement. We may incur higher-than-expected compensation and benefits costs, insurance costs, technology costs, professional fees, corporate overhead, compliance costs and other recurring expenses. In addition, we have incurred, and expect to continue to incur, transaction, integration and transition expenses in connection with the Merger and Internalization, including legal, accounting, advisory, tax, valuation, consulting, compensation, information technology, insurance and governance-related costs. These expenses may be material, may be higher than currently anticipated and may reduce or delay any expected cost savings.
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If we do not realize the anticipated benefits of the Merger and Internalization, if those benefits are offset by increased costs, or if integration activities detract from management’s ability to focus on investment and asset management activities, our business, financial condition, results of operations, cash flows, ability to make distributions to stockholders and market price of our common stock could be materially adversely affected.
Assumption of Facility pursuant to Merger and Internalization
In connection with the Merger and Internalization, on August 6, 2026 we entered into a First Amendment and Joinder to Loan and Servicing Agreement (the "First Amendment") with the Administrative Agent, as administrative agent and facility servicer (the "Administrative Agent") and Massachusetts Mutual Life Insurance Company ("MassMutual") and the other lenders party thereto (the "Lenders"). The First Amendment amends and restates the existing loan and servicing agreement (as amended by the First Amendment, the "Loan Agreement") entered into on July 23, 2025 and provides for term loan advances in an aggregate principal amount of $185,000,000.
There is no assurance we will generate sufficient cash flow to pay principal and interest when due on our indebtedness. Our indebtedness could have important consequences, including:
The transition from an externally managed REIT to an internally managed REIT exposes us to enhanced operational, personnel, compliance and execution risks, and we may experience difficulties integrating ACRES Capital LLC, including its personnel, systems, controls, books and records, investment processes and compliance framework.
Our ability to operate successfully as an internally managed REIT will depend in part on the continuity and effectiveness of the personnel, systems and processes acquired or assumed in the Merger and Internalization. Prior to the Merger and Internalization, we relied on our external manager to provide personnel, infrastructure, investment sourcing, underwriting, asset management, administrative services and other management functions. Following the completion of the Merger and Internalization, we are responsible for these functions and costs. As an internally managed company, we must maintain appropriate staffing, compensation arrangements, policies, procedures, systems, controls, insurance coverage, internal control over financial reporting, vendor relationships and governance processes to support our business.
This transition may place significant demands on management, employees and our operational infrastructure. We may experience disruptions or inefficiencies and incur additional expenses as we integrate employees, systems and processes previously used by ACRES Capital LLC. We also may need to develop, modify or expand policies and procedures relating to investment approvals, asset management, accounting, treasury, tax, financial reporting, cybersecurity, human resources, compensation, compliance and internal audit. If these functions are not effectively implemented or maintained, we may experience errors, control deficiencies, reporting delays, increased expenses, regulatory or compliance issues, employee retention challenges or other adverse consequences.
There can be no assurance that our internalized management platform will perform as expected or that the transition will not adversely affect our business, financial condition, results of operations or ability to execute investment strategy.
The termination of the prior Management Agreement may result in the loss of rights, services, indemnities, relationships or operational arrangements on which we previously relied.
In connection with the Merger and Internalization, we terminated the prior Management Agreement for no additional consideration, which could result in disputes or uncertainties regarding surviving obligations, indemnification rights, expense
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reimbursement matters, confidentiality obligations, books and records, intellectual property, insurance coverage, allocation of liabilities, or other contractual matters.
We also may lose, or may be required to renegotiate or replace, arrangements that were entered into by or through the former manager or its affiliates, including vendor relationships, advisory relationships, licensing arrangements, software subscriptions, data services, office leases, insurance policies, employee benefit arrangements or other operational support services. We may not be able to replace those services or arrangements on terms as favorable as those previously available, or at all. Any disruption, dispute or increased cost arising from the termination of the prior Management Agreement could adversely affect our operations and results.
We may be unable to retain key employees or preserve investment, advisory, borrower, lender and other business relationships following the Merger and Internalization.
Our success following the Merger and Internalization depends in significant part on our ability to retain and motivate key employees and investment professionals, including personnel of ACRES Capital LLC who have historically supported our investment sourcing, underwriting, asset management, financing, accounting, tax, legal, compliance and administrative functions. The transition to internal management may create uncertainty for employees regarding roles, compensation, benefits, reporting lines, incentives, culture and future business plans. We may incur increased compensation, retention, severance or recruiting costs, and we may not be able to retain or replace key personnel on acceptable terms.
We also depend on the continuity of relationships with borrowers, loan sellers, financing counterparties, co-investors, consultants, service providers, rating agencies, trustees, custodians, administrators, legal and accounting advisors and other business partners. Some relationships may have been maintained historically by the former external manager or its affiliates, and counterparties may seek to modify, re-underwrite, terminate or decline to renew arrangements following the Merger and Internalization. If we lose key employees or important business relationships, or if employee departures or relationship disruptions impair investment sourcing, asset management, financing or reporting activities, our business, financial condition, results of operations and ability to execute our investment strategy could be adversely affected.
The Merger and Internalization may create or fail to eliminate conflicts of interest, and our governance structure may be subject to new or different risks following the Merger and Internalization.
Former owners, officers, employees or affiliates of ACRES Capital Corp. or ACRES Capital LLC may receive benefits from the Merger and Internalization or post-closing arrangements that differ from, or are in addition to, the interests of our other stockholders. These benefits may include equity ownership, employment arrangements, compensation plans, incentive awards, indemnification rights, registration rights, governance rights, transition arrangements, tax arrangements or other contractual rights.
Our board of directors and management may also need to oversee new or expanded functions, including compensation practices, employee benefit plans, human capital management, internal audit, regulatory compliance, conflicts policies, affiliate transaction controls and risk management activities. If our governance policies, committee oversight, related-party transaction procedures or conflicts management practices are not effective, we may be exposed to regulatory scrutiny, litigation, reputational harm or decisions that do not align with the interests of all stockholders. Any actual or perceived conflicts of interest could adversely affect investor confidence and the market price of our common stock.
The Merger and Internalization may affect our ability to maintain our qualification as a REIT and our exclusion or exemption from regulation under the Investment Company Act of 1940.
We intend to continue to qualify as a REIT for U.S. federal income tax purposes and to operate in a manner that permits us to maintain our exclusion or exemption from regulation under the Investment Company Act of 1940. The Merger and Internalization may introduce new assets, liabilities, income streams, employee compensation arrangements, intercompany arrangements, service activities, taxable REIT subsidiary considerations, related-party transactions and other structural or operational matters that must be monitored for REIT compliance and Investment Company Act purposes. Failure to properly structure, operate or monitor these matters could adversely affect our ability to satisfy applicable income, asset, distribution, ownership and other REIT requirements or to maintain our Investment Company Act exemption.
See "Risks Related to Our REIT Status and Certain Other Tax Items" and "Risks Related to Our Organization and Structure—Loss of our exclusion from regulation under the Investment Company Act would require significant changes in our operations and could reduce the market price of our common stock and our ability to make distributions" in our Annual Report on Form 10-K for the year ended December 31, 2025 for the general consequences of a failure to maintain REIT qualification or Investment Company Act exemption.
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We may incur liabilities, claims, litigation or contractual obligations arising from the Merger Agreement and the completed Merger and Internalization.
Although the Merger and Internalization have been completed, we may be subject to liabilities, claims, litigation, demands, indemnification obligations, purchase price or share issuance disputes, appraisal or dissenters’ rights claims, tax claims, employee claims, intellectual property claims, third-party consent issues, breaches of representations, warranties or covenants, or other obligations arising from or relating to the Merger Agreement, the completed Merger and Internalization, the termination of the Management Agreement or related transactions. Any such matters may be costly to defend or resolve, may divert management’s attention and may result in monetary damages, equitable remedies, settlement costs, indemnification payments, additional disclosures, governance changes or other adverse consequences.
We may also be required to satisfy surviving covenants, indemnities, confidentiality obligations, registration rights, tax matters, employee benefit obligations, insurance obligations, expense reimbursement obligations or other post-closing commitments under the Merger Agreement or related agreements. The amounts and timing of any such obligations may be uncertain and may exceed our expectations.
If any liabilities, claims, litigation or contractual obligations arising from the Merger and Internalization and related transactions are material, they could adversely affect our business, financial condition, results of operations, liquidity, cash flows and market price of our common stock.
The unaudited pro forma financial information related to the Merger and Internalization may not be indicative of our actual financial condition or results after the Merger and Internalization.
The unaudited pro forma condensed combined consolidated financial information filed after the closing of the Merger and Internalization was prepared for illustrative purposes and was based on assumptions and adjustments that may not reflect our actual financial condition or results of operations following the Merger and Internalization. The pro forma information does not necessarily reflect all costs, synergies, dis-synergies, integration expenses, financing effects, compensation arrangements, tax consequences, accounting adjustments, control remediation costs, changes in business strategy or other effects of the completed Merger and Internalization. Our actual results may differ materially from the pro forma information due to changes in interest rates, market conditions, asset performance, credit losses, financing costs, operating expenses, integration costs, accounting estimates, valuation assumptions or other factors.
Investors should not place undue reliance on pro forma financial information as an indication of what our financial condition or results of operations would have been had the Merger and Internalization occurred on the dates assumed in the pro forma presentation, or as an indication of our future results.
Risks Relating to Our Advisory and Investment Activities Following the Merger and Internalization
We conduct advisory activities through an SEC-registered investment adviser subsidiary, and we are subject to extensive regulation under the Investment Advisers Act of 1940, including fiduciary duties and compliance obligations; failure to comply could result in SEC examinations, enforcement actions, penalties, client claims, reputational harm and increased compliance costs and may adversely affect our ability to raise capital, retain clients and third-party investors, retain key personnel and originate or manage investments.
To the extent we operate as, or through, an SEC-registered investment adviser, we will be subject to regulation under the Investment Advisers Act of 1940 and related SEC rules and guidance, including requirements relating to fiduciary duties, conflicts of interest, disclosure, marketing and advertising, custody of client assets, fee and expense allocation, valuation practices, best execution, books and records, privacy, business continuity, cybersecurity, personal trading, material nonpublic information, and oversight of service providers.
The SEC has broad authority to conduct examinations of registered investment advisers and to bring administrative or civil enforcement actions. Any failure, or alleged failure, to comply with applicable requirements could result in censures, fines, penalties, limitations on our advisory activities, suspensions, disgorgement, reputational harm, client claims, investor withdrawals and increased compliance and insurance costs. Compliance obligations may require substantial management attention, systems, personnel and professional fees and may reduce our operating flexibility.
Increased regulatory scrutiny of investment advisers, negative publicity, compliance failures, investor dissatisfaction regarding performance or liquidity, or disputes over fees, expenses, valuations or disclosures could reduce investor confidence in us or our investment strategies and impair our ability to raise capital, retain or attract clients and investors, and compete for investment
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opportunities. If we are unable to recruit, retain and motivate personnel with the expertise required to operate an internalized platform and to meet applicable regulatory requirements, our investment performance, operations and growth prospects could be adversely affected.
Our ownership of, investments in, or consolidation of investment funds or other investment vehicles may increase the complexity and volatility of our financial statements, may reduce comparability across periods, and may cause our reported results to differ from the economics of our business.
If we hold interests in, sponsor, advise or otherwise become the primary beneficiary of investment funds or other investment vehicles, we may be required to consolidate such entities in our financial statements under applicable accounting guidance. This may increase the size and volatility of our balance sheet and income statement, increase period-to-period volatility in our reported results, and make our financial statements more complex and less comparable to prior periods or to other companies that do not consolidate similar investment vehicles.
Consolidation may also require us to make significant judgments regarding whether we are the primary beneficiary of an entity, whether an entity is a variable interest entity, and how to present and disclose the results of consolidated investment vehicles and the interests of third-party investors. If our consolidation conclusions change over time, we may be required to consolidate or deconsolidate investment vehicles, which could result in material changes to our consolidated financial statements and key metrics.
Investors in consolidated investment funds or other investment vehicles may have redemption or withdrawal rights, and we may be required to present third-party interests as redeemable non-controlling interests, which could adversely affect our reported equity, liquidity profile and financial metrics.
To the extent we consolidate investment funds or other investment vehicles in which third parties hold interests, those third-party interests may be presented as non-controlling interests and, in certain circumstances, as redeemable non-controlling interests (or "temporary equity") if investors have redemption, repurchase or withdrawal rights. The presentation and measurement of redeemable non-controlling interests may reduce our reported stockholders’ equity, affect book value per share and leverage metrics and increase the complexity of our financial statements.
If a consolidated investment vehicle is required to satisfy investor redemptions or withdrawals at a time when its assets cannot be liquidated on favorable terms, the investment vehicle could experience liquidity constraints, may be required to sell assets at depressed prices or borrow under unfavorable terms, may impose gating, suspension or other limitations (where permitted), may take other actions to generate liquidity and may experience losses that could adversely affect our consolidated results and the value of our interests in such vehicle. In addition, if a consolidated vehicle is unable to satisfy redemption requests as expected, investors may suffer losses or delays in receiving proceeds, which could result in litigation, regulatory scrutiny, reputational harm and reduced ability to raise capital for our investment strategies.
The valuation of investments held by consolidated funds or other investment vehicles may involve significant judgment, may be volatile and may not be realized, and errors in valuation could adversely affect our reported results, fees, investor allocations and internal controls.
Investment funds and other investment vehicles may hold investments that do not have readily observable market prices, including loans, structured products, real estate-related assets and other instruments that require significant estimates and assumptions to determine fair value. Valuation processes may require the use of models, third-party pricing services, appraisals and other methodologies that involve significant judgment, including assumptions about interest rates, credit spreads, default rates, recoveries, collateral values, discount rates, market liquidity and other factors.
Because of the inherent uncertainty of valuation for hard-to-value assets, the values we record may differ materially from the amounts ultimately realized upon sale, repayment or other disposition. Any material valuation error, restatement, change in valuation methodology, or failure of controls over valuation could adversely affect our financial statements, results of operations, ability to raise capital, and relationships with investors, lenders and counterparties.
We may face conflicts of interest among our interests, the interests of our stockholders, the interests of proprietary capital, the interests of consolidated funds and other investment vehicles, the interests of advised accounts and the interests of third-party investors, which could adversely affect our business and subject us to regulatory scrutiny or litigation.
We may manage, advise or otherwise be involved with multiple investment strategies, vehicles and accounts, including those in which we have proprietary investments, those in which our employees or affiliates may invest, and those in which third-party investors participate. We may also allocate time, personnel and investment opportunities among our own balance sheet investments, consolidated
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investment vehicles and other advised accounts. These circumstances may give rise to conflicts of interest regarding, among other things, allocation of investment opportunities, valuations, investment decisions, expense allocations, use of affiliated service providers, cross-transactions, principal transactions, liquidity decisions, redemptions, and the timing of asset sales or financings.
If we fail to identify, manage, mitigate or disclose such conflicts appropriately, we could be subject to regulatory enforcement, litigation, reputational harm, investor withdrawals and loss of business.
Liabilities of consolidated funds or other investment vehicles may be non-recourse to us, but we may nonetheless experience reputational harm or be expected to provide financial or other support, which could adversely affect our liquidity and results of operations.
Even where the liabilities and obligations of consolidated funds or other investment vehicles are contractually and legally non-recourse to us, we may experience reputational harm if such vehicles perform poorly, experience losses, are unable to satisfy redemption requests, or default on their obligations. In certain circumstances, we may determine (or investors, lenders or other market participants may expect) that we provide financial support, liquidity, guarantees, waivers, fee concessions or other assistance to such vehicles, even if we are not contractually required to do so. Providing any such support could reduce our liquidity, increase our leverage and adversely affect our results of operations and financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
The following table reflects repurchases of common shares during the third quarter of 2026:
Period |
|
Total Number of Shares Purchased (1) |
|
|
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 |
|
||||
July 1, 2026 – July 31, 2026 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
|
|
August 1, 2026 – August 31, 2026 |
|
|
1,171,112 |
|
|
$ |
14.60 |
|
|
|
|
|
|
$ |
|
|
September 1, 2026 – September 30, 2026 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
1,171,112 |
|
|
|
|
|
|
|
|
|
|
|
||
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2026, no director or officer of the Company
JPMorgan Chase Amendments
On November 9, 2026, we entered into Amendment No. 8 to Guarantee Agreement, by and between us and JPMorgan Chase Bank, NA, which makes certain amendments and modifications to the Guarantee Agreement, dated October 26, 2018 between us and JPMorgan Chase, as amended, to amend the terms of certain financial covenants. The foregoing description of the Amendment No. 8 to Guarantee Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment No. 8 to Guarantee Agreement, which has been filed with this Current Report on Form 10-Q as Exhibit 99.1(n).
On November 9, 2026, we entered into Amendment No. 1 to Guarantee Agreement, by and between us and JPMorgan Chase Bank, NA, which makes certain amendments and modifications to the Guarantee, dated March 14, 2025 between us and JPMorgan Chase, to amend the terms of certain financial covenants. The foregoing description of the Amendment No. 1 to Guarantee Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment No. 1 to Guarantee Agreement, which has been filed with this Current Report on Form 10-Q as Exhibit 99.3(d).
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ITEM 6. EXHIBITS
|
||
|
|
|
Exhibit No. |
|
Description |
2.1 |
|
Agreement and Plan of Merger, dated April 29, 2026, by and among ACRES Commercial Realty Corp. ACRES Holdings Sub LLC, ACRES Capital Corp and ACRES Capital, LLC (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on April 30, 2026.) |
3.1(a) |
|
Amended and Restated Articles of Incorporation of Resource Capital Corp. (Filed previously as an exhibit to the Company’s Registration Statement on Form S-11, Registration No. 333-126517.) |
3.1(b) |
|
Articles of Amendment to Restated Certificate of Incorporation of Resource Capital Corp. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 1, 2015.) |
3.1(c) |
|
Articles Supplementary 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (Filed previously as an exhibit to the Company’s Registration Statement on Form 8-A filed on June 9, 2014.) |
3.1(d) |
|
Articles Supplementary 7.875% Series D Cumulative Redeemable Preferred Stock, as corrected. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on May 21, 2021.) |
3.1(e) |
|
Articles of Amendment, effective May 25, 2018. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on May 25, 2018.) |
3.1(f) |
|
Articles of Amendment, effective February 16, 2021. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on February 18, 2021.) |
3.1(g) |
|
Articles of Amendment, effective May 28, 2021. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 1, 2021.) |
3.1(h) |
|
Articles of Amendment, effective April 29, 2026. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on April 30, 2026.) |
3.2 |
|
Fourth Amended and Restated Bylaws of ACRES Commercial Realty Corp. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on February 18, 2021.) |
4.1(a) |
|
Form of Certificate for Common Stock for Resource Capital Corp. (Filed previously as an exhibit to the Company’s Registration Statement on Form S-11, Registration No. 333-126517.) |
4.1(b) |
|
Form of Certificate for 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (Filed previously as an exhibit to the Company’s Registration Statement on Form 8-A filed on June 9, 2014.) |
4.1(c) |
|
Form of Certificate for 7.875% Series D Cumulative Redeemable Preferred Stock. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on May 21, 2021.) |
4.2(a) |
|
Junior Subordinated Indenture between Resource Capital Corp. and Wells Fargo Bank, N.A., dated May 25, 2006. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.) |
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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.) |
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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.) |
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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.) |
4.4 |
|
Junior Subordinated Note due 2036 in the principal amount of $25,774,000, dated October 26, 2009. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.) |
4.5(a) |
|
Junior Subordinated Indenture between Resource Capital Corp. and Wells Fargo Bank, N.A., dated September 29, 2006. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.) |
4.5(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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.) |
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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.) |
4.6(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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.) |
4.7 |
|
Amended Junior Subordinated Note due 2036 in the principal amount of $25,774,000, dated October 26, 2009. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.) |
4.8 |
|
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.) |
4.9(a) |
|
Base Indenture, dated August 16, 2021, between the Company and the Trustee. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 17, 2021.) |
4.9(b) |
|
First Supplemental Indenture, dated August 16, 2021, between the Company and the Trustee. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 17, 2021.) |
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4.9(c) |
|
Form of 5.75% Senior Note due 2026 (included in Exhibit 4.9(b)) |
4.10 |
|
Form of 8.625% Senior Secured Note due 2031 (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 6, 2026.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 4, 2020.) |
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. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.) |
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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.) |
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. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.) |
10.2(a)* |
|
Second Amended and Restated Omnibus Equity Compensation Plan. (Filed previously as an exhibit to the Company’s Proxy Statement filed on April 18, 2019.) |
10.2(b)* |
|
Amendment No. 1 to the Exantas Capital Corp. Second Amended and Restated Omnibus Equity Compensation Plan. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.) |
10.2(c)* |
|
Third Amended and Restated Omnibus Equity Compensation Plan. (Filed previously as an exhibit to the Company’s Proxy Statement filed on April 12, 2021.) |
10.2(d)* |
|
Form of Stock Award Agreement. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.) |
10.2(e)* |
|
Form of Stock Award Agreement (for employees with Resource America, Inc. employment agreements). (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.) |
10.2(f)* |
|
ACRES Commercial Realty Corp. 2026 Omnibus Equity Compensation Plan. (Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on June 25, 2026.) |
10.3 |
|
Form of Indemnification Agreement. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 4, 2020.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 22, 2020.) |
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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.) |
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 Mutual Life Insurance Company and Wells Fargo Bank, National Association as the Administrative Agent. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.) |
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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on July 27, 2022.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 30, 2022.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 4, 2020.) |
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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 (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on December 22, 2022.) |
10.4(j) |
|
Guaranty, dated May 25, 2021 between Exantas Phili Holdings, LLC in favor of the Secured Parties. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.) |
10.4(k) |
|
Guaranty, dated May 25, 2021 between 65 E. Wacker Holdings, LLC in favor of the Secured Parties. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.) |
10.4(l) |
|
Guaranty, dated May 25, 2021 between Plymouth Meeting Holdings, LLC in favor of the Secured Parties. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.) |
10.4(m) |
|
Pledge and Guaranty Agreement, dated August 16, 2021 between ACRES Real Estate TRS 9 LLC in favor of the Secured Parties. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.) |
10.4(n) |
|
Guaranty, dated April 12, 2022 between Appleton Hotel Holdings, LLC and Appleton Hotel Leasing, LLC in favor of the Secured Parties. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 4, 2020.) |
10.5(b) |
|
Agreement between the Company, OCM XAN Holdings PT, LLC and the Massachusetts Mutual Life Insurance Company, dated August 18, 2021. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 20, 2021.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on February 3, 2022.) |
10.6(a) |
|
Promissory Note, dated as of July 31, 2020, issued by ACRES Capital Corp. to RCC Real Estate, Inc. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 4, 2020.) |
10.6(b) |
|
Amendment No.1 to Promissory Note, dated March 13, 2025, between ACRES Holdings, LLC to ACRES Realty Funding, Inc. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.) |
10.6(c) |
|
Letter Agreement to Promissory Note, dated July 31, 2026, between ACRES Holdings, LLC to ACRES Realty Funding, Inc. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2026.) |
10.7(a)* |
|
Manager Incentive Plan. (Filed previously as an exhibit to the Company’s Proxy Statement filed on April 12, 2021.) |
10.7(b)* |
|
Form of Stock Award Agreement Under the Manager Incentive Plan. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 9, 2021.) |
10.8* |
|
Equity Distribution Agreement, dated October 4, 2021, by and among ACRES Commercial Realty Corp., ACRES Capital, LLC and JonesTrading Institutional Services LLC. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 7, 2021.) |
10.9(a) |
|
Building Loan Agreement, dated as of January 24, 2023 between Chapel Drive East, LLC and Oceanview Life and Annuity Company. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.) |
10.9(b) |
|
Amendment No. 1 to Building Loan Agreement, dated March 11, 2025, between Chapel Drive East, LLC and Oceanview Life and Annuity Company. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.) |
10.9(c) |
|
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on January 25, 2023.) |
10.9(d) |
|
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on January 25, 2023.) |
10.9(e) |
|
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on January 25, 2023.) |
10.9(f) |
|
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on January 25, 2023.) |
10.10(a) |
|
Guaranty of Completion, executed September 12, 2025 by Adam Friedberg, Anthony Hrusovsky, Peter Koch and ACRES Commercial Realty Corp. for the benefit of DL RCF I Loan Holdings, LLC (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 18, 2025.) |
10.10(b) |
|
Guaranty of Retail Space, executed September 12, 2025 by Adam Friedberg, Anthony Hrusovsky, Peter Koch and ACRES Commercial Realty Corp. for the benefit of DL RCF I Loan Holdings, LLC (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 18, 2025.) |
10.10(c) |
|
Guaranty of Recourse Obligations, executed September 12, 2025 by Adam Friedberg, Anthony Hrusovsky, Peter Koch and ACRES Commercial Realty Corp. for the benefit of DL RCF I Loan Holdings, LLC (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 18, 2025.) |
10.10(d) |
|
Guaranty of Interest and Carry Costs, executed September 12, 2025 by Adam Friedberg, Anthony Hrusovsky, Peter Koch and ACRES Commercial Realty Corp. for the benefit of DL RCF I Loan Holdings, LLC (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 18, 2025.) |
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10.10(e) |
|
Environmental Indemnity Agreement, dated September 12, 2025 by 65 E. Wacker Holdings II, LLC, Adam Friedberg, Anthony Hrusovsky, Peter Koch and ACRES Commercial Realty Corp. in favor of DL RCF I Loan Holdings, LLC (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 18, 2025.) |
10.10(f) |
|
Repayment and Completion Guaranty, dated September 12, 2025 by ACRES Commercial Realty Corp. in favor of Hoyne Savings Bank (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 18, 2025.) |
10.11(a) |
|
Loan and Servicing Agreement, dated July 23, 2025, among the Borrowers party thereto, the Guarantors party thereto, the Administrative Agent, Mass Mutual and the Lenders (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 6, 2026.) |
10.11(b) |
|
First Amendment and Joinder to Loan and Servicing Agreement, dated August 6, 2026, among the Borrowers party thereto, the Guarantors party thereto, the Administrative Agent, as administrative agent and facility servicer, MassMutual, and the Lenders (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 6, 2026.) |
10.12 |
|
Note Purchase Agreement, dated August 6, 2026, by and among the Company, the Purchasers party thereto and UMB Bank, N.A., as collateral agent. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 6, 2026.) |
10.13(a)*^ |
|
Employment Agreement, dated as of August 6, 2026, by and between ACRES Capital, LLC and Mark Fogel. |
10.13(b)*^ |
|
Employment Agreement, dated as of August 6, 2026, by and between ACRES Capital, LLC and Andrew Fentress. |
10.13(c)*^ |
|
Employment Agreement, dated as of August 6, 2026, by and between ACRES Capital, LLC and Martin Reasoner. |
10.13(d)*^ |
|
Employment Agreement, dated as of August 6, 2026, by and between ACRES Capital, LLC and Jaclyn Jesberger. |
10.13(e)*^ |
|
Employment Agreement, dated as of August 6, 2026, by and between ACRES Capital, LLC and Kyle Brengel. |
10.13(f)*^ |
|
Employment Agreement, dated as of August 6, 2026, by and between ACRES Capital, LLC and Eldron Blackwell. |
10.13(g)*^ |
|
Employment Agreement, dated as of August 6, 2026, by and between ACRES Capital, LLC and Richard Persaud. |
10.14(a) |
|
Equity Distribution Agreement, dated September 3, 2026, by and among ACRES Commercial Realty Corp. and Raymond James & Associates, Inc. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 3, 2026.) |
10.14(b) |
|
Equity Distribution Agreement, dated September 3, 2026, by and among ACRES Commercial Realty Corp. and Seaport Global Securities LLC. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 3, 2026.) |
10.15(a) |
|
Form of Securities Purchase Agreement, dated August 10, 2026, by and among ACRES Commercial Realty Corp. and the Investors party thereto (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 12, 2026.) |
10.15(b) |
|
Placement Agency Agreement, dated August 10, 2026, by and among ACRES Commercial Realty Corp. and Seaport Global Securities LLC. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on August 12, 2026.) |
16.1 |
|
Letter from Ernst & Young LLP dated April 30, 2026 (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on April 30, 2026.) |
31.1 |
|
Rule 13a-14(a)/Rule 15d-14(a) Certification of Principal Executive Officer. |
31.2 |
|
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer. |
32.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350. |
32.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350. |
97.1 |
|
Policy for the Recovery of Erroneously Awarded Compensation. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 30, 2018.) |
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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.) |
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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on September 2, 2021.) |
99.1(d) |
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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 (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 29, 2021.) |
99.1(e) |
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Amendment No. 4 to Master Repurchase Agreement, dated July 21, 2023, between RCC Real Estate SPE 8, LLC and JPMorgan Chase Bank, National Association. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on July 25, 2023.) |
99.1(f) |
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Amendment No. 5 to Master Repurchase Agreement, dated July 21, 2026, between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on July 24, 2026.) |
99.1(g) |
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Guarantee made by Exantas Capital Corp., as guarantor, in favor of JPMorgan Chase Bank, National Association, dated October 26, 2018. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 30, 2018.) |
99.1(h) |
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First Amendment to Guarantee Agreement, dated May 6, 2020, between Exantas Capital Corp. and JPMorgan Chase Bank, National Association. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.) |
99.1(i) |
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Amendment No. 2 To Guarantee Agreement, dated October 2, 2020 between Exantas Capital Corp. and JPMorgan Chase Bank, National Association. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on October 7, 2020.) |
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99.1(j) |
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Amendment No. 4 To Guarantee Agreement, dated November 17, 2022 between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on November 18, 2022.) |
99.1(k) |
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Amendment No. 5 to Guarantee Agreement, dated July 21, 2023, between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on July 25, 2023.) |
99.1(l) |
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Amendment No. 6 to Guarantee Agreement, dated March 14, 2025, between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.) |
99.1(m) |
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Amendment No. 7 to Guarantee Agreement, dated August 1, 2025, between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. (Filed previously as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2025) |
99.1(n) |
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Amendment No. 8 to Guarantee Agreement, dated November 9, 2026, between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. |
99.2(a) |
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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. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.) |
99.2(b) |
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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. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on February 3, 2022.) |
99.2(c) |
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Guaranty made by ACRES Commercial Realty Corp., as Guarantor, in favor of Morgan Stanley Mortgage Capital Holdings LLC, dated November 3, 2021. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.) |
99.2(d) |
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Amendment No. 1 to Guaranty, dated November 18, 2022 between ACRES Commercial Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on November 18, 2022.) |
99.2(e) |
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Amendment No. 2 to Guaranty, dated November 3, 2023 between ACRES Commercial Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.) |
99.2(f) |
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Amendment No. 3 to Guaranty, dated November 1, 2024 between ACRES Commercial Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024.) |
99.2(g) |
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Amendment No. 4 to Guaranty, dated March 14, 2025 between ACRES Commercial Realty Corp. and Morgan Stanley Mortgage Capital Holdings LLC. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.) |
99.2(h) |
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Third Amendment to Master Repurchase and Securities Contract Agreement, dated November 3, 2025, between ACRES Real Estate SPE 10, LLC and Morgan Stanley Mortgage Capital Holdings LLC, as Administrative Agent. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025.) |
99.2(i) |
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Fourth Amendment to Master Repurchase and Securities Contract Agreement, dated November 5, 2025, between ACRES Real Estate SPE 10, LLC and Morgan Stanley Mortgage Capital Holdings LLC, as Administrative Agent. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025.) |
99.2(j) |
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Fifth Amendment to Master Repurchase and Securities Contract Agreement, dated December 18, 2025, between ACRES Real Estate SPE 10, LLC and Morgan Stanley Mortgage Capital Holdings LLC, as Administrative Agent. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.) |
99.2(k) |
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Sixth Amendment to Master Repurchase and Securities Contract Agreement, dated March 5, 2026, between ACRES Real Estate SPE 10, LLC and Morgan Stanley Mortgage Capital Holdings LLC, as Administrative Agent. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.) |
99.2(l) |
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Seventh Amendment to Master Repurchase and Securities Contract Agreement, dated November 2, 2026, between ACRES Real Estate SPE 10, LLC and Morgan Stanley Mortgage Capital Holdings LLC, as Administrative Agent. (Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on November 6, 2026.) |
99.3(a) |
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Master Repurchase Agreement between ACRES SPE 2025-1, LLC, as Seller, and JPMorgan Chase Bank, National Association, as Buyer, dated March 14, 2025. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.) |
99.3(b) |
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Guarantee made by ACRES Commercial Realty Corp., as Guarantor, in favor of JPMorgan Chase Bank, National Association, dated March 14, 2025. (Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.) |
99.3(c) |
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Amendment No. 1 to Master Repurchase Agreement, dated October 31, 2025 between ACRES SPE 2025-1, LLC, as Seller, and JPMorgan Chase Bank, National Association, as Buyer. (Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2025.) |
99.3(d) |
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Amendment No. 1 to Guarantee, dated November 9, 2026 between ACRES Commercial Realty Corp. and JPMorgan Chase Bank, National Association. |
101.INS |
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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 |
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Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document. |
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Cover Page Interactive Data File. |
* Indicates management contracts and compensatory plan arrangements
^ Certain schedules to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request.
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SIGNATURES
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.
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ACRES COMMERCIAL REALTY CORP. |
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(Registrant) |
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November 9, 2026 |
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By: |
/s/ Andrew D. Fentress |
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Andrew D. Fentress |
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Principal Executive Officer |
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November 9, 2026 |
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By: |
/s/ Eldron C. Blackwell |
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Eldron C. Blackwell |
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Senior Vice President |
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Chief Financial Officer |
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November 9, 2026 |
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By: |
/s/ Linda M. Kilpatrick |
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Linda M. Kilpatrick |
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Vice President |
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Chief Accounting Officer and Controller |
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