ACRES Commercial Realty (NYSE: ACR) internalizes manager, sells $200M notes
ACRES Commercial Realty Corp. completed the previously announced merger with ACRES Capital Corp, acquiring its external manager and becoming internally managed. Each ACC share converted into 2.61882 ACR common shares, resulting in 7,478,462 new shares issued and 13,452,489 ACR shares outstanding at the Merger Effective Time. The existing management agreement was terminated for no additional consideration, and new three‑year employment agreements were put in place for key executives with base salaries of $600,000 or $300,000, bonus targets of at least 50% of salary, and change‑in‑control‑enhanced severance.
Concurrently, the company amended its loan and servicing agreement to provide a term loan Facility of $185,000,000, all funded, bearing fixed interest of 8.749% and maturing on July 25, 2033, with four scheduled principal payments of $46,250,000 each from 2030 through maturity. It also privately placed $200 million of 8.625% Senior Secured Notes due July 31, 2031, rated investment grade by Kroll and secured by subsidiary equity and other CRE assets. The company intends to use part of the Notes proceeds to repay its $150 million 5.75% Senior Unsecured Notes at their August 2026 maturity, with the balance for general corporate purposes. The Notes and related covenants require minimum liquidity of $20,000,000, net debt‑to‑equity not exceeding 5.0x, a collateral coverage ratio of at least 200%, and provide a 1.00% interest step‑up upon loss of an investment‑grade rating and a 101% change‑of‑control repurchase right.
Positive
- None.
Negative
- None.
Filing Explained
The transaction is complete, but the filing does not yet include the required pro forma financial information; ACRES says it will amend this 8-K no later than 71 calendar days after the filing deadline, leaving the combined financial presentation for a later disclosure.
8-K Event Classification
Key Figures
Key Terms
Internalization financial
Senior Secured Notes financial
collateral coverage ratio financial
variable interest entity financial
non-controlling interests financial
make-whole premium financial
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FAQ
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
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. ☐
Item 1.01 Entry into a Material Definitive Agreement.
Assumption of Credit Facility
On August 6, 2026, immediately prior to the Merger Effective Time (as defined below) (the "Facility Effective Time"), ACRES Holdings, LLC, ACRES Capital, LLC and ACRES Insurance Agency, LLC, each an indirectly wholly owned subsidiary of ACRES Commercial Realty Corp. (the "Company") (collectively, the "Borrowers"), Kimbrough BADA, LLC, Appleton Hotel Holdings, LLC, Appleton Hotel Leasing, LLC, Exantas Phili Holdings, LLC, 209 West Jackson Holdings, LLC and ACRES Holdings Sub LLC, each an indirectly wholly owned subsidiary of the Company that owns certain real estate or fund interests (collectively, the "Guarantors"), 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 ("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 (the "Original Closing Date") and provides for term loan advances in an aggregate principal amount of $185,000,000 (the "Facility"), composed of (i) $130,000,000 in commitments funded on the Original Closing Date and (ii) $55,000,000 in additional commitments funded at the Facility Effective Time. As of the Facility Effective Time, an aggregate $185,000,000 in advances have been funded under the Facility.
The Facility matures on July 25, 2033 (the "Stated Maturity Date"). Scheduled principal payments of $46,250,000 are required on each of July 23, 2030, July 23, 2031, July 23, 2032, and the Stated Maturity Date.
Advances under the Facility bear interest at a fixed rate per annum of 8.749%.
The Borrowers’ obligations under the Loan Agreement are unconditionally guaranteed on a joint and several basis by the Guarantors and each of the other guarantors that may become party to the Loan Agreement from time to time.
The Loan Agreement contains customary financial maintenance covenants, including minimum asset value, maximum loan-to-value, interest coverage, minimum gross revenue, and minimum fund share value requirements. The Loan Agreement contains affirmative and negative covenants customary for facilities of this type, including limitations on indebtedness, liens, investments, capital expenditures (capped at $1,000,000 per calendar year in the aggregate), and dispositions. Events of Default (as defined in the Loan Agreement) include, among other things, payment defaults, cross-defaults on indebtedness in excess of $5,000,000, covenant breaches, and the occurrence of a Material Adverse Effect (as defined in the Loan Agreement).
The foregoing description of the Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Loan Agreement and the First Amendment, copies of which are filed as Exhibit 10.1 and 10.2, respectively, to this Current Report on Form 8-K (this "Form 8-K") and incorporated herein by reference.
Private Offering of Senior Secured Notes
On August 6, 2026, immediately following the Merger Effective Time (the "Notes Offering Effective Time"), the Company completed a private placement, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), of $200 million of 8.625% Senior Secured Notes due 2031 (the "Notes"), pursuant to a note purchase agreement (the "Note Purchase Agreement"), by and among the Company, the purchasers party thereto and UMB Bank, N.A., as collateral agent (the "Collateral Agent"). The Company intends to use a portion of the proceeds from the sale of the Notes to repay in full its $150 million of 5.75% Senior Unsecured Notes upon their maturity in August 2026, with the remaining portion used for general corporate purposes.
Maturity and Rating
The Notes will mature on July 31, 2031. The Notes are secured on a first lien basis by the pledge of certain capital stock in its subsidiaries, residual equity interests in securitized financing vehicles and certain other CRE assets (the "Collateral") and are guaranteed by certain subsidiaries of the Company that granted security interests in the Collateral in favor of the Collateral Agent. The Notes were rated investment grade by Kroll Bond Rating Agency, LLC and/or its affiliates and licensors.
Interest Rate
The Notes will bear interest at a rate of 8.625% per annum, payable semi-annually on each January 31 and July 31, commencing January 31, 2027. Upon the occurrence of a rating downgrade that results in the Notes no longer having investment grade rating or the Company fails to receive and deliver to holders an annual credit rating from at least one Ratings Agency (as defined in the Note Purchase Agreement), the interest rate on the Notes will be increased by 1.00%.
Optional Redemption
Prior to July 31, 2028, the 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 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:
Year |
Redemption Price |
2028 |
104.3125% |
2029 |
102.15625% |
2030 |
100.000% |
Covenants
The Notes contain customary affirmative and negative covenants, including limitations on incurrence of debt, sale of and liens on the Collateral, restricted payments and certain other activities. The Notes include covenants requiring maintenance of certain financial ratios, including (i) minimum liquidity of not less than $20,000,000 as of the last day of any fiscal quarter, (ii) minimum tangible net worth of not less than the sum of (1) 70% of the tangible net worth of the Company and its subsidiaries as of September 30, 2026 and (2) the greater of (x) 50% of net equity capital activity and (y) zero dollars ($0) as of the last day of any fiscal quarter, (iii) a net debt to equity ratio not to exceed 5.0 to 1.00 as of the last day of any fiscal quarter, (iv) a recourse net debt to equity ratio not to exceed 2.25 to 1.00 as of the last day of any fiscal quarter, (v) an EBITDA to interest expense ratio of (A) not less than 1.25 to 1.00 as of December 31, 2026 and (B) not less than 1.35 to 1.00 calculated for the trailing four fiscal quarters beginning after December 31, 2026 provided, that (w) for the fiscal quarter ending on December 31, 2026, will be calculated for such fiscal quarter, (x) for fiscal quarter ending on March 31, 2027, will be calculated for the period from October 1, 2026 through the end of such fiscal quarter, (y) for the fiscal quarter ending on June 30, 2027, will be calculated for the period from October 1, 2026 through the end of such fiscal quarter, and (z) for any fiscal quarter ending on or after September 30, 2027, will be calculated based on the preceding four fiscal quarters then ended, and (vi) a collateral coverage ratio of at least 200% as of the last day of any fiscal quarter.
Events of Default
The Notes contain customary events of default, including, among others, failure to pay principal or interest when due, a cross default to the Company’s other material indebtedness, breach of covenants or representations and warranties under the Notes. Upon the occurrence of an event of default, subject to certain qualifications and cure periods, the Notes and any accrued and unpaid interest on the Notes will become due and payable immediately.
Change in Control Redemption Right
Upon the occurrence of certain changes in control of the Company, the Company will be required to offer to repurchase all of the Notes at a purchase price in cash equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest thereon to the date of purchase. In addition, upon the receipt of net proceeds from issuance of debt not permitted under the negative covenants, the Company will be required to repurchase the Notes equal to such net proceeds.
The foregoing description of the Notes and the Note Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Note and the Note Purchase Agreement, copies of which are filed as Exhibit 4.1 and Exhibit 10.3, respectively, to this Form 8-K and incorporated herein by reference.
Item 1.02 Termination of a Material Definitive Agreement.
The information contained in Item 2.01 of this Form 8-K regarding the termination of the Management Agreement (as defined below) for no additional consideration upon completion of the Merger (as defined below) is incorporated by reference in this Item 1.02.
Item 2.01 Completion of Acquisition or Disposition of Assets.
Completion of Merger and Internalization
On August 6, 2026 (the "Merger Effective Time"), the Company completed its previously disclosed 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 ACRES Capital Corp ("ACC") and ACRES Capital LLC, a subsidiary of ACC and the external manager of the Company (the "Manager"), on the other hand. 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"). 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 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 $0.0001 per share, was converted into the right to receive 2.61882 shares of Company common stock, par value $0.001 per share (the "ACR Common Stock"). As a result, the Company issued 7,478,462 shares of ACR Common Stock as consideration for the Merger resulting in 13,452,489 shares of ACR Common Stock outstanding as of the Merger Effective Time.
The foregoing description of the Merger Agreement and the transactions contemplated thereby, including the Merger and Internalization, are described in greater detail in the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission (the "SEC") on April 30, 2026 (the "Merger Agreement Signing Form 8-K"), which description is incorporated herein by reference. Such description and the foregoing description of the Merger Agreement does not purport to be complete and is qualified entirely by reference to the Merger Agreement, a copy of which was previously included as Exhibit 2.1 to the Merger Agreement Signing Form 8-K and is incorporated herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information contained in Item 1.01 of this Form 8-K regarding the Notes and regarding the assumption of the Barings Facility is incorporated by reference in this Item 2.03.
Item 3.02 Unregistered Sales of Equity Securities.
The information contained in Item 2.01 of this Form 8-K regarding the issuance of ACR Common Stock pursuant to the Merger Agreement as consideration for the Merger is incorporated by reference in this Item 3.02. The ACR Common Stock issued pursuant to the Merger Agreement was issued in reliance on the exemption from the registration requirements under Section 4(a)(2) of the Securities Act.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements with Certain Officers.
(e) Compensatory Arrangements of Certain Officers
In connection with the Merger and Internalization, the Company, through its wholly owned subsidiary ACRES Capital LLC, entered into employment agreements with each of Mark Fogel, Andrew Fentress, Martin Reasoner, Jaclyn Jesberger, Kyle Brengel, Eldron Blackwell and Richard Persaud (the "Employment Agreements," and each an "Employment Agreement"), effective as of August 6, 2026 (the "Employment Agreement Effective Date"). The terms of the Employment Agreements are consistent with the Employment Term Sheets, previously approved by the Company’s Board of Directors (the "Board") on April 29, 2026, as disclosed in the Merger Agreement Signing Form 8-K.
The following provides a summary of the Employment Agreements, which does not purport to be a complete description of the Employment Agreements. Copies of the Employment Agreements for each of Mr. Fogel, Mr. Fentress, Ms. Jesberger, Mr. Brengel, Mr. Blackwell and Mr. Persaud will be filed as exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2026.
Term
The Employment Agreements provide for a three-year term of employment, effective as of the Employment Agreement Effective Date, each with automatic renewals of additional successive one-year periods unless either party thereto provides at least 90 days’ advance notice of non-renewal. Each employee is an "at will" employee and employment may be terminated by the Company or the executive at any time.
Duties
The Employment Agreements provide that each of Mr. Fogel, Mr. Fentress, Mr. Reasoner, Ms. Jesberger, Mr. Brengel, Mr. Blackwell and Mr. Persaud (collectively, the "Executive Officers," and each, an "Executive Officer") is employed by the Company, and that Mr. Fogel continues to serve as President of the Company, Mr. Fentress serves as Managing Director – Capital Markets (and the principal executive officer) of the Company, Mr. Reasoner serves as Managing Director – Originations of the Company, Ms. Jesberger continues to serve as Chief Legal Officer of the Company, Mr. Brengel serves as Chief Operating Officer of the Company, Mr. Blackwell continues to serve as Chief Financial Officer (and principal financial officer) of the Company and Mr. Persaud serves as Managing Director -Finance and Accounting of the Company.
Compensation
The Employment Agreements provide for the following compensation for each Executive Officer.
Each Executive Officer will have target annual cash bonus opportunities of at least 50% of base salary, subject to performance criteria and targets established and administered by the Compensation Committee of the Board. In addition, the Executive Officers will be eligible to receive equity and other long-term incentive awards at the discretion of the Board (or the Compensation Committee) under any applicable plan or program adopted by the Company, and they will be eligible to participate in all employee benefit programs made available to the Company’s employees.
Severance Payments
The Employment Agreements contain customary definitions of "good reason," "cause," and "change in control." The Employment Agreements provide that, if an Executive Officer’s employment is terminated by the Company without "cause" or by the Executive Officer for "good reason", subject to the Executive Officer executing and not revoking a release of claims, the Executive Officer will receive (i) all earned but unpaid annual base salary, unreimbursed expenses, and other vested and non-forfeitable amounts or accrued benefits, in each case, through the date of termination; (ii) a pro-rated portion of the annual bonus in respect of the year of termination, based on actual performance; (iii) severance payments equal to 1.5 times the sum of the annual base salary and target annual bonus, or in the case of a termination within 12 months following a change of control of the Company, two times the sum of annual base salary and target annual bonus; and (iv) reimbursement of COBRA premiums for 18 months. Any unvested equity awards shall be addressed in the Company’s equity plan and corresponding award agreements.
The severance described in (iii) above is paid in installments over 12 months following the termination date unless the termination occurs within 12 months following a change in control of the Company, in which case the severance is paid in a lump sum within 60 days after the date of termination.
Non-Solicitation, Non-Competition, Intellectual Property, Confidentiality and Non-Disparagement
The Employment Agreements provide that for twelve months following the Executive Officer’s termination of employment, the respective Executive Officer will not solicit the Company’s employees, officers, directors or consultants. The Employment Agreements also contain non-compete covenants applicable for twelve months following the termination of the Executive Officer’s employment for any reason, and covenants relating to the treatment of confidential information and intellectual property matters and restrictions on the ability of each of the Executive Officers on the one hand and the Company on the other hand to disparage the other.
Item 7.01 Regulation FD Disclosure.
On August 6, 2026, the Company issued a press release regarding the closing of the Merger and Internalization and the offering of the Notes and related matters. A copy of the press release is furnished with this Form 8-K as Exhibit 99.3.
The information set forth in Item 7.01 in this Form 8-K, including Exhibit 99.3 hereto, is to be considered "furnished" pursuant to Form 8-K and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information set forth in Item 7.01 in this Form 8-K shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act.
Cautionary Statement regarding Forward-Looking Statements
This Form 8-K 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," "trend," "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 can affect future results are discussed in the documents filed by the Company from time to time with the SEC. These risks and uncertainties include, but are not limited to, risks and uncertainties relating to the Company’s ability to successfully manage the transition to self-management and the ability to achieve expected cost savings or other benefits of the Internalization and the timing thereof; unanticipated expenditures relating to or liabilities arising from the internalization; litigation or regulatory issues relating to the Internalization; the impact of the Internalization on the Company’s common stock dividend, and the impact of the Internalization on relationships with, and potential difficulties retaining, the Company’s executive officers,
employees and directors on a go-forward basis. The foregoing list of factors is not exhaustive. Accordingly, you should not place undue reliance on any forward-looking statements contained herein. For a discussion of some of the risks and important factors that could affect such forward-looking statements, please refer to the Company’s most recent annual and quarterly reports and other filings filed with the SEC, which are available on the Company’s website (www.acresreit.com). The Company undertakes no obligation to update or revise any forward-looking statement to reflect new or changing information or events after the date hereof or to reflect the occurrence of unanticipated events, except as may be required by law.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business to be Acquired.
In connection with the expected closing of the Merger and Internalization, (i) the audited consolidated financial statements of ACC as of and for the years ended December 31, 2025 and 2024, together with the accompanying notes thereto and the report thereon of Ernst and Young LLP, are filed as Exhibit 99.1 to this Form 8-K and incorporated herein by reference; and (ii) the unaudited consolidated financial statements of ACC as of and for the three and six months ended June 30, 2026, together with the accompanying notes thereto, are filed as Exhibit 99.2 to this Form 8-K and incorporated herein by reference.
(b) Pro Forma Financial Information.
The pro forma financial information required by this item will be filed by amendment to this Form 8-K no later than 71 calendar days after the date this Form 8-K is required to be filed.
(d) Exhibits.
Exhibit No. |
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Description |
4.1 |
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Form of Global Note |
10.1* |
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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 |
10.2* |
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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 |
10.3* |
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Note Purchase Agreement, date August 6, 2026, by and among the Company, the Purchasers party thereto and UMB Bank, N.A., as collateral agent |
23.1 |
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Consent of Ernst & Young LLP |
99.1 |
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Audited consolidated financial statements of ACC as of and for the years ended December 31, 2025 and 2024 and the report of Ernst & Young LLP, independent auditors |
99.2 |
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Unaudited consolidated financial statements of ACC as of and for the three and six months ended June 30, 2026. |
99.3 |
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Press Release, dated August 6, 2026 |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). |
* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request by the SEC.
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 hereunto duly authorized.
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ACRES COMMERCIAL REALTY CORP. |
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Date: |
August 6, 2026 |
By: |
/s/ Jaclyn Jesberger |
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Jaclyn Jesberger |
Table of Contents
Exhibit 99.1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page |
ACRES Capital Corp. |
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Report of Independent Auditors |
F-2 |
Consolidated Financial Statements as of and for the years ended December 31, 2025 and 2024: |
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Consolidated Balance Sheets |
F-4 |
Consolidated Statements of Income |
F-6 |
Consolidated Statements of Changes in Equity |
F-7 |
Consolidated Statements of Cash Flows |
F-8 |
Notes to Consolidated Financial Statements |
F-9 |
F-1
Table of Contents
Report of Independent Auditors
The Shareholders of
ACRES Capital Corp.
Opinion
We have audited the consolidated financial statements of ACRES Capital Corp. (the Company), which comprise the consolidated balance sheets as of December 31, 2025 and 2024, and the related consolidated statements of income, changes in equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
F-2
Table of Contents
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Ernst & Young LLP
New York, New York
March 31, 2026
F-3
Table of Contents
ACRES CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
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As of December 31, |
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2025 |
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2024 |
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ASSETS (1) |
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Cash and cash equivalents |
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$ |
5,438,038 |
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$ |
6,404,487 |
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Restricted cash |
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1,313,332 |
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812,622 |
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Capitalized mortgage servicing rights, net |
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— |
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136,163 |
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Goodwill |
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35,000,000 |
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35,000,000 |
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Accounts receivable |
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803,840 |
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257,482 |
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Investments in equity affiliate, at fair value - related party |
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14,296,031 |
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7,204,635 |
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Due from related parties |
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1,884,699 |
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3,641,726 |
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Right-of-use assets |
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6,971,903 |
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3,041,900 |
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Other assets, net of depreciation |
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1,150,067 |
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1,117,441 |
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Assets of Consolidated Fund: |
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Investments, at fair value |
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2,016,918,819 |
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1,168,593,933 |
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Cash and cash equivalents |
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17,824,819 |
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57,489,876 |
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Restricted cash |
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28,478,347 |
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— |
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Accrued interest, servicing receivables and other assets |
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38,509,145 |
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30,132,034 |
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Total assets |
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$ |
2,168,589,040 |
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$ |
1,313,832,299 |
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LIABILITIES (2) |
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Borrowings |
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$ |
147,319,367 |
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$ |
179,072,927 |
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Borrowings - related party |
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10,375,000 |
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10,675,000 |
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Accrued interest, accounts payable, and other liabilities |
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5,605,251 |
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|
|
9,583,110 |
|
Derivative liabilities |
|
|
9,240,299 |
|
|
|
— |
|
Operating lease liabilities |
|
|
7,756,825 |
|
|
|
3,350,580 |
|
Liabilities of Consolidated Fund: |
|
|
|
|
|
|
||
Borrowings |
|
|
1,283,957,379 |
|
|
|
568,780,118 |
|
Accrued interest, accounts payable and other liabilities |
|
|
31,370,008 |
|
|
|
4,845,502 |
|
Total liabilities |
|
|
1,495,624,129 |
|
|
|
776,307,237 |
|
REDEEMABLE INTEREST IN CONSOLIDATED COMPANY ENTITIES |
|
|
33,960,107 |
|
|
|
— |
|
NON-CONTROLLING INTERESTS IN CONSOLIDATED FUND (3) |
|
|
676,389,618 |
|
|
|
571,514,996 |
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
||
Common stock, $0.0001 par value; 3,000,000 shares authorized and 1,695,731 shares outstanding at December 31, 2025 and 2024 |
|
|
170 |
|
|
|
170 |
|
Additional paid-in capital |
|
|
10,178,636 |
|
|
|
21,595,701 |
|
Accumulated deficit |
|
|
(47,563,620 |
) |
|
|
(55,585,805 |
) |
TOTAL STOCKHOLDERS' DEFICIT |
|
|
(37,384,814 |
) |
|
|
(33,989,934 |
) |
TOTAL EQUITY |
|
|
639,004,804 |
|
|
|
537,525,062 |
|
TOTAL LIABILITIES, REDEEMABLE INTEREST, NON-CONTROLLING INTERESTS, AND EQUITY |
|
$ |
2,168,589,040 |
|
|
$ |
1,313,832,299 |
|
Note: The consolidated balance sheets include assets and liabilities of consolidated variable interest entities, or VIEs, as ACRES Capital Corp. is the primary beneficiary of these VIEs. ACRES Capital Corp. holds substantially all of its assets and liabilities through ACRES Holdings, LLC, a consolidated variable interest entity. The Consolidated Fund also represents a VIE which is consolidated by ACRES Capital Corp. See Note 3 for discussion of VIEs.
The accompanying notes are an integral part of these statements.
F-4
Table of Contents
ACRES CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS (cont.)
|
|
As of December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
(1) Assets of Consolidated Fund VIE included in total assets above: |
|
|
|
|
|
|
||
Investments, at fair value |
|
$ |
2,016,918,819 |
|
|
$ |
1,168,593,933 |
|
Cash and cash equivalents |
|
|
17,824,819 |
|
|
|
57,489,876 |
|
Restricted cash |
|
|
28,478,347 |
|
|
|
— |
|
Accrued interest, servicing receivables and other assets |
|
|
38,509,145 |
|
|
|
30,132,034 |
|
Total assets of Consolidated Fund VIE |
|
$ |
2,101,731,130 |
|
|
$ |
1,256,215,843 |
|
(2) Liabilities of Consolidated Fund VIE included in total liabilities above: |
|
|
|
|
|
|
||
Borrowings |
|
$ |
1,283,957,379 |
|
|
$ |
568,780,118 |
|
Accrued interest, accounts payable and other liabilities |
|
|
31,370,008 |
|
|
|
4,845,502 |
|
Total liabilities of Consolidated Fund VIE |
|
$ |
1,315,327,387 |
|
|
$ |
573,625,620 |
|
(3) Non-controlling interests of Consolidated Fund VIE: |
|
|
|
|
|
|
||
Non-controlling interest in Consolidated Fund |
|
$ |
676,389,618 |
|
|
$ |
571,514,996 |
|
The accompanying notes are an integral part of these statements.
F-5
Table of Contents
ACRES CAPITAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
|
|
Years Ended December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
REVENUES |
|
|
|
|
|
|
||
Management and servicing fees, net |
|
$ |
666,798 |
|
|
$ |
437,958 |
|
Management and servicing fees, net - related party |
|
|
6,379,323 |
|
|
|
6,874,962 |
|
Origination fees |
|
|
9,941,306 |
|
|
|
1,507,281 |
|
Incentive fees |
|
|
— |
|
|
|
530,273 |
|
Incentive fees - related party |
|
|
2,530,732 |
|
|
|
2,843,369 |
|
Application fees and other income |
|
|
2,115,853 |
|
|
|
380,318 |
|
Interest income |
|
|
— |
|
|
|
208,038 |
|
Reimbursable compensation and benefits - related party |
|
|
4,292,397 |
|
|
|
3,887,299 |
|
Other reimbursable expenses |
|
|
623,019 |
|
|
|
683,450 |
|
Other reimbursable expenses - related party |
|
|
762,846 |
|
|
|
678,777 |
|
Total revenues |
|
|
27,312,274 |
|
|
|
18,031,725 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
||
Compensation and benefits |
|
|
13,293,326 |
|
|
|
12,559,317 |
|
Equity compensation - related party |
|
|
1,822,494 |
|
|
|
1,542,091 |
|
General, administrative and other expenses |
|
|
9,661,404 |
|
|
|
7,185,438 |
|
Interest expense |
|
|
18,296,890 |
|
|
|
22,066,450 |
|
Interest expense - related party |
|
|
320,496 |
|
|
|
330,533 |
|
Other reimbursable expenses |
|
|
623,019 |
|
|
|
683,450 |
|
Other reimbursable expenses - related party |
|
|
762,846 |
|
|
|
678,777 |
|
Expenses of Consolidated Fund |
|
|
2,885,014 |
|
|
|
1,816,291 |
|
Total operating expenses |
|
|
47,665,489 |
|
|
|
46,862,347 |
|
|
|
|
(20,353,215 |
) |
|
|
(28,830,622 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
||
Income from investments in equity affiliates - related party |
|
|
3,475,527 |
|
|
|
2,389,184 |
|
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
11,485,716 |
|
|
|
10,459,420 |
|
Interest income of Consolidated Fund |
|
|
116,692,452 |
|
|
|
116,717,656 |
|
Interest expense of Consolidated Fund |
|
|
(73,069,749 |
) |
|
|
(58,052,325 |
) |
Gain on extinguishment of debt |
|
|
3,602,197 |
|
|
|
— |
|
Impairment loss on fees and other receivables - related party |
|
|
— |
|
|
|
(565,104 |
) |
Derivative gain |
|
|
3,084,289 |
|
|
|
— |
|
Total other income |
|
|
65,270,432 |
|
|
|
70,948,831 |
|
INCOME BEFORE TAXES |
|
|
44,917,217 |
|
|
|
42,118,209 |
|
Provision for income taxes |
|
|
(541,679 |
) |
|
|
(1,391,261 |
) |
NET INCOME |
|
|
44,375,538 |
|
|
|
40,726,948 |
|
Less: Net income attributable to non-controlling interest in Consolidated Fund |
|
|
(34,113,246 |
) |
|
|
(47,379,745 |
) |
Less: Net income attributable to redeemable interest in Consolidated Company Entities |
|
|
(2,240,107 |
) |
|
|
— |
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHARES |
|
$ |
8,022,185 |
|
|
$ |
(6,652,797 |
) |
The accompanying notes are an integral part of these statements.
F-6
Table of Contents
ACRES CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Common Stock Shares |
|
|
Common Stock Amount |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Non-controlling interest in Consolidated Fund |
|
|
Total Equity |
|
||||||
Balance - December 31, 2023 |
|
|
1,695,731 |
|
|
$ |
170 |
|
|
$ |
20,053,610 |
|
|
$ |
(48,933,008 |
) |
|
$ |
536,756,780 |
|
|
$ |
507,877,552 |
|
Contributions - noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,276,681 |
|
|
|
58,276,681 |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
1,542,091 |
|
|
|
— |
|
|
|
— |
|
|
|
1,542,091 |
|
Dividends/distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(70,898,210 |
) |
|
|
(70,898,210 |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,652,797 |
) |
|
|
47,379,745 |
|
|
|
40,726,948 |
|
Balance - December 31, 2024 |
|
|
1,695,731 |
|
|
|
170 |
|
|
|
21,595,701 |
|
|
|
(55,585,805 |
) |
|
|
571,514,996 |
|
|
|
537,525,062 |
|
Contributions - noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
167,605,932 |
|
|
|
167,605,932 |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
1,822,494 |
|
|
|
— |
|
|
|
— |
|
|
|
1,822,494 |
|
Decrease (increase) in redemption value of redeemable interest |
|
|
— |
|
|
|
— |
|
|
|
(13,239,559 |
) |
|
|
— |
|
|
|
— |
|
|
|
(13,239,559 |
) |
Dividends/distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(96,844,556 |
) |
|
|
(96,844,556 |
) |
Consolidated net income, excluding amounts attributable to redeemable interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,022,185 |
|
|
|
34,113,246 |
|
|
|
42,135,431 |
|
Balance - December 31, 2025 |
|
|
1,695,731 |
|
|
$ |
170 |
|
|
$ |
10,178,636 |
|
|
$ |
(47,563,620 |
) |
|
$ |
676,389,618 |
|
|
$ |
639,004,804 |
|
The accompanying notes are an integral part of these statements.
F-7
Table of Contents
ACRES CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Years Ended December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net income |
|
$ |
44,375,538 |
|
|
$ |
40,726,948 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
120,084 |
|
|
|
130,681 |
|
Equity compensation - related party |
|
|
1,822,494 |
|
|
|
1,542,091 |
|
Amortization of debt acquisition costs |
|
|
622,548 |
|
|
|
496,982 |
|
Amortization of capitalized mortgage servicing rights |
|
|
136,163 |
|
|
|
394,848 |
|
Non-cash interest expense |
|
|
3,795,816 |
|
|
|
7,850,637 |
|
Gain on extinguishment of debt |
|
|
(3,602,197 |
) |
|
|
— |
|
Income from investments in equity affiliate - related party |
|
|
(3,475,527 |
) |
|
|
(2,389,184 |
) |
Provision for income taxes |
|
|
541,679 |
|
|
|
— |
|
Derivative gain |
|
|
(3,084,289 |
) |
|
|
— |
|
Satisfaction of incentive fees in stock |
|
|
(3,615,868 |
) |
|
|
(1,985,266 |
) |
Impairment loss on fees and other receivables |
|
|
— |
|
|
|
565,104 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities allocable to non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
||
Net realized (gain) loss from investments |
|
|
(387,001 |
) |
|
|
535,644 |
|
Net change in unrealized gains on investments |
|
|
(11,098,715 |
) |
|
|
(10,995,064 |
) |
Purchase and funding of loan notes, participations and equity interests |
|
|
(1,149,910,966 |
) |
|
|
(466,597,000 |
) |
Sales proceeds and principal payments received on loan notes and participations |
|
|
312,642,708 |
|
|
|
496,438,000 |
|
Distribution from investments in equity interests |
|
|
352,854 |
|
|
|
— |
|
Amortization of debt issuance costs |
|
|
5,304,788 |
|
|
|
2,980,714 |
|
Deferred fees |
|
|
5,057,023 |
|
|
|
8,099,750 |
|
Amortization of deferred fees |
|
|
(5,646,716 |
) |
|
|
(6,982,771 |
) |
Cash flows due to changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
(546,358 |
) |
|
|
391,285 |
|
Other assets, net of depreciation |
|
|
(152,714 |
) |
|
|
62,564 |
|
Due from related parties |
|
|
1,742,145 |
|
|
|
28,283 |
|
Right-of-use assets |
|
|
(3,930,003 |
) |
|
|
339,208 |
|
Operating lease liabilities |
|
|
4,406,245 |
|
|
|
(330,893 |
) |
Accrued interest, accounts payable, and other liabilities |
|
|
(2,419,538 |
) |
|
|
(2,685,908 |
) |
Cash flows due to changes in operating assets and liabilities allocable to non-controlling interest in Consolidated Fund: |
|
|
|
|
|
|
||
Change in cash and cash equivalents held at Consolidated Fund |
|
|
11,186,710 |
|
|
|
(32,316,092 |
) |
Change in other assets and receivables held at Consolidated Fund |
|
|
(8,377,111 |
) |
|
|
16,178,555 |
|
Change in other liabilities and payables held at Consolidated Fund |
|
|
2,131,314 |
|
|
|
1,063,362 |
|
Net cash (used in) provided by operating activities |
|
|
(802,008,894 |
) |
|
|
53,542,478 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
||
Payoffs, paydowns and sales of mortgage loans |
|
|
— |
|
|
|
3,715,814 |
|
Net cash provided by investing activities |
|
|
— |
|
|
|
3,715,814 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Proceeds from credit facilities and notes payable |
|
|
130,000,000 |
|
|
|
— |
|
Paydowns of credit facilities and notes payable |
|
|
(155,616,554 |
) |
|
|
(9,900 |
) |
Paydowns of loan payable - related party |
|
|
(300,000 |
) |
|
|
(300,000 |
) |
Proceeds from issuance of redeemable interests |
|
|
33,000,000 |
|
|
|
— |
|
Payment of redeemable interest issuance costs |
|
|
(2,194,971 |
) |
|
|
— |
|
Payment of debt acquisitons costs |
|
|
(6,896,192 |
) |
|
|
— |
|
Transaction costs incurred in debt restructuring |
|
|
(2,156,982 |
) |
|
|
— |
|
Allocable to non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
||
Contributions from non-controlling interests in Consolidated Fund |
|
|
167,605,932 |
|
|
|
58,276,681 |
|
Distributions to non-controlling interests in Consolidated Fund |
|
|
(73,621,142 |
) |
|
|
(70,898,211 |
) |
Borrowings under loan obligations by Consolidated Fund |
|
|
1,142,325,016 |
|
|
|
211,148,207 |
|
Repayments under loan obligations by Consolidated Fund |
|
|
(419,800,058 |
) |
|
|
(252,714,525 |
) |
Payment of debt acquisition costs by Consolidated Fund |
|
|
(10,801,894 |
) |
|
|
(698,653 |
) |
Net cash provided by (used in) financing activities |
|
|
801,543,155 |
|
|
|
(55,196,401 |
) |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(465,739 |
) |
|
|
2,061,891 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
7,217,109 |
|
|
|
5,155,218 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
$ |
6,751,370 |
|
|
$ |
7,217,109 |
|
The accompanying notes are an integral part of these statements.
F-8
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
ACRES Capital Corp., a Delaware corporation, along with its subsidiaries (collectively, the “Company”), is a private lender dedicated to nationwide middle-market commercial real estate (“CRE”) lending in the United States (“U.S.”). The Company conducts its operations through the use of subsidiaries that it consolidates into its financial statements. Substantially all of the Company’s operations are conducted through ACRES Capital LLC (the “Operating Subsidiary”), a wholly owned subsidiary that is registered with the Securities and Exchange Commission as an investment adviser. The Operating Subsidiary 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. The Operating Subsidiary also serves as the manager of ACRES Commercial Realty Corp. (“ACR”), a Maryland corporation. ACR is a real estate investment trust (“REIT”) that is primarily focused on originating, holding, and managing CRE mortgage loans and other commercial real estate related debt investments.
On July 23, 2025, the Company contributed substantially all of its assets, including its interests in the Operating Subsidiary, and liabilities to ACRES Holdings, LLC, a wholly-owned subsidiary, in exchange for membership interests in ACRES Holdings, LLC. Contemporaneously with this contribution, ACRES Holdings, LLC issued preferred equity securities to a third party. As a result, the Company holds substantially all of its assets and liabilities through ACRES Holdings, LLC, a consolidated variable interest entity. See Note 3.
The Company consolidates AMF in the accompanying financial statements (the “Consolidated Fund”) (the Company, excluding the Consolidated Fund, the “Consolidated Company Entities”). 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; however, the Consolidated Fund results included herein have no direct effect on the net income attributable to ACRES Capital Corp. or to its stockholders’ deficit. Instead, economic ownership interests of the third-party investors in the Consolidated Fund are reflected as non-controlling interests in the Consolidated Fund. Further, cash flows allocable to non-controlling interests in Consolidated Fund are specifically identifiable within the consolidated statements of cash flows.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”). 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 income. 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 income.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, majority-owned or controlled subsidiaries and variable interest entities (“VIEs”) for which the Company is considered the primary beneficiary. All inter-company transactions and balances have been eliminated in consolidation.
F-9
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Variable Interest Entities
A VIE is defined as an entity in which equity investors (i) do not have a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that (a) has the power to control the activities that most significantly impact the VIE’s economic performance and (b) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company considers the following criteria in determining whether an entity is a VIE:
In determining whether the Company is the primary beneficiary of a VIE, the Company reviews governing contracts, formation documents and any other contractual arrangements to determine the activities that have the most significant impact on the VIE and which entity has the power to direct those activities. The Company also looks for kick-out rights, protective rights, and participating rights as well as any financial or other support provided to the VIE and the reason for that support, and the terms of any explicit or implicit arrangements that may require the Company to provide future support. The Company then makes a determination based on its power to direct the most significant activities of the VIE and/or a financial interest that is potentially significant. In instances when a VIE is owned by both the Company and related parties, the Company considers whether there is a single party in the related party group that meets both the power and losses or benefits criteria on its own as though no related party relationship existed. If one party within the related party group meets both these criteria, such reporting entity is the primary beneficiary of the VIE. If no party within the related party group on its own meets both the power and losses or benefits criteria, but the related party group as a whole meets these two criteria, the determination of primary beneficiary within the related party group is based upon an analysis of the facts and circumstances with the objective of determining which party is most closely associated with the VIE. Determining the primary beneficiary requires significant judgment. The Company continuously analyzes entities in which it holds variable interests to identify reconsideration events and determine whether such entities are VIEs and whether such potential VIEs should be consolidated or deconsolidated.
Voting Interest Entities
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated.
F-10
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.
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.
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. Cash and cash equivalents held at the Consolidated Fund represents cash that, although not legally restricted, is not available to support the general liquidity needs of the Company, as the use of such amounts is generally limited to the activities of the Consolidated Fund.
As of December 31, 2025 and 2024, the Company had cash balances with financial institutions in excess of Federal Deposit Insurance Corporation insured limits. The Company monitors the credit standing of these financial institutions.
Restricted Cash
Restricted cash consists of deposits received from potential new borrowers. The Company maintains loan expense deposits collected from prospective borrowers used to offset underwriting expenses associated with originating loans.
Redeemable Interest
Redeemable interest in the Company represents preferred equity securities issued by a subsidiary of the Company to a third party. Income (loss) is allocated based on the preferred return attributable to the redeemable interest. At each balance sheet date, the carrying value of the redeemable interest is presented at the redemption amount, to the extent that the redemption amount exceeds the initial measurement on the date of issuance. The Company recognizes changes in the redemption amount with corresponding adjustments against retained earnings, or additional paid-in-capital in the absence of retained earnings, within stockholders’ deficit within the consolidated balance sheets.
Derivative Instruments
Derivative financial instruments are recorded in the accompanying balance sheets at fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s statements of income.
The Company concluded the redeemable interest preferred equity securities host contract contained features that required bifurcation and separate accounting under ASC 815.
F-11
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each consolidated balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a gain or loss on the consolidated statements of income.
The Company determined that upon further review of the warrant agreements, the Company concluded that its warrants qualify for liability accounting treatment.
Issuance Costs Related to Equity and Debt
The Company allocates issuance costs between the individual freestanding instruments identified on the same basis as proceeds were allocated. Issuance costs associated with the issuance of redeemable interests (i.e., temporary equity-classified stock) are recorded as a charge against the gross proceeds of the offering and amortized over the earliest estimable redemption date. Any issuance costs associated with the issuance of liability-classified warrants are expensed as incurred. Issuance costs associated with the issuance of debt are recorded as a direct reduction of the carrying amount of the debt liability. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount to interest expense using the effective interest method over the expected term of the notes pursuant to ASC 835.
Non-Controlling Interests
The non-controlling interests in Consolidated Fund represents a component of equity and net income attributable to ownership interests that third-party investors hold in the Consolidated Fund.
Troubled Debt Restructuring
When the Company modifies or extinguishes debt, it first evaluates whether the modification qualifies as a troubled debt restructuring (“TDR”) under ASC 470-60. As per ASC 470-60, a TDR refers to a situation where the creditor grants concessions to a borrower experiencing financial difficulties. A lender is deemed to have granted a concession if the borrower’s effective interest rate on the restructured debt is less than the effective interest rate of the old debt immediately before the restructuring. Such restructuring is done with the intent to provide relief to the borrower and to maximize the potential for payable recovery by the lender.
In accordance with ASC 470-60, when the total future cash payments under the new terms are less than the carrying amount of the payable at the date of restructuring, the difference between the carrying amount and the total future cash payments is recognized as a gain on extinguishment of debt in the consolidated financial statements. This gain is recorded immediately in the period the restructuring occurs. If the total future cash payments under the new terms exceed the carrying amount of the debt at the date of restructuring, no adjustment to the carrying amount of the debt is made. Instead, the Company calculates a new effective interest rate (“EIR”) based on the revised terms of the restructured debt. The debt is then amortized over the remaining term of the debt using the new EIR, with interest expense recognized based on such rate in future periods.
F-12
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
If a TDR is determined not to have occurred, the Company evaluates the modification in accordance with ASC 470-50-40, which requires modification to debt instruments to be evaluated to assess whether the modifications are considered “substantial modifications”. A substantial modification of terms is accounted for like an extinguishment.
Income Earned from Fee-Based Services
Income from fee-based services includes asset management fees, development fees, ACR management fees, servicing fees, and incentive fees. Asset management fees, development fees, and servicing fees are included in management and servicing fees, net on the consolidated statements of income. ACR management fees are included in management and servicing fees, net – related party on the consolidated statements of income. Incentive fees are included in incentive fees on the consolidated statements of income. Incentive fees are earned when specified financial hurdles are met for certain separately managed accounts and ACR. 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.
ACR management fees
The Company earns a monthly base management fee equal to 1/12th of the amount of ACR’s equity (as defined in the management agreement) multiplied by 1.50%. Such base management fees are included in management and servicing fees, net - related party on the consolidated statements of income.
The Company may terminate the management agreement at its option: (A) in the event that ACR defaults in the performance or observance of any material term, condition or covenant contained in the management agreement and such default continues for a period of 30 days after written notice thereof, or (B) without payment of a termination fee by ACR, if ACR becomes regulated as an investment company under the Investment Company Act, with such termination deemed to occur immediately before such event.
The ACR management agreement’s current contract term ends on July 31, 2026, and the agreement provides for automatic one-year renewals on such date and on each July 31 thereafter until terminated. The management agreement may be terminated upon the affirmative vote of at least two-thirds of ACR’s independent directors, or by the affirmative vote of the holders of at least a majority of the outstanding shares of ACR’s common stock, based upon unsatisfactory performance that is materially detrimental to ACR or a determination by ACR’s independent directors that the management fees payable to the Company are not fair, subject to the Company’s right to prevent such a compensation termination by accepting a mutually acceptable reduction of management fees. ACR’s Board must provide 180 days’ prior notice of any such termination. If ACR terminates the management agreement, the Company is entitled to a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive compensation earned by the Company during the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination. ACR may also terminate the management agreement for cause with 30 days’ prior written notice from ACR’s Board. No termination fee is payable in the event of a termination for cause (as defined in the management agreement).
ACR incentive fees (management agreement)
The Company earns an incentive fee calculated and payable in arrears in an amount, not less than zero, equal to the excess of (1) the product of (a) 20% and (b) the excess of (i) Earnings Available for Distribution (“EAD”) (as defined in the management agreement) of ACR for the previous 12-month period, over (ii) the product of (A) ACR’s book value equity in the previous 12-month period, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to the Company with respect to the first three calendar quarters of such previous 12-month period; provided, however, that no incentive compensation shall be payable with respect to any calendar quarter unless EAD for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from September 30, 2022) in the aggregate is greater than zero.
F-13
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Incentive compensation is calculated and payable quarterly to the Company to the extent it is earned. Up to 75% of the incentive compensation is payable in cash and at least 25% is payable in the form of an award of common stock of ACR. The Company may elect to receive more than 25% of its incentive compensation in common stock. All shares are fully vested upon issuance; however, the Company may not sell such shares for one year after the incentive compensation becomes due and payable unless the management agreement is terminated.
ACR incentive fees (Manager Incentive Plan)
In June 2021, the shareholders of ACR approved the ACR Manager Incentive Plan (“MIP”). The MIP provides for the issuance of ACR equity-based awards to the Company when certain ACR book value targets are met. Such awards vest over four years. The Company initially measures such grants at fair value on the grant date and recognizes income monthly on a straight-line basis over the service period to Incentive fees – related party on the consolidated statements of income.
Reimbursable Compensation and Benefits
Reimbursable compensation and benefits include reimbursements, at cost, which arise primarily from the services employees of the Company provide pursuant to the ACR management agreement that are charged to ACR. The Company recognizes the revenue for reimbursements when the Company incurs the related reimbursable compensation and benefits and other costs on behalf of ACR.
Other Reimbursable Expenses
Other reimbursable expenses include reimbursements that arise from out-of-pocket expenses and certain other costs incurred by the Company that related directly to ACR’s operations or other reimbursable activity. The Company has determined that it controls the services provided by third parties for ACR and therefore the Company accounts for the cost of these services and the related reimbursement revenue on a gross basis.
Income Taxes
The Company accounts for its income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities by using the enacted tax rates in effect for the year in which differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers material positive and negative evidence, including results of recent operations, income in the carryback period, future reversals of existing taxable temporary differences, tax-planning strategies, and projected future taxable income. A valuation allowance is recorded to the extent the more-likely-than-not threshold is not met. If a valuation allowance is recorded and it is subsequently determined that the Company would be able to realize any portion of its deferred tax assets in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Uncertain tax positions are recorded in accordance with ASC 740 on the basis of a two-step process in which (1) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit.
Investments in Equity Affiliate
The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to
F-14
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
exercise significant influence is restricted. The Company elected the fair value option for its equity method investment and determines fair value using the closing price of common shares as of the end of the period. The Company recognizes the unrealized and realized gains and losses on equity investments on the consolidated statements of income as income from investments in equity affiliate - related party.
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. Based on the impairment tests performed as of October 1, 2025, there were no indications that goodwill was impaired and nor were there events or changes in circumstances indicating impairment at December 31, 2025.
Leases
Arrangements are evaluated to identify leases at inception. The right to use an underlying asset for the lease term is recorded as operating lease right-of-use ("ROU") assets and obligations to make lease payments arising from the lease are recorded as lease liabilities. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. At the adoption date, the Company made an accounting policy election to exclude leases with an initial term of twelve months or less.
Stock-Based Compensation
Issuances of options to purchase shares of the Company’s common stock are initially measured at fair value on the grant date and expensed monthly on a straight-line basis over the service period to equity compensation expense on the consolidated statements of income, with a corresponding entry to additional paid-in capital on the consolidated balance sheets. In accordance with GAAP, the fair value of all unvested issuances of restricted stock and options is not remeasured after the initial grant date. The Company accounts for forfeitures of employee awards as they occur. As a result, the Company records compensation cost assuming all option holders will complete the requisite service period. If an employee forfeits an award because they fail to complete the requisite service period, the Company will reverse compensation cost previously recognized in the period the award is forfeited.
Reclassifications
Certain reclassifications have been made to prior year’s financial information to conform to the December 31, 2025 presentation. These reclassifications had no effect on net loss or total equity.
Recent accounting pronouncements
Accounting Standards Adopted in 2025
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 requires enhanced disclosures in connection with an entity's effective tax rate reconciliation and additional disclosures about income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2025. The Company has adopted this guidance prospectively which did not have a material impact to its consolidated financial statements or financial statement disclosures. See Note 13 - Income Taxes for further information.
F-15
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 - CONSOLIDATION
The Company has evaluated its loans, investments in unconsolidated entities, guarantees and other financial contracts in order to determine if they are variable interests in VIEs. The Company regularly monitors these legal interests and contracts and, to the extent it has determined that it has a variable interest, analyzes the related entity for potential consolidation.
Investments in Consolidated Variable Interest Entities
The Company consolidates entities in which the Company has a variable interest and, as the investment manager, has both the power to direct the most significant activities and a potentially significant economic interest. Investments in the consolidated VIEs are reported at fair value and represent the Company’s maximum exposure to loss.
ACRES Holdings, LLC is considered and treated as a VIE because the Company directs the significant activities of the entity and not the holders of equity at risk. The Company concluded its interest in ACRES Holdings, LLC represented a potentially significant economic interest and the Company represented the primary beneficiary of ACRES Holdings, LLC. As a result, the Company consolidated ACRES Holdings, LLC as of July 23, 2025 and continues to be consolidated as of December 31, 2025.
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 and for the years ended December 31, 2025 and 2024.
Investments in Non-Consolidated Variable Interest 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 December 31, 2025. The Company continuously reassesses whether it is deemed to be the primary beneficiary of its unconsolidated VIEs.
The Company completed a qualitative analysis to determine whether it is the primary beneficiary of ACRES SPV LLC, a wholly owned subsidiary of the Company, and determined that it was not the primary beneficiary as of December 31, 2025 and 2024. ACRES SPV LLC is considered and treated as a VIE due to a lack of sufficient equity. The Company (including related parties) are 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 December 31, 2025 and 2024. The Company has no investment at risk as of December 31, 2025 and 2024.
F-16
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating Schedules
The following supplemental financial information illustrates the consolidating effects of the Consolidated Fund on the Company’s balance sheet, results from operations and cash flows:
|
|
As of December 31, 2025 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
5,438,038 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,438,038 |
|
Restricted cash |
|
|
1,313,332 |
|
|
|
— |
|
|
|
— |
|
|
|
1,313,332 |
|
Goodwill |
|
|
35,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
35,000,000 |
|
Accounts receivable |
|
|
803,840 |
|
|
|
— |
|
|
|
— |
|
|
|
803,840 |
|
Investments in equity affiliate, at fair value - related party |
|
|
121,295,369 |
|
|
|
— |
|
|
|
(106,999,338 |
) |
|
|
14,296,031 |
|
Due from related parties |
|
|
4,899,486 |
|
|
|
— |
|
|
|
(3,014,787 |
) |
|
|
1,884,699 |
|
Right-of-use assets |
|
|
6,971,903 |
|
|
|
— |
|
|
|
— |
|
|
|
6,971,903 |
|
Other assets, net of depreciation |
|
|
1,150,067 |
|
|
|
— |
|
|
|
— |
|
|
|
1,150,067 |
|
Assets of Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments, at fair value |
|
|
— |
|
|
|
2,016,918,819 |
|
|
|
— |
|
|
|
2,016,918,819 |
|
Cash and cash equivalents |
|
|
— |
|
|
|
17,824,819 |
|
|
|
— |
|
|
|
17,824,819 |
|
Restricted cash |
|
|
— |
|
|
|
28,478,347 |
|
|
|
— |
|
|
|
28,478,347 |
|
Accrued interest, servicing receivables and other assets |
|
|
— |
|
|
|
38,509,145 |
|
|
|
— |
|
|
|
38,509,145 |
|
Total assets |
|
$ |
176,872,035 |
|
|
$ |
2,101,731,130 |
|
|
$ |
(110,014,125 |
) |
|
$ |
2,168,589,040 |
|
LIABILITIES (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Borrowings |
|
$ |
147,319,367 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
147,319,367 |
|
Borrowings - related party |
|
|
10,375,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10,375,000 |
|
Accrued interest, accounts payable, and other liabilities |
|
|
5,605,251 |
|
|
|
— |
|
|
|
— |
|
|
|
5,605,251 |
|
Derivative liabilities |
|
|
9,240,299 |
|
|
|
— |
|
|
|
— |
|
|
|
9,240,299 |
|
Operating lease liabilities |
|
|
7,756,825 |
|
|
|
— |
|
|
|
— |
|
|
|
7,756,825 |
|
Liabilities of Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Borrowings |
|
|
|
|
|
1,283,957,379 |
|
|
|
— |
|
|
|
1,283,957,379 |
|
|
Accrued interest, accounts payable and other liabilities |
|
|
|
|
|
31,370,008 |
|
|
|
— |
|
|
|
31,370,008 |
|
|
Due to related party |
|
|
|
|
|
3,014,787 |
|
|
|
(3,014,787 |
) |
|
|
— |
|
|
Total liabilities |
|
|
180,296,742 |
|
|
|
1,318,342,174 |
|
|
|
(3,014,787 |
) |
|
|
1,495,624,129 |
|
REDEEMABLE INTEREST IN CONSOLIDATED COMPANY ENTITIES |
|
|
33,960,107 |
|
|
|
— |
|
|
|
— |
|
|
|
33,960,107 |
|
NON-CONTROLLING INTERESTS IN CONSOLIDATED FUND (3) |
|
|
— |
|
|
|
783,388,956 |
|
|
|
(106,999,338 |
) |
|
|
676,389,618 |
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock, $0.0001 par value; 3,000,000 shares authorized and 1,695,731 shares outstanding at December 31, 2025 |
|
|
170 |
|
|
|
— |
|
|
|
— |
|
|
|
170 |
|
Additional paid-in capital |
|
|
10,178,636 |
|
|
|
— |
|
|
|
— |
|
|
|
10,178,636 |
|
Accumulated deficit |
|
|
(47,563,620 |
) |
|
|
— |
|
|
|
— |
|
|
|
(47,563,620 |
) |
TOTAL STOCKHOLDERS' DEFICIT |
|
|
(37,384,814 |
) |
|
|
— |
|
|
|
— |
|
|
|
(37,384,814 |
) |
TOTAL EQUITY |
|
|
(37,384,814 |
) |
|
|
783,388,956 |
|
|
|
(106,999,338 |
) |
|
|
639,004,804 |
|
TOTAL LIABILITIES, REDEEMABLE INTEREST, NON-CONTROLLING INTERESTS, AND EQUITY |
|
$ |
176,872,035 |
|
|
$ |
2,101,731,130 |
|
|
$ |
(110,014,125 |
) |
|
$ |
2,168,589,040 |
|
F-17
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
As of December 31, 2024 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
6,404,487 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,404,487 |
|
Restricted cash |
|
|
812,622 |
|
|
|
— |
|
|
|
— |
|
|
|
812,622 |
|
Capitalized mortgage servicing rights, net |
|
|
136,163 |
|
|
|
— |
|
|
|
— |
|
|
|
136,163 |
|
Goodwill |
|
|
35,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
35,000,000 |
|
Accounts receivable |
|
|
257,482 |
|
|
|
— |
|
|
|
— |
|
|
|
257,482 |
|
Investments in equity affiliates, at fair value - related party |
|
|
115,940,133 |
|
|
|
— |
|
|
|
(108,735,498 |
) |
|
|
7,204,635 |
|
Due from related parties |
|
|
5,981,455 |
|
|
|
— |
|
|
|
(2,339,729 |
) |
|
|
3,641,726 |
|
Right-of-use assets |
|
|
3,041,900 |
|
|
|
— |
|
|
|
— |
|
|
|
3,041,900 |
|
Other assets, net of depreciation |
|
|
1,117,441 |
|
|
|
— |
|
|
|
— |
|
|
|
1,117,441 |
|
Assets of Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments, at fair value |
|
|
— |
|
|
|
1,168,593,933 |
|
|
|
— |
|
|
|
1,168,593,933 |
|
Cash and cash equivalents |
|
|
— |
|
|
|
57,489,876 |
|
|
|
— |
|
|
|
57,489,876 |
|
Accrued interest, servicing receivables and other assets |
|
|
— |
|
|
|
30,132,034 |
|
|
|
— |
|
|
|
30,132,034 |
|
Total assets |
|
$ |
168,691,683 |
|
|
$ |
1,256,215,843 |
|
|
$ |
(111,075,227 |
) |
|
$ |
1,313,832,299 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Borrowings |
|
$ |
179,072,927 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
179,072,927 |
|
Borrowings - related party |
|
|
10,675,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10,675,000 |
|
Accrued interest, accounts payable, and other liabilities |
|
|
9,583,110 |
|
|
|
— |
|
|
|
— |
|
|
|
9,583,110 |
|
Operating lease liabilities |
|
|
3,350,580 |
|
|
|
— |
|
|
|
— |
|
|
|
3,350,580 |
|
Liabilities of Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Borrowings |
|
|
— |
|
|
|
568,780,118 |
|
|
|
— |
|
|
|
568,780,118 |
|
Accrued interest, accounts payable and other liabilities |
|
|
— |
|
|
|
4,845,502 |
|
|
|
— |
|
|
|
4,845,502 |
|
Due to related party |
|
|
— |
|
|
|
2,339,729 |
|
|
|
(2,339,729 |
) |
|
|
— |
|
Total liabilities |
|
|
202,681,617 |
|
|
|
575,965,349 |
|
|
|
(2,339,729 |
) |
|
|
776,307,237 |
|
NON-CONTROLLING INTEREST IN CONSOLIDATED FUND |
|
|
— |
|
|
|
680,250,494 |
|
|
|
(108,735,498 |
) |
|
|
571,514,996 |
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock, $0.0001 par value; 3,000,000 shares authorized and 1,695,731 shares outstanding at December 31, 2024 |
|
|
170 |
|
|
|
— |
|
|
|
— |
|
|
|
170 |
|
Additional paid-in capital |
|
|
21,595,701 |
|
|
|
|
|
|
|
|
|
21,595,701 |
|
||
Accumulated deficit |
|
|
(55,585,805 |
) |
|
|
— |
|
|
|
— |
|
|
|
(55,585,805 |
) |
TOTAL STOCKHOLDERS' DEFICIT |
|
|
(33,989,934 |
) |
|
|
— |
|
|
|
— |
|
|
|
(33,989,934 |
) |
TOTAL EQUITY |
|
|
(33,989,934 |
) |
|
|
680,250,494 |
|
|
|
(108,735,498 |
) |
|
|
537,525,062 |
|
TOTAL LIABILITIES, NON-CONTROLLING INTEREST AND EQUITY |
|
$ |
168,691,683 |
|
|
$ |
1,256,215,843 |
|
|
$ |
(111,075,227 |
) |
|
$ |
1,313,832,299 |
|
F-18
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
Year ended December 31, 2025 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and servicing fees, net |
|
$ |
666,798 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
666,798 |
|
Management and servicing fees, net - related party |
|
|
16,842,620 |
|
|
|
— |
|
|
|
(10,463,297 |
) |
|
|
6,379,323 |
|
Origination fees |
|
|
9,941,306 |
|
|
|
— |
|
|
|
— |
|
|
|
9,941,306 |
|
Incentive fees - related party |
|
|
2,530,732 |
|
|
|
— |
|
|
|
— |
|
|
|
2,530,732 |
|
Application fees and other income |
|
|
2,115,853 |
|
|
|
— |
|
|
|
— |
|
|
|
2,115,853 |
|
Reimbursable compensation and benefits - related party |
|
|
4,292,397 |
|
|
|
— |
|
|
|
— |
|
|
|
4,292,397 |
|
Other reimbursable expenses |
|
|
623,019 |
|
|
|
— |
|
|
|
— |
|
|
|
623,019 |
|
Other reimbursable expenses - related party |
|
|
1,281,145 |
|
|
|
|
|
|
(518,299 |
) |
|
|
762,846 |
|
|
Total revenues |
|
|
38,293,870 |
|
|
|
— |
|
|
|
(10,981,596 |
) |
|
|
27,312,274 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
13,293,326 |
|
|
|
— |
|
|
|
— |
|
|
|
13,293,326 |
|
Equity compensation - related party |
|
|
1,822,494 |
|
|
|
— |
|
|
|
— |
|
|
|
1,822,494 |
|
General, administrative and other expenses |
|
|
9,661,404 |
|
|
|
— |
|
|
|
— |
|
|
|
9,661,404 |
|
Interest expense |
|
|
18,296,890 |
|
|
|
— |
|
|
|
— |
|
|
|
18,296,890 |
|
Interest expense - related party |
|
|
320,496 |
|
|
|
— |
|
|
|
— |
|
|
|
320,496 |
|
Other reimbursable expenses |
|
|
623,019 |
|
|
|
— |
|
|
|
— |
|
|
|
623,019 |
|
Other reimbursable expenses - related party |
|
|
1,281,145 |
|
|
|
— |
|
|
|
(518,299 |
) |
|
|
762,846 |
|
Expenses of Consolidated Fund |
|
|
— |
|
|
|
13,348,311 |
|
|
|
(10,463,297 |
) |
|
|
2,885,014 |
|
Total operating expenses |
|
|
45,298,774 |
|
|
|
13,348,311 |
|
|
|
(10,981,596 |
) |
|
|
47,665,489 |
|
|
|
|
(7,004,904 |
) |
|
|
(13,348,311 |
) |
|
|
— |
|
|
|
(20,353,215 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Income from investments in equity affiliates - related party |
|
|
11,122,389 |
|
|
|
— |
|
|
|
(7,646,862 |
) |
|
|
3,475,527 |
|
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
— |
|
|
|
11,485,716 |
|
|
|
— |
|
|
|
11,485,716 |
|
Interest income of Consolidated Fund |
|
|
— |
|
|
|
116,692,452 |
|
|
|
— |
|
|
|
116,692,452 |
|
Interest expense of Consolidated Fund |
|
|
— |
|
|
|
(73,069,749 |
) |
|
|
— |
|
|
|
(73,069,749 |
) |
Gain on extinguishment of debt |
|
|
3,602,197 |
|
|
|
— |
|
|
|
— |
|
|
|
3,602,197 |
|
Derivative gain |
|
|
3,084,289 |
|
|
|
— |
|
|
|
— |
|
|
|
3,084,289 |
|
Total other income |
|
|
17,808,875 |
|
|
|
55,108,419 |
|
|
|
(7,646,862 |
) |
|
|
65,270,432 |
|
INCOME BEFORE TAXES |
|
|
10,803,971 |
|
|
|
41,760,108 |
|
|
|
(7,646,862 |
) |
|
|
44,917,217 |
|
Provision for income taxes |
|
|
(541,679 |
) |
|
|
— |
|
|
|
— |
|
|
|
(541,679 |
) |
NET INCOME |
|
|
10,262,292 |
|
|
|
41,760,108 |
|
|
|
(7,646,862 |
) |
|
|
44,375,538 |
|
Less: Net income attributable to non-controlling interest in Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
(34,113,246 |
) |
|
|
(34,113,246 |
) |
Less: Net income attributable to redeemable interest in Consolidated Company Entities |
|
|
(2,240,107 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,240,107 |
) |
NET INCOME ATTRIBUTABLE TO COMMON SHARES |
|
$ |
8,022,185 |
|
|
$ |
41,760,108 |
|
|
$ |
(41,760,108 |
) |
|
$ |
8,022,185 |
|
F-19
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
Year ended December 31, 2024 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and servicing fees, net |
|
$ |
437,958 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
437,958 |
|
Management and servicing fees, net - related party |
|
|
15,330,687 |
|
|
|
— |
|
|
|
(8,455,725 |
) |
|
|
6,874,962 |
|
Origination fees |
|
|
1,507,281 |
|
|
|
— |
|
|
|
— |
|
|
|
1,507,281 |
|
Incentive fees |
|
|
530,273 |
|
|
|
— |
|
|
|
— |
|
|
|
530,273 |
|
Incentive fees - related party |
|
|
2,843,369 |
|
|
|
— |
|
|
|
— |
|
|
|
2,843,369 |
|
Application fees and other income |
|
|
380,318 |
|
|
|
— |
|
|
|
— |
|
|
|
380,318 |
|
Interest income |
|
|
208,038 |
|
|
|
— |
|
|
|
— |
|
|
|
208,038 |
|
Reimbursable compensation and benefits - related party |
|
|
3,887,299 |
|
|
|
— |
|
|
|
— |
|
|
|
3,887,299 |
|
Other reimbursable expenses |
|
|
683,450 |
|
|
|
— |
|
|
|
— |
|
|
|
683,450 |
|
Other reimbursable expenses - related party |
|
|
1,198,386 |
|
|
|
— |
|
|
|
(519,609 |
) |
|
|
678,777 |
|
Total revenues |
|
|
27,007,059 |
|
|
|
— |
|
|
|
(8,975,334 |
) |
|
|
18,031,725 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
12,559,317 |
|
|
|
— |
|
|
|
— |
|
|
|
12,559,317 |
|
Equity compensation - related party |
|
|
1,542,091 |
|
|
|
— |
|
|
|
— |
|
|
|
1,542,091 |
|
General, administrative and other expenses |
|
|
7,185,438 |
|
|
|
— |
|
|
|
— |
|
|
|
7,185,438 |
|
Interest expense |
|
|
22,066,450 |
|
|
|
— |
|
|
|
— |
|
|
|
22,066,450 |
|
Interest expense - related party |
|
|
330,533 |
|
|
|
— |
|
|
|
— |
|
|
|
330,533 |
|
Other reimbursable expenses |
|
|
683,450 |
|
|
|
— |
|
|
|
— |
|
|
|
683,450 |
|
Other reimbursable expenses - related party |
|
|
1,198,386 |
|
|
|
— |
|
|
|
(519,609 |
) |
|
|
678,777 |
|
Expenses of Consolidated Fund |
|
|
— |
|
|
|
10,272,016 |
|
|
|
(8,455,725 |
) |
|
|
1,816,291 |
|
Total operating expenses |
|
|
45,565,665 |
|
|
|
10,272,016 |
|
|
|
(8,975,334 |
) |
|
|
46,862,347 |
|
|
|
|
(18,558,606 |
) |
|
|
(10,272,016 |
) |
|
|
— |
|
|
|
(28,830,622 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from investments in equity affiliates - related party |
|
|
13,862,174 |
|
|
|
— |
|
|
|
(11,472,990 |
) |
|
|
2,389,184 |
|
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
— |
|
|
|
10,459,420 |
|
|
|
— |
|
|
|
10,459,420 |
|
Interest income of Consolidated Fund |
|
|
— |
|
|
|
116,717,656 |
|
|
|
— |
|
|
|
116,717,656 |
|
Interest expense of Consolidated Fund |
|
|
— |
|
|
|
(58,052,325 |
) |
|
|
— |
|
|
|
(58,052,325 |
) |
Impairment loss on fees and other receivables - related party |
|
|
(565,104 |
) |
|
|
— |
|
|
|
— |
|
|
|
(565,104 |
) |
Total other income (expense) |
|
|
13,297,070 |
|
|
|
69,124,751 |
|
|
|
(11,472,990 |
) |
|
|
70,948,831 |
|
INCOME (LOSS) BEFORE TAXES |
|
|
(5,261,536 |
) |
|
|
58,852,735 |
|
|
|
(11,472,990 |
) |
|
|
42,118,209 |
|
Provision for income taxes |
|
|
(1,391,261 |
) |
|
|
|
|
|
|
|
|
(1,391,261 |
) |
||
NET INCOME (LOSS) |
|
|
(6,652,797 |
) |
|
|
58,852,735 |
|
|
|
(11,472,990 |
) |
|
|
40,726,948 |
|
Less: Net income attributable to non-controlling interest in Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
(47,379,745 |
) |
|
|
(47,379,745 |
) |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHARES |
|
$ |
(6,652,797 |
) |
|
$ |
58,852,735 |
|
|
$ |
(58,852,735 |
) |
|
$ |
(6,652,797 |
) |
F-20
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
Year Ended December 31, 2025 |
|||||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
10,262,292 |
|
|
$ |
41,760,108 |
|
|
$ |
(7,646,862 |
) |
|
$ |
44,375,538 |
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation |
|
|
120,084 |
|
|
|
— |
|
|
|
— |
|
|
|
120,084 |
|
|
Equity compensation - related party |
|
|
1,822,494 |
|
|
|
— |
|
|
|
— |
|
|
|
1,822,494 |
|
|
Amortization of debt acquisition costs |
|
|
622,548 |
|
|
|
— |
|
|
|
— |
|
|
|
622,548 |
|
|
Amortization of capitalized mortgage servicing rights |
|
|
136,163 |
|
|
|
— |
|
|
|
— |
|
|
|
136,163 |
|
|
Non-cash interest expense |
|
|
3,795,816 |
|
|
|
— |
|
|
|
— |
|
|
|
3,795,816 |
|
|
Gain on extinguishment of debt |
|
|
(3,602,197 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,602,197 |
) |
|
Income from investments in equity affiliates - related party |
|
|
(11,122,389 |
) |
|
|
— |
|
|
|
7,646,862 |
|
|
|
(3,475,527 |
) |
|
Provision for income taxes |
|
|
541,679 |
|
|
|
— |
|
|
|
— |
|
|
|
541,679 |
|
|
Derivative gain |
|
|
(3,084,289 |
) |
|
|
— |
|
|
|
|
|
|
(3,084,289 |
) |
|
|
Distributions from equity affiliates - related party |
|
|
9,383,026 |
|
|
|
— |
|
|
|
(9,383,026 |
) |
|
|
— |
|
|
Satisfaction of incentive fees in stock |
|
|
(3,615,868 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,615,868 |
) |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities allocable to non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net realized gain from investments |
|
|
— |
|
|
|
(387,001 |
) |
|
|
— |
|
|
|
(387,001 |
) |
|
Net change in unrealized gains on investments |
|
|
— |
|
|
|
(11,098,715 |
) |
|
|
— |
|
|
|
(11,098,715 |
) |
|
Purchase and funding of loan notes, participations and equity interests |
|
|
— |
|
|
|
(1,149,910,966 |
) |
|
|
— |
|
|
|
(1,149,910,966 |
) |
|
Sales proceeds and principal payments received on loan notes and participations |
|
|
— |
|
|
|
312,642,708 |
|
|
|
— |
|
|
|
312,642,708 |
|
|
Distribution from investments in equity interests |
|
|
— |
|
|
|
352,854 |
|
|
|
— |
|
|
|
352,854 |
|
|
Amortization of debt issuance costs |
|
|
— |
|
|
|
5,304,788 |
|
|
|
— |
|
|
|
5,304,788 |
|
|
Deferred fees |
|
|
— |
|
|
|
5,057,023 |
|
|
|
— |
|
|
|
5,057,023 |
|
|
Amortization of deferred fees |
|
|
— |
|
|
|
(5,646,716 |
) |
|
|
— |
|
|
|
(5,646,716 |
) |
|
Cash flows due to changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|||
Accounts receivable |
|
|
(546,358 |
) |
|
|
— |
|
|
|
— |
|
|
|
(546,358 |
) |
|
Other assets, net of depreciation |
|
|
(152,714 |
) |
|
|
— |
|
|
|
— |
|
|
|
(152,714 |
) |
|
Due from related parties |
|
|
1,081,969 |
|
|
|
— |
|
|
|
660,176 |
|
|
|
1,742,145 |
|
|
Right-of-use assets |
|
|
(3,930,003 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,930,003 |
) |
|
Operating lease liabilities |
|
|
4,406,245 |
|
|
|
— |
|
|
|
— |
|
|
|
4,406,245 |
|
|
Accrued interest, accounts payable, and other liabilities |
|
|
(2,419,538 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,419,538 |
) |
|
Cash flows due to changes in operating assets and liabilities allocable to non-controlling interest in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in cash and cash equivalents held at Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
11,186,710 |
|
|
|
11,186,710 |
|
|
Change in other assets and receivables held at Consolidated Fund |
|
|
— |
|
|
|
(8,377,111 |
) |
|
|
— |
|
|
|
(8,377,111 |
) |
|
Change in other liabilities and payables held at Consolidated Fund |
|
|
— |
|
|
|
2,791,490 |
|
|
|
(660,176 |
) |
|
|
2,131,314 |
|
|
Net cash provided by (used in) operating activities |
|
|
3,698,960 |
|
|
|
(807,511,538 |
) |
|
|
1,803,684 |
|
|
|
(802,008,894 |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Proceeds from credit facilities and notes payable |
|
|
130,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
130,000,000 |
|
|
Paydowns of credit facilities and notes payable |
|
|
(155,616,554 |
) |
|
|
— |
|
|
|
— |
|
|
|
(155,616,554 |
) |
|
Paydowns of loan payable - related party |
|
|
(300,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(300,000 |
) |
|
Proceeds from issuance of redeemable interests |
|
|
33,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
33,000,000 |
|
|
Payment of redeemable interest issuance costs |
|
|
(2,194,971 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,194,971 |
) |
|
Payment of debt acquisitons costs |
|
|
(6,896,192 |
) |
|
|
|
|
|
|
|
|
(6,896,192 |
) |
|
||
Transaction costs incurred in debt restructuring |
|
|
(2,156,982 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,156,982 |
) |
|
Allocable to non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contributions from non-controlling interests in Consolidated Fund |
|
|
— |
|
|
|
167,605,932 |
|
|
|
— |
|
|
|
167,605,932 |
|
|
Distributions to non-controlling interests in Consolidated Fund |
|
|
— |
|
|
|
(83,004,168 |
) |
|
|
9,383,026 |
|
|
|
(73,621,142 |
) |
|
Borrowings under loan obligations by Consolidated Fund |
|
|
— |
|
|
|
1,142,325,016 |
|
|
|
— |
|
|
|
1,142,325,016 |
|
|
Repayments under loan obligations by Consolidated Fund |
|
|
— |
|
|
|
(419,800,058 |
) |
|
|
— |
|
|
|
(419,800,058 |
) |
|
Payment of debt acquisition costs by Consolidated Fund |
|
|
— |
|
|
|
(10,801,894 |
) |
|
|
— |
|
|
|
(10,801,894 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(4,164,699 |
) |
|
|
796,324,828 |
|
|
|
9,383,026 |
|
|
|
801,543,155 |
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(465,739 |
) |
|
|
(11,186,710 |
) |
|
|
11,186,710 |
|
|
|
(465,739 |
) |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
7,217,109 |
|
|
|
57,489,876 |
|
|
|
(57,489,876 |
) |
|
|
7,217,109 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
$ |
6,751,370 |
|
|
$ |
46,303,166 |
|
|
$ |
(46,303,166 |
) |
|
$ |
6,751,370 |
|
|
F-21
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
Year Ended December 31, 2024 |
|||||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
(6,652,797 |
) |
|
$ |
58,852,735 |
|
|
$ |
(11,472,990 |
) |
|
$ |
40,726,948 |
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation |
|
|
130,681 |
|
|
|
— |
|
|
|
— |
|
|
|
130,681 |
|
|
Equity compensation - related party |
|
|
1,542,091 |
|
|
|
— |
|
|
|
— |
|
|
|
1,542,091 |
|
|
Amortization of debt acquisition costs |
|
|
496,982 |
|
|
|
— |
|
|
|
— |
|
|
|
496,982 |
|
|
Amortization of capitalized mortgage servicing rights |
|
|
394,848 |
|
|
|
— |
|
|
|
— |
|
|
|
394,848 |
|
|
Non-cash interest expense |
|
|
7,850,637 |
|
|
|
— |
|
|
|
— |
|
|
|
7,850,637 |
|
|
Income from investments in equity affiliates -related party |
|
|
(13,862,174 |
) |
|
|
— |
|
|
|
11,472,990 |
|
|
|
(2,389,184 |
) |
|
Distributions from equity affiliates - related party |
|
|
10,346,770 |
|
|
|
— |
|
|
|
(10,346,770 |
) |
|
|
— |
|
|
Satisfaction of incentive fees in stock |
|
|
(1,985,266 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,985,266 |
) |
|
Impairment loss on fees and other receivables |
|
|
565,104 |
|
|
|
— |
|
|
|
— |
|
|
|
565,104 |
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities allocable to non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net realized loss from investments |
|
|
— |
|
|
|
535,644 |
|
|
|
— |
|
|
|
535,644 |
|
|
Net change in unrealized gains on investments |
|
|
— |
|
|
|
(10,995,064 |
) |
|
|
— |
|
|
|
(10,995,064 |
) |
|
Purchase and funding of loan notes and participations |
|
|
— |
|
|
|
(466,597,000 |
) |
|
|
— |
|
|
|
(466,597,000 |
) |
|
Sales proceeds and principal payments received on loan notes and participations |
|
|
— |
|
|
|
496,438,000 |
|
|
|
— |
|
|
|
496,438,000 |
|
|
Amortization of debt issuance costs |
|
|
— |
|
|
|
2,980,714 |
|
|
|
— |
|
|
|
2,980,714 |
|
|
Deferred fees |
|
|
— |
|
|
|
8,099,750 |
|
|
|
— |
|
|
|
8,099,750 |
|
|
Amortization of deferred fees |
|
|
— |
|
|
|
(6,982,771 |
) |
|
|
— |
|
|
|
(6,982,771 |
) |
|
Cash flows due to changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
|
391,285 |
|
|
|
— |
|
|
|
— |
|
|
|
391,285 |
|
|
Other assets, net of depreciation |
|
|
62,564 |
|
|
|
— |
|
|
|
— |
|
|
|
62,564 |
|
|
Due from related parties |
|
|
2,052,845 |
|
|
|
— |
|
|
|
(2,024,562 |
) |
|
|
28,283 |
|
|
Right-of-use assets |
|
|
339,208 |
|
|
|
— |
|
|
|
— |
|
|
|
339,208 |
|
|
Operating lease liabilities |
|
|
(330,893 |
) |
|
|
— |
|
|
|
— |
|
|
|
(330,893 |
) |
|
Accrued interest, accounts payable, and other liabilities |
|
|
(2,685,908 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,685,908 |
) |
|
Cash flows due to changes in operating assets and liabilities allocable to non-controlling interest in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in cash and cash equivalents held at Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
(32,316,092 |
) |
|
|
(32,316,092 |
) |
|
Change in other assets and receivables held at Consolidated Fund |
|
|
— |
|
|
|
16,178,555 |
|
|
|
— |
|
|
|
16,178,555 |
|
|
Change in other liabilities and payables held at Consolidated Fund |
|
|
— |
|
|
|
(961,200 |
) |
|
|
2,024,562 |
|
|
|
1,063,362 |
|
|
Net cash (used in) provided by operating activities |
|
|
(1,344,023 |
) |
|
|
97,549,363 |
|
|
|
(42,662,862 |
) |
|
|
53,542,478 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Payoffs, paydowns and sales of mortgage loans |
|
|
3,715,814 |
|
|
|
— |
|
|
|
— |
|
|
|
3,715,814 |
|
|
Net cash provided by investing activities |
|
|
3,715,814 |
|
|
|
— |
|
|
|
— |
|
|
|
3,715,814 |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Paydowns of credit facilities and notes payable |
|
|
(9,900 |
) |
|
|
— |
|
|
|
— |
|
|
|
(9,900 |
) |
|
Paydowns of loan payable - related party |
|
|
(300,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(300,000 |
) |
|
Allocable to non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contributions from non-controlling interests in Consolidated Fund |
|
|
— |
|
|
|
58,276,681 |
|
|
|
— |
|
|
|
58,276,681 |
|
|
Distributions to non-controlling interests in Consolidated Fund |
|
|
— |
|
|
|
(81,244,981 |
) |
|
|
10,346,770 |
|
|
|
(70,898,211 |
) |
|
Borrowings under loan obligations by Consolidated Fund |
|
|
— |
|
|
|
211,148,207 |
|
|
|
— |
|
|
|
211,148,207 |
|
|
Repayments under loan obligations by Consolidated Fund |
|
|
— |
|
|
|
(252,714,525 |
) |
|
|
— |
|
|
|
(252,714,525 |
) |
|
Payment of debt acquisition costs by Consolidated Fund |
|
|
— |
|
|
|
(698,653 |
) |
|
|
— |
|
|
|
(698,653 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(309,900 |
) |
|
|
(65,233,271 |
) |
|
|
10,346,770 |
|
|
|
(55,196,401 |
) |
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
2,061,891 |
|
|
|
32,316,092 |
|
|
|
(32,316,092 |
) |
|
|
2,061,891 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
5,155,218 |
|
|
|
25,172,980 |
|
|
|
(25,172,980 |
) |
|
|
5,155,218 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
$ |
7,217,109 |
|
|
$ |
57,489,072 |
|
|
$ |
(57,489,072 |
) |
|
$ |
7,217,109 |
|
|
F-22
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides a reconciliation of cash, cash equivalents and restricted cash on the consolidated balance sheets to the total amount shown on the consolidated statements of cash flows:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
Cash and cash equivalents |
|
$ |
5,438,038 |
|
|
$ |
6,404,487 |
|
Restricted cash |
|
|
1,313,332 |
|
|
|
812,622 |
|
Total cash, cash equivalents and restricted cash shown on the |
|
$ |
6,751,370 |
|
|
$ |
7,217,109 |
|
The following table summarizes the Company’s supplemental disclosure of cash flow information:
|
|
Years ended December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Supplemental cash flows: |
|
|
|
|
|
|
||
Interest expense paid in cash |
|
$ |
10,832,066 |
|
|
$ |
15,116,973 |
|
Income taxes paid in cash |
|
|
943,717 |
|
|
|
243,170 |
|
Non-cash operating activities include the following: |
|
|
|
|
|
|
||
Derivative liabilities recognized at issuance of redeemable interests |
|
$ |
12,324,588 |
|
|
$ |
— |
|
Accretion of redeemable interest to redemption value |
|
|
13,239,559 |
|
|
|
— |
|
NOTE 5 – RESTRICTED CASH
The Company maintains loan expense deposits collected from prospective borrowers used to offset underwriting expenses associated with originating loans. As of December 31, 2025 and 2024, loan expense deposits amounted to $1.3 million and $0.8 million, respectively. Loan escrow and expense deposits are segregated in bank accounts held outside of corporate assets and are reflected as restricted cash on the consolidated balance sheets.
The Company is required to maintain certain deposits in escrow for, among other purposes, interest, taxes, insurance, and construction reserves under the underlying mortgage loan agreements serviced by the Company. As of December 31, 2025 and 2024, the Company held total escrow balances of approximately $35.8 million and $15.0 million, respectively, which are not included on the Company’s consolidated balance sheets. These escrows are maintained in separate accounts at federally insured depository institutions, which may exceed FDIC insured limits.
NOTE 6 – INVESTMENTS OF THE CONSOLIDATED FUND
The following tables summarizes investments held in the Consolidated Fund:
|
|
|
|
December 31, 2025 |
|
|||||
Asset Type |
|
Asset Location |
|
Fair Value |
|
|
Percentage of Total Investments |
|
||
First mortgage loan |
|
|
|
|
|
|
|
|
||
Various |
|
Various |
|
$ |
1,539,203,250 |
|
|
|
76.3 |
% |
Equity Investments |
|
|
|
|
|
|
|
|
||
ACRES SPE 2025-1 LLC |
|
Various |
|
|
127,411,735 |
|
|
|
6.3 |
% |
Various |
|
Various |
|
|
350,303,834 |
|
|
|
17.4 |
% |
Total investments, at fair value |
|
|
|
$ |
2,016,918,819 |
|
|
|
100.0 |
% |
F-23
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
December 31, 2024 |
|
|||||
Asset Type |
|
Asset Location |
|
Fair Value |
|
|
Percentage of Total Investments |
|
||
First mortgage loan |
|
|
|
|
|
|
|
|
||
Multifamily / Housing |
|
Frederick, MD |
|
$ |
76,884,095 |
|
|
|
6.6 |
% |
Various |
|
Various |
|
|
798,461,722 |
|
|
|
68.3 |
% |
Equity Investments |
|
|
|
|
|
|
|
|
||
Various |
|
Various |
|
|
293,248,116 |
|
|
|
25.1 |
% |
Total investments, at fair value |
|
|
|
$ |
1,168,593,933 |
|
|
|
100.0 |
% |
NOTE 7 – INVESTMENTS IN EQUITY AFFILIATE
Investments in equity affiliate - related party are summarized as follows:
|
|
Cost Basis |
|
|
Net Gains (Losses) |
|
|
Fair Value |
|
|||
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
ACR (669,917 common stock shares) |
|
$ |
8,034,812 |
|
|
$ |
6,261,219 |
|
|
$ |
14,296,031 |
|
December 31, 2024 |
|
|
|
|
|
|
|
|
|
|||
ACR (446,107 common stock shares) |
|
$ |
4,418,944 |
|
|
$ |
2,785,691 |
|
|
$ |
7,204,635 |
|
The MIP provides for the issuance of ACR equity-based awards to the Company when each of the following book value targets are met: $21.00, $24.00, $27.00, $30.00, $33.00 and $36.00. Such grants are subject to a four-year vesting period. On June 14, 2021 and May 6, 2022, the $21.00 and $24.00 book value targets, respectively, were met and ACRES Share Holdings, LLC, a wholly owned subsidiary of the Company, was granted 299,999 shares for each of the years ended December 31, 2022 and 2021, which vest 25% for four years, on each anniversary of the issuance date. On May 7, 2024, the $27.00 book value target was met and ACRES Share Holdings, LLC was granted 295,237 shares for the year ended December 31, 2024, which will vest 25% for four years, on each anniversary of the issuance date. For the years ended December 31, 2025 and 2024, 223,810 and 149,998 shares of ACR were vested, respectively.
Under the ACR management agreement, the Company is entitled to receive incentive compensation, payable quarterly, based on ACR’s performance. No such incentive compensation was earned by the Company for the years ended December 31, 2025 and 2024. ACR issued 1,911 shares of common stock to the Company for the year ended December 31, 2024, pertaining to the portion of fourth quarter 2023 incentive compensation that was payable in shares. Shares of common stock issued under ACR’s management agreement for incentive compensation vest immediately upon issuance.
The following table summarizes the Company’s restricted common stock transactions under the MIP and ACR’s management agreement:
|
|
Shares |
|
|
Unvested shares at January 1, 2024 |
|
|
375,001 |
|
Issued |
|
|
297,148 |
|
Vested |
|
|
(151,909 |
) |
Unvested shares at December 31, 2024 |
|
|
520,240 |
|
Issued |
|
|
— |
|
Vested |
|
|
(223,810 |
) |
Unvested shares at December 31, 2025 |
|
|
296,430 |
|
The unvested shares of restricted common stock that are expected to vest during the following years:
|
|
Shares |
|
|
2026 |
|
|
148,811 |
|
2027 |
|
|
73,809 |
|
2028 |
|
|
73,810 |
|
Total |
|
|
296,430 |
|
F-24
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aggregate market value of the Company’s investment in ACR as of December 31, 2025 and 2024, based on quoted market prices, was $14.3 million and $7.2 million respectively. The Company possesses the ability to exercise significant influence, but not control, over the operating and financial policies of ACR and, therefore, accounts for its investment in ACR using the equity method of accounting. The Company elected the fair value option for its equity method investment in ACR and determines the fair value of its equity investment using the closing price of ACR’s common shares as of the end of the period, which was a Level 1 fair value input, and recorded changes in fair value in earnings on the Company’s consolidated statement of income. The unrealized gains on the Company’s consolidated statements of income related to the Company’s investment in ACR was $3.5 million and $2.4 million for the years ended December 31, 2025 and 2024, respectively. During the years ended December 31, 2025 and 2024 the Company received no distributions from ACR.
The condensed balance sheets for the Company’s unconsolidated investments in equity affiliate are as follows (in thousands):
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
Condensed Balance Sheets: |
|
ACR |
|
|
ACR |
|
||
Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
83,768 |
|
|
$ |
56,713 |
|
Real estate assets |
|
|
2,016,821 |
|
|
|
1,775,910 |
|
Other assets |
|
|
61,775 |
|
|
|
48,844 |
|
Total assets |
|
|
2,162,364 |
|
|
|
1,881,467 |
|
Liabilities: |
|
|
|
|
|
|
||
Notes payable |
|
|
1,544,938 |
|
|
|
1,360,371 |
|
Other liabilities |
|
|
66,834 |
|
|
|
70,894 |
|
Due to related party |
|
|
— |
|
|
|
540 |
|
Total liabilities |
|
|
1,611,772 |
|
|
|
1,431,805 |
|
Stockholders' equity |
|
|
420,796 |
|
|
|
439,128 |
|
Non-controlling interests |
|
|
129,796 |
|
|
|
10,534 |
|
Total stockholders' equity |
|
|
550,592 |
|
|
|
449,662 |
|
Total liabilities and equity |
|
$ |
2,162,364 |
|
|
$ |
1,881,467 |
|
F-25
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The condensed statements of income for the Company’s unconsolidated investments in equity affiliate are as follows (in thousands):
|
|
Year ended |
|
|
Year ended |
|
||
Condensed Statements of Income: |
|
ACR |
|
|
ACR |
|
||
Revenue: |
|
|
|
|
|
|
||
Real estate income |
|
$ |
46,606 |
|
|
$ |
42,170 |
|
Interest income |
|
|
119,149 |
|
|
|
157,262 |
|
Other income |
|
|
133 |
|
|
|
148 |
|
Total revenues |
|
|
165,888 |
|
|
|
199,580 |
|
Expenses: |
|
|
|
|
|
|
||
Interest expense |
|
|
85,942 |
|
|
|
116,092 |
|
Management and servicing fees - related party |
|
|
6,411 |
|
|
|
6,498 |
|
Equity compensation - related party |
|
|
2,147 |
|
|
|
2,957 |
|
General and administrative |
|
|
11,304 |
|
|
|
10,691 |
|
Real estate expense |
|
|
51,325 |
|
|
|
46,896 |
|
Other expenses |
|
|
(7,671 |
) |
|
|
4,847 |
|
Total expenses |
|
|
149,458 |
|
|
|
187,981 |
|
Other Income (Expense): |
|
|
|
|
|
|
||
Total other income |
|
|
11,463 |
|
|
|
17,222 |
|
Income tax benefit (expense) |
|
|
83 |
|
|
|
(126 |
) |
Net income |
|
$ |
27,976 |
|
|
$ |
28,695 |
|
Net income allocated to preferred shares |
|
|
(21,077 |
) |
|
|
(20,386 |
) |
Carrying value in excess of consideration paid for preferred shares |
|
|
— |
|
|
|
242 |
|
Net (income) loss allocable to non-controlling interests, net of taxes |
|
|
(6,660 |
) |
|
|
572 |
|
Net income allocable to common shares |
|
|
239 |
|
|
|
9,123 |
|
|
|
|
|
|
|
|
||
Company's share of income (1) |
|
$ |
3,475 |
|
|
$ |
2,389 |
|
NOTE 8 - LEASES
The Company has operating leases for office space and office equipment. The leases have terms that expire between December 2027 and June 2032. The leases on the office space and office equipment contain options for early termination granted to the Company and the lessor. Lease payments are determined as follows:
The following table summarizes the Company’s operating leases:
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
||
Operating Leases: |
|
|
|
|
|
|
||
Right of use assets |
|
$ |
6,971,903 |
|
|
$ |
3,041,900 |
|
Lease liabilities |
|
|
(7,756,825 |
) |
|
|
(3,350,580 |
) |
Weighted average remaining lease term: |
|
6.21 years |
|
|
7.39 years |
|
||
Weighted average discount rate (1): |
|
|
8.21 |
% |
|
|
5.47 |
% |
(1) The market discount rate is used, when readily determinable, in calculating the present value of lease payments for the operating lease liability. Otherwise, the incremental borrowing rate at the beginning of the period of adoption (January 1, 2022) or on the commencement date is used.
F-26
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the Company’s operating lease costs and cash payments during the periods indicated:
|
|
Years ended |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Lease Cost: |
|
|
|
|
|
|
||
Operating lease cost |
|
$ |
1,184,984 |
|
|
$ |
427,622 |
|
Short-term lease cost |
|
$ |
14,116 |
|
|
$ |
19,686 |
|
|
|
|
|
|
|
|
||
Other Information: |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
708,743 |
|
|
$ |
419,306 |
|
The following table summarizes the Company’s operating leases cash flow obligations on an undiscounted, annual basis:
|
|
Operating Leases |
|
|
2026 |
|
$ |
1,275,044 |
|
2027 |
|
|
1,287,268 |
|
2028 |
|
|
1,329,372 |
|
2029 |
|
|
1,371,757 |
|
2030 |
|
|
1,410,176 |
|
Thereafter |
|
|
1,773,455 |
|
Subtotal |
|
|
8,447,072 |
|
Less: impact of discount |
|
|
(690,247 |
) |
Total |
|
$ |
7,756,825 |
|
NOTE 9 - FAIR VALUE
The Company uses valuation techniques that are consistent with the market approach, the income approach and/or the cost approach to measure assets and liabilities that are measured at fair value. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The fair value hierarchy is as follows:
F-27
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability that a market participant would use.
The following is a description of the valuation methodologies used to measure fair value, as well as the general classification of such instruments pursuant to the fair value hierarchy:
Investments in equity affiliate related to ACR. Investments in equity affiliate, at fair value – related party includes ACR common shares held by the Company that are estimated using the closing price of ACR common shares, a Level 1 fair value input, as of the reporting period end date. The Company’s equity method investment in ACR is classified within Level 1 of the valuation hierarchy.
Derivative liabilities. Derivative liabilities are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value of derivative liabilities are comprised of the fair value of common stock warrant liabilities and the fair value of embedded derivatives. The fair value of common stock warrant liabilities and embedded derivatives are determined using valuations obtained from a third party that specializes in providing valuations of such financial liabilities. The third party utilized the Black-Scholes-Merton multiple option approach to determine the fair value of the common stock warrant liabilities and the discounted cash flow approach to determine the fair value of the embedded derivatives.
The fair values of the Company’s short-term financial instruments, such as (i) cash and cash equivalents, (ii) restricted cash, (iii) accrued interest, servicing receivables and other assets, (iv) due from related parties, (v) accrued interest, accounts payable and other liabilities, and (vi) due to related parties approximate their carrying values on the consolidated balance sheet due to their terms, liquidity, or short-term nature.
The following tables summarizes financial assets and financial liabilities measured at fair value for the Company and the Consolidated Fund as of December 31, 2025 and 2024:
|
|
Fair Value Measurements |
|
|||||||||
Financial Instruments of the Company |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
Financial assets: |
|
|
|
|
|
|
|
|
|
|||
Equity method investment in ACR |
|
$ |
14,296,031 |
|
|
$ |
— |
|
|
$ |
— |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|||
Derivative liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,240,299 |
|
At December 31, 2024 |
|
|
|
|
|
|
|
|
|
|||
Financial assets: |
|
|
|
|
|
|
|
|
|
|||
Equity method investment in ACR |
|
$ |
7,204,635 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
Fair Value Measurements |
|
|||||||||
Financial Instruments of the Consolidated Fund |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
Financial assets: |
|
|
|
|
|
|
|
|
|
|||
Investments, at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,016,918,819 |
|
At December 31, 2024 |
|
|
|
|
|
|
|
|
|
|||
Financial assets: |
|
|
|
|
|
|
|
|
|
|||
Investments, at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,168,593,933 |
|
F-28
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables summarize the quantitative inputs and assumptions used for the Company’s and the Consolidated Fund’s Level 3 measurements as of December 31, 2025:
Fair Value Measurements |
||||||||||
Level 3 Measurements of the |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Embedded derivatives |
|
$ |
1,280,000 |
|
|
Discount cash flow |
|
Discount rate |
|
22.86% |
Freestanding warrants |
|
|
7,960,299 |
|
|
Black-Scholes- |
|
Expected volatility |
|
70.0% |
As of December 31, 2025 |
||||||||||
Level 3 Measurements of the |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
First mortgage loans |
|
$ |
1,539,203,250 |
|
|
Discounted cash flow |
|
Discount rate |
|
6.73% - 8.38% |
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$0.5 million - $1.3 |
|
Equity investments |
|
|
477,715,569 |
|
|
Discounted cash flow |
|
Discount rate |
|
3.60% - 10.25% |
|
|
|
|
|
|
|
Capitalization rate |
|
4.70% - 7.50% |
|
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$473 / sq. ft. |
|
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$72,267 / key |
|
|
|
|
|
|
Income capitalization |
|
Capitalization rate |
|
5.75% |
|
The following tables summarize the quantitative inputs and assumptions used for the Consolidated Fund’s Level 3 measurements as of December 31, 2024:
As of December 31, 2024 |
||||||||||
Level 3 Measurements of the |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
First mortgage loans |
|
$ |
1,039,685,095 |
|
|
Discounted cash flow |
|
Discount rate |
|
7.20% - 12.30% |
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$0.5 million - |
|
Equity investments |
|
|
128,908,838 |
|
|
Discounted cash flow |
|
Discount rate |
|
6.00% - 14.50% |
|
|
|
|
|
|
|
Capitalization rate |
|
4.90% - 8.00% |
|
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$474 / sq. ft. |
|
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$0.1 million - $0.4 |
|
|
|
|
|
|
Income capitalization |
|
Capitalization rate |
|
8.00% |
|
F-29
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following tables set forth a summary of changes in the fair value of the Level 3 measurements:
Level 3 Assets and Liabilities of the Company |
|
Derivative |
|
|
Balance as of December 31, 2024 |
|
$ |
— |
|
Established in connection with equity issuance (see Note 15) |
|
|
(12,324,588 |
) |
Change in fair value (1) |
|
|
3,084,289 |
|
Balance as of December 31, 2025 |
|
$ |
(9,240,299 |
) |
(1)Changes in fair value are included in earnings and relate to financial liabilities still held at the reporting date.
Level 3 Assets of the Consolidated Fund |
|
Investments, at |
|
|
Balance as of December 31, 2024 |
|
$ |
1,168,593,933 |
|
Purchases (1) |
|
|
1,149,910,966 |
|
Sales/settlements (2) |
|
|
(313,071,796 |
) |
Realized and unrealized appreciation, net (3) |
|
|
11,485,716 |
|
Balance as of December 31, 2025 |
|
$ |
2,016,918,819 |
|
Level 3 Assets of the Consolidated Fund |
|
Investments, at |
|
|
Balance as of December 31, 2023 |
|
$ |
1,179,876,841 |
|
Purchases (1) |
|
|
474,695,672 |
|
Sales/settlements (2) |
|
|
(496,438,000 |
) |
Realized and unrealized appreciation, net (3) |
|
|
10,459,420 |
|
Balance as of December 31, 2024 |
|
$ |
1,168,593,933 |
|
Change in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date |
|
$ |
11,065,038 |
|
There were no transfers between any of the levels within the fair value hierarchy during the years ended December 31, 2025 and 2024.
NOTE 10 - BORROWINGS
Certain information with respect to the Company’s borrowings is summarized in the following table:
|
|
Principal Outstanding |
|
|
Unamortized Issuance Costs |
|
|
Outstanding Borrowings |
|
|
Borrowing Rate |
|
Maturity |
|||
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
$130 million credit facility |
|
$ |
130,000,000 |
|
|
$ |
(6,513,966 |
) |
|
$ |
123,486,034 |
|
|
8.63% |
|
June 23, 2033 |
$26 million earnout liability |
|
|
23,833,333 |
|
|
|
— |
|
|
|
23,833,333 |
|
|
0% |
|
Until paid in full |
Total |
|
$ |
153,833,333 |
|
|
$ |
(6,513,966 |
) |
|
$ |
147,319,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
At December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
$163 million credit facility |
|
$ |
179,163,249 |
|
|
$ |
(240,322 |
) |
|
$ |
178,922,927 |
|
|
12.25% |
|
June 26, 2025 |
EIDL |
|
|
150,000 |
|
|
|
— |
|
|
|
150,000 |
|
|
3.75% |
|
June 19, 2050 |
Total |
|
$ |
179,313,249 |
|
|
$ |
(240,322 |
) |
|
$ |
179,072,927 |
|
|
|
|
|
The Company entered into a credit agreement, dated June 26, 2018, with several investment management firms to provide a maximum credit facility of $140.0 million. On July 1, 2020, this facility was amended to increase
F-30
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the maximum borrowings to $163.0 million. As of December 31, 2024, advances on the facility aggregated $163.0 million. During the period of January 1, 2025 to July 23, 2025 and the year ended December 31, 2024, interest was paid on a quarterly basis on the outstanding principal amount of the advances at a rate per annum equal to a cash interest rate ranging from 8.00% to 10.00% depending on certain covenant requirements. The capitalized (paid-in-kind) interest rate ranged from 4.25% to 4.75% depending on certain covenant requirements. At December 31, 2024, the cash and capitalized (paid-in-kind) interest rate was 8.00% and 4.25%. For the period of January 1, 2025 to July 23, 2025 and the year ended December 31, 2024, total cash interest incurred on advances amounted to $8.3 million and $14.1 million, respectively, of which $3.3 million is payable to the Lenders and recorded as accrued interest, accounts payable and other liabilities on the consolidated balance sheets as of December 31, 2024. No such amounts were payable as of December 31, 2025. As of December 31, 2024, total capitalized interest of $7.9 million was added to the outstanding debt balance. The lenders on the facility were entitled to receive warrants to purchase common stock of the Company as advances were issued under the facility or under anti-dilution protection provisions. As of December 31, 2024, warrants to purchase 190,801 shares of common stock at an exercise price of $0.01 per share and 177,120 shares of common stock at an exercise price of $15.80 per share were outstanding. The credit facility matured on June 26, 2025. On July 23, 2025, the Company entered into the following transactions:
As of December 31, 2025, the Company has drawn $130.0 million on the $130.0 million credit facility. During 2025, interest was paid on a quarterly basis on the outstanding principal amount of the advances at the interest rate of 8.625%. For the year ended December 31, 2025, interest incurred on advances amounted to $5.0 million. No interest was payable as of December 31, 2025.
As of December 31, 2025, the earnout liability had an outstanding balance of $23.8 million and is recorded as borrowings on the consolidated balance sheet as of December 31, 2025. The earnout liability does not accrue interest and has no set maturity date.
On June 18, 2020, the Company also received a $159,900 Economic Injury Disaster (EIDL) loan from the SBA. The annual interest rate is 3.75%, The payment term is 30 years, and the monthly payment of principal and interest is $731 starting December 18, 2022. The EIDL was fully paid off on February 26, 2025.
F-31
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Borrowings – related party
Related party borrowings are as follows:
|
|
Principal Outstanding |
|
|
Unamortized Issuance Costs |
|
|
Outstanding Borrowings |
|
|
Borrowing Rate |
|
Maturity |
|||
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Loan Payable |
|
$ |
10,375,000 |
|
|
$ |
— |
|
|
$ |
10,375,000 |
|
|
3.00% |
|
July 31, 2026 |
At December 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Loan Payable |
|
$ |
10,675,000 |
|
|
$ |
— |
|
|
$ |
10,675,000 |
|
|
3.00% |
|
July 31, 2026 |
In conjunction with the 2020 acquisition of the ACR management agreement, a wholly owned subsidiary of ACR, a related party, provided a $12.0 million loan to the Company (“Loan Payable”). The Loan Payable accrues interest at 3.00% per annum, payable monthly. The monthly amortization payment is $25,000. The Loan Payable matures in July 2026, subject to two one-year extensions, at the Company’s option subject to the payment of a 0.5% extension fee to ACR on the outstanding principal amount of the Loan Payable. During the years ended December 31, 2025 and 2024, the Company recorded interest expense of $0.3 million, respectively, on the Loan Payable. At December 31, 2025 and 2024, the Loan Payable had an outstanding principal balance of $10.4 million and $10.7 million, respectively. At December 31, 2025 and 2024, the Loan Payable had no interest payable.
The maturity dates on debt obligations are as follows:
Year Ending December 31, |
|
Outstanding Debt at December 31, 2025 |
|
|
2026 |
|
$ |
10,375,000 |
|
2027 |
|
|
— |
|
2028 |
|
|
— |
|
2029 |
|
|
— |
|
2030 and thereafter |
|
|
153,833,333 |
|
Total |
|
$ |
164,208,333 |
|
As of December 31, 2025 and 2024, the Company is in compliance with all material covenants contained in the relevant agreements of the Company’s debt obligations.
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 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 December 31, 2025 and 2024, the Consolidated Fund was in compliance with all covenants under such borrowings.
F-32
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Consolidated Fund had the following borrowings outstanding (in thousands):
At December 31, 2025: |
|
Principal Outstanding |
|
|
Unamortized Issuance Costs and Discounts |
|
|
Outstanding Borrowings |
|
|
Average Borrowings |
|
|
Borrowing Rate |
|
Maturity |
|
Wtd. Avg. Rate |
|
Fair Value of Collateral |
|
|||||
AMFL II First Lien Facility |
|
$ |
209,200 |
|
|
$ |
5,870 |
|
|
$ |
203,330 |
|
|
$ |
187,426 |
|
|
Greater of (i) 1M TERM SOFR or (ii) 1.00%, plus 3.15% |
|
August 21, 2028 |
|
7.55% |
|
$ |
203,330 |
|
AMFL II Junior Facility |
|
|
80,000 |
|
|
|
2,440 |
|
|
|
77,560 |
|
|
|
80,000 |
|
|
Greater of (i) 1M TERM SOFR + 0.11448% or (ii) 1.00%, plus 7.05% |
|
August 21, 2028 |
|
11.59% |
|
|
539,834 |
|
AMFE Facility |
|
|
174,400 |
|
|
|
1,334 |
|
|
|
173,066 |
|
|
|
214,181 |
|
|
1M TERM SOFR + 2.50% |
|
October 2, 2033 |
|
6.88% |
|
|
314,769 |
|
AMF Levered 3 Facility |
|
|
19,225 |
|
|
|
4,030 |
|
|
|
15,195 |
|
|
|
19,812 |
|
|
1M TERM SOFR plus range of 2.25% - 3.00% |
|
December 18, 2028 |
|
6.66% |
|
|
27,464 |
|
ACRES 2025-FL3 Senior Notes |
|
|
819,600 |
|
|
|
4,794 |
|
|
|
814,806 |
|
|
|
819,600 |
|
|
Class A - 1M TERM SOFR + 1.619% |
|
August 20, 2040 |
|
6.18% |
|
|
931,522 |
|
Total |
|
$ |
1,302,425 |
|
|
$ |
18,468 |
|
|
$ |
1,283,957 |
|
|
$ |
1,321,019 |
|
|
|
|
|
|
|
|
$ |
2,016,919 |
|
At December 31, 2024: |
|
Principal Outstanding |
|
|
Unamortized Issuance Costs and Discounts |
|
|
Outstanding Borrowings |
|
|
Average Borrowings |
|
|
Borrowing Rate |
|
Maturity |
|
Wtd. Avg. Rate |
|
Fair Value of Collateral |
|
|||||
AMFL Facility |
|
$ |
31,800 |
|
|
$ |
107 |
|
|
$ |
31,693 |
|
|
$ |
32,509 |
|
|
Greater of (i) 3M TERM SOFR + 0.2661% or (ii) zero, plus 3% |
|
May 8, 2025 |
|
8.41% |
|
$ |
62,234 |
|
AMFL II First Lien Facility |
|
|
218,100 |
|
|
|
6,236 |
|
|
|
211,864 |
|
|
|
306,545 |
|
|
Greater of (i) 1M TERM SOFR + 0.11448% or (ii) 1.00%, plus 3.75% |
|
August 21, 2028 |
|
9.22% |
|
|
211,864 |
|
AMFL II Junior Facility |
|
|
80,000 |
|
|
|
3,279 |
|
|
|
76,721 |
|
|
|
70,383 |
|
|
Greater of (i) 1M TERM SOFR + 0.11448% or (ii) 1.00%, plus 7.05% |
|
August 21, 2028 |
|
12.52% |
|
|
487,753 |
|
AMFE Facility |
|
|
250,000 |
|
|
|
1,498 |
|
|
|
248,502 |
|
|
|
150,185 |
|
|
1M TERM SOFR + 2.50% |
|
October 2, 2033 |
|
7.82% |
|
|
406,743 |
|
|
|
$ |
579,900 |
|
|
$ |
11,120 |
|
|
$ |
568,780 |
|
|
$ |
559,622 |
|
|
|
|
|
|
|
|
$ |
1,168,594 |
|
NOTE 11 - EMPLOYEE BENEFIT PLANS
401k Plan
The Company’s employees participate in the 401(k)-plan sponsored by ACRES Capital LLC. 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 vests immediately. For the years ended December 31, 2025 and 2024, the plan expense for the Company was $0.4 million and $0.5 million, respectively, and is recorded in compensation and benefits on the consolidated statements of income.
Equity Compensation Plan
In June 2018, the Company’s shareholders approved the ACRES Capital Corp. 2018 Equity Incentive Plan (the “Plan”), an equity compensation plan that provides for the issuance of options to purchase shares of common stock of the Company. The options vest on the fourth anniversary and expire on the tenth anniversary of the grant date. In December 2023, the Company’s shareholders approved an amendment to the Plan to increase the number of shares of common stock authorized for issuance by an additional 100,000 shares. In July 2025, as a result of unanimous written consent of the Board of Directors of the Company, the Company increased the number of shares of common stock authorized for issuance by an additional 388,609 shares. The maximum number of shares that may be subject to awards granted under the Plan will be 991,745 shares of common stock.
The Company recognized stock-based compensation expense of $1.8 million and $1.5 million during the years ended December 31, 2025 and 2024, respectively, related to stock options.
F-33
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the Company’s stock option activity under the Plan:
|
|
Stock Option Shares |
|
|
Weighted average exercise price per share |
|
||
Outstanding at December 31, 2023 |
|
|
478,250 |
|
|
$ |
18.40 |
|
Granted in 2024 |
|
|
90,500 |
|
|
|
44.36 |
|
Forfeited in 2024 |
|
|
(2,500 |
) |
|
|
27.42 |
|
Outstanding at December 31, 2024 |
|
|
566,250 |
|
|
$ |
22.51 |
|
Granted in 2025 |
|
|
37,750 |
|
|
|
44.36 |
|
Forfeited in 2025 |
|
|
(3,250 |
) |
|
|
16.34 |
|
Outstanding at December 31, 2025 |
|
|
600,750 |
|
|
$ |
23.91 |
|
|
|
2025 |
|
|
2024 |
|
||
Shares exercisable, end of year |
|
|
404,000 |
|
|
|
295,000 |
|
The Company estimates the fair value of each stock option granted on the date of grant using the Black-Scholes-Merton multiple option approach. The following table presents the weighted-average assumptions used in the valuation models:
|
|
Year ended |
|
|
|
|
December 31, 2025 |
|
|
Expected volatility |
|
|
60 |
% |
Expected life (in years) |
|
|
9 |
|
Risk-free interest rate |
|
|
4.3 |
% |
The weighted-average fair value of options at their grant date was $21.26 and $22.94 for 2025 and 2024, respectively.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2025:
Options Outstanding |
|
Options Exercisable |
||||
Exercise price per share |
|
Stock Option Shares |
|
Weighted-average remaining contractual life (Years) |
|
Stock Option shares exercisable |
$2.00 |
|
56,500 |
|
3.0 |
|
56,500 |
$7.00 |
|
62,500 |
|
3.0 |
|
62,500 |
$16.50 |
|
175,000 |
|
4.8 |
|
175,000 |
$20.00 |
|
110,000 |
|
6.1 |
|
110,000 |
$44.36 |
|
196,750 |
|
8.1 |
|
— |
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company may become involved in litigation on various matters due to the nature of its 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 financial statements at December 31, 2025 and 2024.
Purchase Obligations
The Company entered into a takeout commitment and agreement with an affiliate of the lender on the Company’s $130.0 million credit facility whereby the Company, or an affiliate of the Company, commits to purchase loans that were previously brokered by an affiliate of the Company and originated by an affiliate of the lender. The Company, or an affiliate of the Company, may be required to purchase such loans at specified dates subsequent to the closing date of the loan. For the years ended December 31, 2025 and 2024, the lender originated loans with total
F-34
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
commitments of $662.2 million and $320.8 million, respectively, that were brokered by an affiliate of the Company. For the years ended December 31, 2025 and 2024, the Consolidated Fund purchased $712.6 million and $270.4 million, respectively, of such loans, based on commitments, from the affiliate of the lender. As of December 31, 2024, the Company had $50.4 million of commitments to purchase loans that were previously brokered by an affiliate of the Company and originated by an affiliate of the lender. As of December 31, 2025, the Company had no such commitments. The takeout commitment and agreement was terminated on December 19, 2025.
NOTE 13 - INCOME TAXES
The following table details the components of the Company's income taxes:
|
|
Years ended December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Income tax expense: |
|
|
|
|
|
|
||
Current: |
|
|
|
|
|
|
||
Federal |
|
$ |
681,983 |
|
|
$ |
255,823 |
|
State |
|
|
57,550 |
|
|
|
16,230 |
|
Total current |
|
|
739,533 |
|
|
|
272,053 |
|
Deferred: |
|
|
|
|
|
|
||
Federal |
|
$ |
(197,854 |
) |
|
$ |
1,119,208 |
|
State |
|
|
— |
|
|
|
— |
|
Total deferred |
|
$ |
(197,854 |
) |
|
$ |
1,119,208 |
|
Total |
|
$ |
541,679 |
|
|
$ |
1,391,261 |
|
A reconciliation of the income tax expense based upon the statutory tax rate to the effective income tax rate was as follows of the Company for the year presented:
|
|
Years ended December 31, 2025 |
|
|||||
Income tax (benefit) expense: |
|
|
|
|
|
|
||
U.S. Federal statutory tax rate |
|
$ |
(492,045 |
) |
|
|
21.00 |
% |
State and local taxes, net of federal benefit |
|
|
45,465 |
|
|
|
-1.94 |
% |
Nontaxable or nondeductible items |
|
|
79,248 |
|
|
|
-3.38 |
% |
Changes in valuation allowances |
|
|
926,141 |
|
|
|
-39.53 |
% |
Other adjustments |
|
|
(17,130 |
) |
|
|
0.73 |
% |
Total |
|
$ |
541,679 |
|
|
|
-23.12 |
% |
The components of the Company's deferred tax assets and liabilities were as follows:
|
|
Years ended December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets related to: |
|
|
|
|
|
|
||
Expenses not currently deductible |
|
$ |
32,126 |
|
|
$ |
34,921 |
|
Net operating and capital loss carryforwards |
|
|
6,232,129 |
|
|
|
7,758,575 |
|
Interest limitation carryover |
|
|
17,707,978 |
|
|
|
14,964,430 |
|
Other |
|
|
2,344,954 |
|
|
|
1,052,543 |
|
Total deferred tax assets |
|
|
26,317,187 |
|
|
|
23,810,469 |
|
Valuation allowance |
|
|
(14,729,657 |
) |
|
|
(12,943,154 |
) |
Total deferred tax assets, net of valuation allowance |
|
$ |
11,587,530 |
|
|
$ |
10,867,315 |
|
Deferred tax liabilities related to: |
|
|
|
|
|
|
||
Intangibles |
|
$ |
— |
|
|
$ |
2,491,908 |
|
Equity investment |
|
|
12,508,885 |
|
|
- |
|
|
Other |
|
|
— |
|
|
|
9,494,614 |
|
Deferred tax liabilities, net |
|
$ |
12,508,885 |
|
|
$ |
11,986,522 |
|
Deferred tax (liabilities) assets, net |
|
$ |
(921,355 |
) |
|
$ |
(1,119,207 |
) |
F-35
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2025 and 2024, total gross deferred tax assets, net of deferred tax liabilities and prior to valuation allowances amounted to $13.8 million and $11.8 million, respectively, and primarily related to tax timing differences associated with basis differences in equity investment assets, net operating loss carryforward, and interest expenses disallowed under Section 163(j).
At December 31, 2025, the Company had $27.8 million of total gross federal and $0.5 million of total gross state and local net operating and capital tax loss carryforwards. At December 31, 2024, the Company had $35.6 million of total gross federal and $0.4 million of total gross state and local net operating tax loss carryforwards. Federal net operating tax loss carryforwards have an indefinite expiration date.
The Company assessed all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. On the basis of this evaluation, a valuation allowance of $14.7 million and $12.9 million has been recorded against the deferred tax assets at December 31, 2025 and 2024, respectively, as it is not more likely than not that these assets would be realized. Management will continue to assess the realization of the amount of deferred tax assets and related valuation allowance based on all available information.
The Company is subject to examination by the Internal Revenue Service for calendar years including and subsequent to 2022 and is subject to examination by state and local jurisdictions for calendar years including and subsequent to 2022.
The Company evaluates its tax positions to evaluate whether it is more likely than not that such positions would be sustained upon examination upon by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. As of December 31, 2025 and 2024, the Company has not established a liability for uncertain tax positions.
NOTE 14 - RELATED PARTY TRANSACTIONS
Due from Related Parties
The Company has the following receivables from related parties which are recorded as due from related parties on the consolidated balance sheets:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Due from ACRES Commercial Realty Corp. (1) |
|
$ |
1,884,699 |
|
|
$ |
3,566,461 |
|
Due from ACRES SPV LLC (2) |
|
|
— |
|
|
|
85,265 |
|
Total |
|
$ |
1,884,699 |
|
|
$ |
3,641,726 |
|
For the years ended December 31, 2025 and 2024, the Company recorded $6.4 million and $6.8 million, respectively, of management fees in management and servicing fees on the consolidated statements of income. At December 31 2024, $0.5 million of management fees are recorded as due from related parties on the consolidated balance sheets. There were no management fees due as of December 31, 2025.
For the years ended December 31, 2025 and 2024, the Company recorded $4.3 million and $3.9 million, respectively, of reimbursable compensation and benefits in reimbursable compensation and benefits on the consolidated statements of income. For the years ended December 31, 2025 and 2024, the Company recorded $0.8 million and $0.7 million, respectively, of other reimbursable expenses in other reimbursable expenses on the consolidated statements of
F-36
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
income. At December 31, 2025 and 2024, $0.5 million of reimbursable expenses paid by the Company on behalf of ACR are recorded as due from related parties on the consolidated balance sheets.
For the years ended December 31, 2025 and 2024, the Company recorded $2.5 million and $2.8 million, respectively, of incentive fees in incentive fees – related party on the consolidated statements of income. At December 31, 2025 and 2024, $1.4 million and $2.5 million, respectively, of incentive fees are recorded as due from related parties on the consolidated balance sheets.
The Company earns fees which are eliminated in consolidation for performing certain asset management and loan servicing functions on behalf of AMF. For the years ended December 31, 2025 and 2024, the Company earned $10.5 million and $8.5 million of such fees in management and servicing fees which are eliminated in consolidation.
ACRES Insurance Agency, LLC (“AIA”) is a wholly owned subsidiary of the Company. AIA receives referral fees for promoting and marketing insurance products and services to borrowers and sponsors under investments held directly, or indirectly, by AMF and ACR. For the year ended December 31, 2025, the company earned $0.7 million of such fees on the consolidated statement of income. No such fees were earned by AIA for the years ended December 31, 2024.
Borrowings – related party
In 2020, in conjunction with the closing of the acquisition of the ACR management agreement, a wholly owned subsidiary of ACR, a related party, provided a $12.0 million loan to the Company. See Note 10.
Other Related Party Transactions
ACRES Capital Servicing LLC, a wholly owned subsidiary of the Company, serves as the portfolio servicer for ACR’s $250.0 million loan and servicing agreement with an insurance company and other lenders. Additionally, ACRES Capital Servicing LLC serves as special servicer of commercial real estate debt securitizations ACR 2021-FL1 and ACR 2021-FL2. During the years ended December 31, 2025 and 2024, ACRES Capital Servicing LLC earned no portfolio servicing fees. During the years ended December 31, 2025 and 2024, ACRES Capital Servicing LLC earned $0.2 million and $0.1 million, respectively, in special servicing fees recorded in management and servicing fees – related party on the consolidated statements of income.
ACRES Collateral Manager, LLC, a wholly owned subsidiary of the Company, serves as the collateral manager of ACR 2021-FL1 and ACR 2021-FL2, a role for which it waived its fee.
The Company has equity investments in ACR (see Note 7).
NOTE 15 – REDEEMABLE INTEREST
Redeemable interest in the Company represents preferred equity securities issued by a subsidiary of the Company to a third party and is presented at the redemption amount within temporary equity within the consolidated balance sheets. The following table summarizes the activities associated with the redeemable interest:
F-37
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
Total |
|
|
Balance as of December 31, 2024 |
|
$ |
— |
|
Gross proceeds from subsidiary’s issuance of preferred equity securities |
|
|
33,000,000 |
|
Issuance costs |
|
|
(2,194,971 |
) |
Reclassification of derivative liabilities |
|
|
(12,324,588 |
) |
Accretion of redeemable interest to redemption value |
|
|
13,239,559 |
|
Net income attributable to redeemable interest |
|
|
2,240,107 |
|
Balance as of December 31, 2025 |
|
$ |
33,960,107 |
|
NOTE 16 - DERIVATIVE INSTRUMENTS
The Company recognizes derivative instruments as either assets or liabilities on the balance sheet and measures them at fair value in accordance with applicable accounting guidance. The Company evaluates its financing arrangements to determine whether certain arrangements contain features that qualify as embedded derivatives requiring bifurcation in accordance with ASC 815. Embedded derivatives that are required to be bifurcated from the host instrument or arrangement are accounted for and valued as separate financial instruments.
The Company’s derivative liabilities consists of freestanding warrants and certain embedded features that are not clearly and closely related to the host instrument to be bifurcated and recorded at the fair value as derivative liabilities.
The fair value of derivative liabilities are measured at each reporting date, with changes in fair value recorded in the consolidated statements of income as a derivative gain (loss). The Company engaged an independent financial advisory firm to estimate the fair value of derivative liabilities using valuation methodologies that incorporate both observable and unobservable inputs.
As of December 31, 2025, the fair value of derivative liabilities are $9.2 million as compared to $12.3 million as of July 23, 2025 (initial date of recognition). For the year ended December 31, 2025, the Company recognized a gain of $3.1 million related to the change in fair value of derivative liabilities.
The following table summarizes the activities associated with the derivative liabilities:
|
|
Embedded Derivatives |
|
|
Freestanding Warrants |
|
|
Total |
|
|||
Balance as of December 31, 2024 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Fair value of derivative liabilities at issuance as of July 23, 2025 |
|
|
1,410,000 |
|
|
|
10,914,588 |
|
|
|
12,324,588 |
|
Derivative gain |
|
|
(130,000 |
) |
|
|
(2,954,289 |
) |
|
|
(3,084,289 |
) |
Balance as of December 31, 2025 |
|
$ |
1,280,000 |
|
|
$ |
7,960,299 |
|
|
$ |
9,240,299 |
|
The following tables summarize the quantitative inputs and assumptions used for the Company’s Level 3 measurements of derivative liabilities as of July 23, 2025 (initial date of recognition):
As of July 23, 2025 |
||||||||||
Level 3 Measurements of the Company |
|
Fair Value |
|
|
Valuation Techniques |
|
Unobservable Inputs |
|
Range (Weighted Average) |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Embedded derivatives |
|
$ |
1,410,000 |
|
|
Discount cash flow |
|
Discount rate |
|
23.59% |
Freestanding warrants |
|
|
10,914,588 |
|
|
Black-Scholes-Merton multiple option approach |
|
Expected volatility |
|
70.0% |
NOTE 17 - SUBSEQUENT EVENTS
F-38
Table of Contents
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company has evaluated events and transactions subsequent to the balance sheet date through March 31, 2026, the date the financial statements were available to be issued and determined that there have not been any events that have occurred that would require adjustments to or disclosures in the consolidated financial statements except for those referenced below.
On March 4, 2026, non-vesting options to purchase 250,000 shares of common stock of the Company were issued at a strike price of $15.00. The Company also modified existing options to purchase 479,750 shares of common stock of the Company to revise the strike price to $15.00 and designate the options as immediately exercisable.
On March 4, 2026, the Company provided loans of $11.2 million to existing shareholders and certain members of management of the Company to finance the acquisition of common stock of the Company under option agreements.
On March 4, 2026, options to purchase 843,750 shares of common stock of the Company were exercised resulting in the issuance of 843,750 shares of common stock of the Company to option holders.
On March 5, 2026, the $30.00 ACR book value target as met and, accordingly, under the MIP; ACRES Share Holdings, LLC, a wholly owned subsidiary of the Company was granted 204,765 shares which vest 25% for four years, on each anniversary of the issuance date.
Subsequent Events of the Consolidated Fund
On February 2, 2026, the Fund distributed $11.2 million to its shareholders which represented the Fund’s net income for the quarter ended December 31, 2025. Of the total distribution, $1.8 million was distributed to shareholders that elected reinvestment and received shares of the Fund in lieu of a cash distribution.
For the period of January 1, 2026 to March 31, 2026, the Fund received capital contributions totaling $21.8 million.
For the period of January 1, 2026 to March 31, 2026, the Fund received redemption requests totaling 10,349.34 shares. Each redeemed share will be transferred to a redemption reserve share class and redemption proceeds will be paid on a pro-rata share basis as investments are realized and cash is available.
F-39
Exhibit 99.2
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page |
ACRES Capital Corp. |
|
Financial Statements |
|
Consolidated Balance Sheets (unaudited) - June 30, 2026 and December 31, 2025 |
G-2 |
Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2026 and 2025 |
G-4 |
Consolidated Statements of Changes in Equity (unaudited) for the Three Months Ended March 31, 2026 and 2025 and June 30, 2026 and 2025 |
G-5 |
Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2026 and 2025 |
G-6 |
Notes to Consolidated Financial Statements - June 30, 2026 (unaudited) |
G-7 |
ACRES CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS
|
|
June 30, 2026 |
|
|
December 31, 2025 |
|
||
|
|
(unaudited) |
|
|
|
|
||
ASSETS (1) |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
1,831,859 |
|
|
$ |
5,438,038 |
|
Restricted cash |
|
|
837,594 |
|
|
|
1,313,332 |
|
Goodwill |
|
|
35,000,000 |
|
|
|
35,000,000 |
|
Accounts receivable |
|
|
716,426 |
|
|
|
803,840 |
|
Investments in equity affiliate, at fair value - related party |
|
|
20,834,030 |
|
|
|
14,296,031 |
|
Due from related parties |
|
|
1,698,037 |
|
|
|
1,884,699 |
|
Right-of-use assets |
|
|
5,471,030 |
|
|
|
6,971,903 |
|
Other assets, net of depreciation |
|
|
1,359,811 |
|
|
|
1,150,067 |
|
Assets of Consolidated Fund: |
|
|
|
|
|
|
||
Investments, at fair value |
|
|
2,025,830,311 |
|
|
|
2,016,918,819 |
|
Cash and cash equivalents |
|
|
54,578,489 |
|
|
|
17,824,819 |
|
Restricted cash |
|
|
9,999,992 |
|
|
|
28,478,347 |
|
Accrued interest, servicing receivables and other assets |
|
|
16,089,608 |
|
|
|
38,509,145 |
|
Total assets |
|
$ |
2,174,247,187 |
|
|
$ |
2,168,589,040 |
|
LIABILITIES (2) |
|
|
|
|
|
|
||
Borrowings |
|
$ |
147,246,398 |
|
|
$ |
147,319,367 |
|
Borrowings - related party |
|
|
10,250,000 |
|
|
|
10,375,000 |
|
Accrued interest, accounts payable, and other liabilities |
|
|
5,791,410 |
|
|
|
5,605,251 |
|
Derivative liabilities |
|
|
24,034,846 |
|
|
|
9,240,299 |
|
Operating lease liabilities |
|
|
6,177,369 |
|
|
|
7,756,825 |
|
Liabilities of Consolidated Fund: |
|
|
|
|
|
|
||
Borrowings |
|
|
1,268,252,935 |
|
|
|
1,283,957,379 |
|
Accrued interest, accounts payable and other liabilities |
|
|
26,401,349 |
|
|
|
31,370,008 |
|
Total liabilities |
|
|
1,488,154,307 |
|
|
|
1,495,624,129 |
|
REDEEMABLE INTEREST IN CONSOLIDATED COMPANY ENTITIES |
|
|
36,279,758 |
|
|
|
33,960,107 |
|
NON-CONTROLLING INTERESTS IN CONSOLIDATED FUND (3) |
|
|
701,668,271 |
|
|
|
676,389,618 |
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
||
Common stock, $0.0001 par value; 3,000,000 shares authorized - 2,539,481 and 1,695,731 shares issued and outstanding |
|
|
255 |
|
|
|
170 |
|
Additional paid-in capital |
|
|
17,769,351 |
|
|
|
10,178,636 |
|
Accumulated deficit |
|
|
(69,624,755 |
) |
|
|
(47,563,620 |
) |
TOTAL STOCKHOLDERS' DEFICIT |
|
|
(51,855,149 |
) |
|
|
(37,384,814 |
) |
TOTAL EQUITY |
|
|
649,813,122 |
|
|
|
639,004,804 |
|
TOTAL LIABILITIES, REDEEMABLE INTEREST, NON-CONTROLLING INTERESTS, AND EQUITY |
|
$ |
2,174,247,187 |
|
|
$ |
2,168,589,040 |
|
Note: The consolidated balance sheets include assets and liabilities of consolidated variable interest entities, or VIEs, as ACRES Capital Corp. is the primary beneficiary of these VIEs. ACRES Capital Corp. holds substantially all of its assets and liabilities through ACRES Holdings, LLC, a consolidated variable interest entity. The Consolidated Fund also represents a VIE which is consolidated by ACRES Capital Corp. See Note 3 for discussion of VIEs.
The accompanying notes are an integral part of these statements.
G-2
ACRES CAPITAL CORP.
CONSOLIDATED BALANCE SHEETS (cont.)
|
|
June 30, 2026 |
|
|
December 31, 2025 |
|
||
|
|
(unaudited) |
|
|
|
|
||
(1) Assets of Consolidated Fund VIE included in total assets above: |
|
|
|
|
|
|
||
Investments, at fair value |
|
$ |
2,025,830,311 |
|
|
$ |
2,016,918,819 |
|
Cash and cash equivalents |
|
|
54,578,489 |
|
|
|
17,824,819 |
|
Restricted cash |
|
|
9,999,992 |
|
|
|
28,478,347 |
|
Accrued interest, servicing receivables and other assets |
|
|
16,089,608 |
|
|
|
38,509,145 |
|
Total assets of Consolidated Fund VIE |
|
$ |
2,106,498,400 |
|
|
$ |
2,101,731,130 |
|
(2) Liabilities of Consolidated Fund VIE included in total liabilities above: |
|
|
|
|
|
|
||
Borrowings |
|
$ |
1,268,252,935 |
|
|
$ |
1,283,957,379 |
|
Accrued interest, accounts payable and other liabilities |
|
|
26,401,349 |
|
|
|
31,370,008 |
|
Total liabilities of Consolidated Fund VIE |
|
$ |
1,294,654,284 |
|
|
$ |
1,315,327,387 |
|
(3) Non-controlling interests of Consolidated Fund VIE: |
|
|
|
|
|
|
||
Non-controlling interest in Consolidated Fund |
|
$ |
701,668,271 |
|
|
$ |
676,389,618 |
|
The accompanying notes are an integral part of these statements.
G-3
ACRES CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and servicing fees, net |
|
$ |
183,667 |
|
|
$ |
142,443 |
|
|
$ |
395,183 |
|
|
$ |
300,878 |
|
Management and servicing fees, net - related party |
|
|
1,563,814 |
|
|
|
1,660,889 |
|
|
|
3,123,304 |
|
|
|
3,251,468 |
|
Origination fees |
|
|
917,500 |
|
|
|
2,739,200 |
|
|
|
917,500 |
|
|
|
4,050,856 |
|
Incentive fees - related party |
|
|
6,198,506 |
|
|
|
795,034 |
|
|
|
6,731,593 |
|
|
|
1,581,330 |
|
Application fees and other income |
|
|
230,369 |
|
|
|
332,371 |
|
|
|
913,920 |
|
|
|
504,486 |
|
Reimbursable compensation and benefits - related party |
|
|
897,428 |
|
|
|
904,236 |
|
|
|
2,082,298 |
|
|
|
2,185,056 |
|
Other reimbursable expenses |
|
|
94,587 |
|
|
|
192,269 |
|
|
|
323,081 |
|
|
|
362,705 |
|
Other reimbursable expenses - related party |
|
|
280,319 |
|
|
|
177,789 |
|
|
|
550,122 |
|
|
|
303,036 |
|
Total revenues |
|
|
10,366,190 |
|
|
|
6,944,231 |
|
|
|
15,037,001 |
|
|
|
12,539,815 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
3,616,229 |
|
|
|
3,193,620 |
|
|
|
7,875,347 |
|
|
|
6,467,218 |
|
Equity compensation - related party |
|
|
— |
|
|
|
465,955 |
|
|
|
7,240,715 |
|
|
|
890,625 |
|
General, administrative and other expenses |
|
|
2,818,251 |
|
|
|
2,741,390 |
|
|
|
5,701,603 |
|
|
|
4,625,412 |
|
Interest expense |
|
|
3,063,753 |
|
|
|
5,683,232 |
|
|
|
6,093,839 |
|
|
|
11,251,307 |
|
Interest expense - related party |
|
|
77,919 |
|
|
|
80,194 |
|
|
|
155,544 |
|
|
|
160,069 |
|
Other reimbursable expenses |
|
|
94,587 |
|
|
|
192,269 |
|
|
|
323,081 |
|
|
|
362,705 |
|
Other reimbursable expenses - related party |
|
|
280,319 |
|
|
|
177,789 |
|
|
|
550,122 |
|
|
|
303,036 |
|
Expenses of Consolidated Fund |
|
|
902,799 |
|
|
|
602,395 |
|
|
|
1,804,069 |
|
|
|
970,913 |
|
Total operating expenses |
|
|
10,853,857 |
|
|
|
13,136,844 |
|
|
|
29,744,320 |
|
|
|
25,031,285 |
|
|
|
|
(487,667 |
) |
|
|
(6,192,613 |
) |
|
|
(14,707,319 |
) |
|
|
(12,491,470 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Loss) income from investments in equity affiliates - related party |
|
|
(259,305 |
) |
|
|
(1,264,693 |
) |
|
|
(1,612,537 |
) |
|
|
1,197,814 |
|
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
7,919,828 |
|
|
|
(28,985 |
) |
|
|
15,455,180 |
|
|
|
(28,985 |
) |
Interest income of Consolidated Fund |
|
|
28,950,881 |
|
|
|
27,792,156 |
|
|
|
60,087,546 |
|
|
|
53,098,250 |
|
Interest expense of Consolidated Fund |
|
|
(21,262,695 |
) |
|
|
(13,739,704 |
) |
|
|
(44,323,261 |
) |
|
|
(26,273,947 |
) |
Derivative gain (loss) |
|
|
(17,220,073 |
) |
|
|
— |
|
|
|
(14,794,547 |
) |
|
|
— |
|
Total other income |
|
|
(1,871,364 |
) |
|
|
12,758,774 |
|
|
|
14,812,381 |
|
|
|
27,993,132 |
|
(LOSS) INCOME BEFORE TAXES |
|
|
(2,359,031 |
) |
|
|
6,566,161 |
|
|
|
105,062 |
|
|
|
15,501,662 |
|
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
NET (LOSS) INCOME |
|
|
(2,359,031 |
) |
|
|
6,566,161 |
|
|
|
105,062 |
|
|
|
15,501,662 |
|
Less: Net income attributable to non-controlling interest in Consolidated Fund |
|
|
(9,691,005 |
) |
|
|
(9,030,096 |
) |
|
|
(19,496,546 |
) |
|
|
(17,058,875 |
) |
Less: Net income attributable to redeemable interest in Consolidated Company Entities |
|
|
(1,366,249 |
) |
|
|
— |
|
|
|
(2,669,650 |
) |
|
|
— |
|
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHARES |
|
$ |
(13,416,285 |
) |
|
$ |
(2,463,935 |
) |
|
$ |
(22,061,134 |
) |
|
$ |
(1,557,213 |
) |
The accompanying notes are an integral part of these statements.
G-4
ACRES CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited)
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Common Stock Shares |
|
|
Common Stock Amount |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Non-controlling interest in Consolidated Fund |
|
|
Total Equity |
|
||||||
Balance - December 31, 2025 |
|
|
1,695,731 |
|
|
$ |
170 |
|
|
$ |
10,178,636 |
|
|
$ |
(47,563,620 |
) |
|
$ |
676,389,618 |
|
|
$ |
639,004,804 |
|
Contributions - noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,758,725 |
|
|
|
21,758,725 |
|
Equity compensation |
|
|
843,750 |
|
|
|
85 |
|
|
|
7,240,715 |
|
|
|
— |
|
|
|
— |
|
|
|
7,240,800 |
|
Dividends/distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,584,628 |
) |
|
|
(9,584,628 |
) |
Net (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,644,850 |
) |
|
|
9,805,541 |
|
|
|
1,160,691 |
|
Decrease (increase) in redemption value of redeemable interest |
|
|
— |
|
|
|
— |
|
|
|
350,000 |
|
|
|
|
|
|
— |
|
|
|
350,000 |
|
|
Balance - March 31, 2026 |
|
|
2,539,481 |
|
|
$ |
255 |
|
|
$ |
17,769,351 |
|
|
$ |
(56,208,470 |
) |
|
$ |
698,369,256 |
|
|
$ |
659,930,392 |
|
Contributions - noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,678,383 |
|
|
|
5,678,383 |
|
Dividends/distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,070,374 |
) |
|
|
(12,070,374 |
) |
Net (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13,416,285 |
) |
|
|
9,691,006 |
|
|
|
(3,725,279 |
) |
Balance - June 30, 2026 |
|
|
2,539,481 |
|
|
$ |
255 |
|
|
$ |
17,769,351 |
|
|
$ |
(69,624,755 |
) |
|
$ |
701,668,271 |
|
|
$ |
649,813,122 |
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Common Stock Shares |
|
|
Common Stock Amount |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Non-controlling interest in Consolidated Fund |
|
|
Total Equity |
|
||||||
Balance - December 31, 2024 |
|
|
1,695,731 |
|
|
$ |
170 |
|
|
$ |
21,595,701 |
|
|
$ |
(55,585,805 |
) |
|
$ |
571,514,996 |
|
|
$ |
537,525,062 |
|
Contributions - noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
45,995,778 |
|
|
|
45,995,778 |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
424,670 |
|
|
|
— |
|
|
|
— |
|
|
|
424,670 |
|
Dividends/distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(21,529,083 |
) |
|
|
(21,529,083 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
906,720 |
|
|
|
8,028,779 |
|
|
|
8,935,499 |
|
Balance - March 31, 2025 |
|
|
1,695,731 |
|
|
$ |
170 |
|
|
$ |
22,020,371 |
|
|
$ |
(54,679,085 |
) |
|
$ |
604,010,470 |
|
|
$ |
571,351,926 |
|
Contributions - noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,289,096 |
|
|
|
13,289,096 |
|
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
465,955 |
|
|
|
— |
|
|
|
— |
|
|
|
465,955 |
|
Dividends/distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,512,574 |
) |
|
|
(9,512,574 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,463,933 |
) |
|
|
9,030,096 |
|
|
|
6,566,163 |
|
Balance - June 30, 2025 |
|
|
1,695,731 |
|
|
$ |
170 |
|
|
$ |
22,486,326 |
|
|
$ |
(57,143,018 |
) |
|
$ |
616,817,088 |
|
|
$ |
582,160,566 |
|
The accompanying notes are an integral part of these statements.
G-5
ACRES CAPITAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
Net (loss) income |
|
$ |
105,062 |
|
|
$ |
15,501,662 |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
59,322 |
|
|
|
59,550 |
|
Equity compensation - related party |
|
|
7,240,715 |
|
|
|
890,625 |
|
Amortization of debt acquisition costs |
|
|
427,031 |
|
|
|
240,344 |
|
Amortization of capitalized mortgage servicing rights |
|
|
— |
|
|
|
81,472 |
|
Non-cash interest expense |
|
|
— |
|
|
|
3,795,816 |
|
Loss (income) from investments in equity affiliate - related party |
|
|
1,612,537 |
|
|
|
(1,197,814 |
) |
Derivative loss (gain) |
|
|
14,794,547 |
|
|
|
— |
|
Satisfaction of incentive fees in stock |
|
|
(8,150,536 |
) |
|
|
(3,615,868 |
) |
Adjustments to reconcile net income to net cash (used in) provided by operating activities allocable to controlling and non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
||
Net realized gain from investments |
|
|
(17,529,500 |
) |
|
|
— |
|
Net change in unrealized gains on investments |
|
|
2,074,320 |
|
|
|
28,985 |
|
Purchase and funding of loan notes, participations and equity interests |
|
|
(172,390,385 |
) |
|
|
(265,989,351 |
) |
Sales proceeds and principal payments received on loan notes and participations |
|
|
139,864,692 |
|
|
|
85,389,152 |
|
Distribution from investments in equity interests |
|
|
31,065,038 |
|
|
|
— |
|
Amortization of debt issuance costs |
|
|
3,630,384 |
|
|
|
1,815,570 |
|
Deferred fees |
|
|
790,114 |
|
|
|
1,971,260 |
|
Amortization of deferred fees |
|
|
(1,127,959 |
) |
|
|
(2,515,818 |
) |
Cash flows due to changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
87,414 |
|
|
|
(19,615 |
) |
Other assets, net of depreciation |
|
|
(269,066 |
) |
|
|
(1,096,199 |
) |
Due from related parties |
|
|
186,813 |
|
|
|
1,941,459 |
|
Right-of-use assets |
|
|
1,500,873 |
|
|
|
(4,435,444 |
) |
Operating lease liabilities |
|
|
(1,579,456 |
) |
|
|
4,779,661 |
|
Accrued interest, accounts payable, and other liabilities |
|
|
(461,841 |
) |
|
|
2,809,995 |
|
Cash flows due to changes in operating assets and liabilities allocable to controlling and non-controlling interest in Consolidated Fund: |
|
|
|
|
|
|
||
Change in cash and cash equivalents held at Consolidated Fund |
|
|
(18,275,315 |
) |
|
|
46,591,469 |
|
Change in other assets and receivables held at Consolidated Fund |
|
|
22,419,537 |
|
|
|
(2,681,500 |
) |
Change in other liabilities and payables held at Consolidated Fund |
|
|
3,373,378 |
|
|
|
(891,445 |
) |
Net cash used in operating activities |
|
|
9,447,719 |
|
|
|
(116,546,035 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
||
Paydowns of credit facilities and notes payable |
|
|
(500,000 |
) |
|
|
(150,000 |
) |
Paydowns of loan payable - related party |
|
|
(125,000 |
) |
|
|
(150,000 |
) |
Exercise of stock options |
|
|
648,085 |
|
|
|
— |
|
Allocable to controlling and non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
||
Contributions from non-controlling interests in Consolidated Fund |
|
|
27,437,108 |
|
|
|
59,284,874 |
|
Distributions to non-controlling interests in Consolidated Fund |
|
|
(21,655,001 |
) |
|
|
(31,041,658 |
) |
Borrowings under loan obligations by Consolidated Fund |
|
|
503,111,067 |
|
|
|
157,601,000 |
|
Repayments under loan obligations by Consolidated Fund |
|
|
(513,480,633 |
) |
|
|
(61,452,000 |
) |
Payment of debt acquisition costs by Consolidated Fund |
|
|
(8,965,262 |
) |
|
|
(3,688,049 |
) |
Net cash provided by financing activities |
|
|
(13,529,636 |
) |
|
|
120,404,167 |
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(4,081,917 |
) |
|
|
3,858,132 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
6,751,370 |
|
|
|
7,217,108 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
$ |
2,669,453 |
|
|
$ |
11,075,240 |
|
The accompanying notes are an integral part of these statements.
G-6
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2026
(unaudited)
NOTE 1 - ORGANIZATION
ACRES Capital Corp., a Delaware corporation, along with its subsidiaries (collectively, the “Company”), is a private lender dedicated to nationwide middle-market commercial real estate (“CRE”) lending in the United States (“U.S.”). The Company conducts its operations through the use of subsidiaries that it consolidates into its financial statements. Substantially all of the Company’s operations are conducted through ACRES Capital LLC (the “Operating Subsidiary”), a wholly owned subsidiary that is registered with the Securities and Exchange Commission as an investment adviser. The Operating Subsidiary 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. The Operating Subsidiary also serves as the manager of ACRES Commercial Realty Corp. (“ACR”), a Maryland corporation. ACR is a real estate investment trust (“REIT”) that is primarily focused on originating, holding, and managing CRE mortgage loans and other commercial real estate related debt investments.
On July 23, 2025, the Company contributed substantially all of its assets, including its interests in the Operating Subsidiary, and liabilities to ACRES Holdings, LLC, a wholly-owned subsidiary, in exchange for membership interests in ACRES Holdings, LLC. Contemporaneously with this contribution, ACRES Holdings, LLC issued preferred equity securities to a third party. As a result, the Company holds substantially all of its assets and liabilities through ACRES Holdings, LLC, a consolidated variable interest entity. See Note 3.
The Company consolidates AMF in the accompanying financial statements (the “Consolidated Fund”) (the Company, excluding the Consolidated Fund, the “Consolidated Company Entities”). 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; however, the Consolidated Fund results included herein have no direct effect on the net income attributable to ACRES Capital Corp. or to its stockholders’ deficit. Instead, economic ownership interests of the third-party investors in the Consolidated Fund are reflected as non-controlling interests in the Consolidated Fund. Further, cash flows allocable to non-controlling interests in Consolidated Fund are specifically identifiable within the consolidated statements of cash flows.
On April 29, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ACRES Holdings Sub LLC (“Merger Sub”), a subsidiary of ACR, pursuant to which the Company will be merged with and into Merger Sub, with Merger Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”). As a result of the Merger, among other things, (i) ACR will acquire the Company, (ii) the Company will cease to perform any outside management services for ACR, (iii) the Company and ACR will terminate the existing management agreement between the parties (the acquisition of the management agreement in 2020 resulted in the initial recognition of the Company's goodwill asset), and (iv) ACR will become internally managed (the “Internalization”).
The closing of the Merger (the “Closing”) was approved by ACR’s shareholders at its annual meeting on June 22, 2026 and is expected to be completed in the third quarter 2026. In connection with the approval, and in accordance with the Merger Agreement, the unvested ACR equity-based awards were fully vested on June 22, 2026.
Pursuant to the Merger Agreement, at Closing, (i) each outstanding share of common stock, $0.0001 par value per share, of the Company (“ACC Common Stock”) will be converted into the right to receive 2.61882 shares of common stock, $0.001 par value per share, of ACR (the “ACR Common Stock”) and (ii) the Fourth Amended and Restated Management Agreement, dated as of July 31, 2020, as amended, by and among the Company and ACR will terminate for no additional consideration. ACR expects to issue a maximum of approximately 7.487 million shares of ACR Common Stock at Closing (the “Stock Issuance”), the exact number of which will be determined based on the number of outstanding shares of ACC Common Stock immediately prior to the Closing.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”). 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.
G-7
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, majority-owned or controlled subsidiaries and variable interest entities (“VIEs”) for which the Company is considered the primary beneficiary. All inter-company transactions and balances have been eliminated in consolidation.
Variable Interest Entities
A VIE is defined as an entity in which equity investors (i) do not have a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that (a) has the power to control the activities that most significantly impact the VIE’s economic performance and (b) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company considers the following criteria in determining whether an entity is a VIE:
In determining whether the Company is the primary beneficiary of a VIE, the Company reviews governing contracts, formation documents and any other contractual arrangements to determine the activities that have the most significant impact on the VIE and which entity has the power to direct those activities. The Company also looks for kick-out rights, protective rights, and participating rights as well as any financial or other support provided to the VIE and the reason for that support, and the terms of any explicit or implicit arrangements that may require the Company to provide future support. The Company then makes a determination based on its power to direct the most significant activities of the VIE and/or a financial interest that is potentially significant. In instances when a VIE is owned by both the Company and related parties, the Company considers whether there is a single party in the related party group that meets both the power and losses or benefits criteria on its own as though no related party relationship existed. If one party within the related party group meets both these criteria, such reporting entity is the primary beneficiary of the VIE. If no party within the related party group on its own meets both the power and losses or benefits criteria, but the related party group as a whole meets these two criteria, the determination of primary beneficiary within the related party group is based upon an analysis of the facts and circumstances with the objective of determining which party is most closely associated with the VIE. Determining the primary beneficiary requires significant judgment. The Company continuously analyzes entities in which it holds variable interests to identify reconsideration events and determine whether such entities are VIEs and whether such potential VIEs should be consolidated or deconsolidated.
Voting Interest Entities
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic
G-8
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated.
The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.
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.
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. Cash and cash equivalents held at the Consolidated Fund represents cash that, although not legally restricted, is not available to support the general liquidity needs of the Company, as the use of such amounts is generally limited to the activities of the Consolidated Fund.
As of June 30, 2026 and December 31, 2025, the Company had cash balances with financial institutions in excess of Federal Deposit Insurance Corporation insured limits. The Company monitors the credit standing of these financial institutions.
Restricted Cash
Restricted cash of the Consolidated Company Entities consists of deposits received from potential new borrowers. The Company maintains loan expense deposits collected from prospective borrowers used to offset underwriting expenses associated with originating loans. Restricted cash of the Consolidated Fund consists of amounts that are held by commercial real estate debt securitizations.
Redeemable Interest
Redeemable interest in the Company represents preferred equity securities issued by a subsidiary of the Company to a third party. Income (loss) is allocated based on the preferred return attributable to the redeemable interest. At each balance sheet date, the carrying value of the redeemable interest is presented at the redemption amount, to the extent that the redemption amount exceeds the initial measurement on the date of issuance. The Company recognizes changes in the redemption amount with corresponding adjustments against retained earnings, or additional paid-in-capital in the absence of retained earnings, within stockholders’ deficit within the consolidated balance sheets.
Derivative Instruments
Derivative financial instruments are recorded in the accompanying balance sheets at fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s statements of operations.
The Company concluded the redeemable interest preferred equity securities host contract contained features that required bifurcation and separate accounting under ASC 815. See Note 16.
Warrants
G-9
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each consolidated balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a gain or loss on the consolidated statements of operations.
The Company determined that upon further review of the warrant agreements, the Company concluded that its warrants qualify for liability accounting treatment.
Issuance Costs Related to Equity and Debt
The Company allocates issuance costs between the individual freestanding instruments identified on the same basis as proceeds were allocated. Issuance costs associated with the issuance of redeemable interests (i.e., temporary equity-classified stock) are recorded as a charge against the gross proceeds of the offering and amortized over the earliest estimable redemption date. Any issuance costs associated with the issuance of liability-classified warrants are expensed as incurred. Issuance costs associated with the issuance of debt are recorded as a direct reduction of the carrying amount of the debt liability. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount to interest expense using the effective interest method over the expected term of the notes pursuant to ASC 835.
Non-Controlling Interests
The non-controlling interests in Consolidated Fund represents a component of equity and net income attributable to ownership interests that third-party investors hold in the Consolidated Fund.
Troubled Debt Restructuring
When the Company modifies or extinguishes debt, it first evaluates whether the modification qualifies as a troubled debt restructuring (“TDR”) under ASC 470-60. As per ASC 470-60, a TDR refers to a situation where the creditor grants concessions to a borrower experiencing financial difficulties. A lender is deemed to have granted a concession if the borrower’s effective interest rate on the restructured debt is less than the effective interest rate of the old debt immediately before the restructuring. Such restructuring is done with the intent to provide relief to the borrower and to maximize the potential for payable recovery by the lender.
In accordance with ASC 470-60, when the total future cash payments under the new terms are less than the carrying amount of the payable at the date of restructuring, the difference between the carrying amount and the total future cash payments is recognized as a gain on extinguishment of debt in the consolidated financial statements. This gain is recorded immediately in the period the restructuring occurs. If the total future cash payments under the new terms exceed the carrying amount of the debt at the date of restructuring, no adjustment to the carrying amount of the debt is made. Instead, the Company calculates a new effective interest rate (“EIR”) based on the revised terms of the restructured debt. The debt is then amortized over the remaining term of the debt using the new EIR, with interest expense recognized based on such rate in future periods.
If a TDR is determined not to have occurred, the Company evaluates the modification in accordance with ASC 470-50-40, which requires modification to debt instruments to be evaluated to assess whether the modifications are considered “substantial modifications”. A substantial modification of terms is accounted for like an extinguishment.
Income Earned from Fee-Based Services
G-10
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
Income from fee-based services includes asset management fees, development fees, ACR management fees, servicing fees, and incentive fees. Asset management fees, development fees, and servicing fees are included in management and servicing fees, net on the consolidated statements of operations. ACR management fees are included in management and servicing fees, net – related party on the consolidated statements of operations. Incentive fees are included in incentive fees on the consolidated statements of operations. Incentive fees are earned when specified financial hurdles are met for certain separately managed accounts and ACR. 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.
ACR management fees
The Company earns a monthly base management fee equal to 1/12th of the amount of ACR’s equity (as defined in the management agreement) multiplied by 1.50%. Such base management fees are included in management and servicing fees, net - related party on the consolidated statements of operations.
The Company may terminate the management agreement at its option: (A) in the event that ACR defaults in the performance or observance of any material term, condition or covenant contained in the management agreement and such default continues for a period of 30 days after written notice thereof, or (B) without payment of a termination fee by ACR, if ACR becomes regulated as an investment company under the Investment Company Act, with such termination deemed to occur immediately before such event.
The ACR management agreement’s current contract term ends on July 31, 2026, and the agreement provides for automatic one-year renewals on such date and on each July 31 thereafter until terminated. The management agreement may be terminated upon the affirmative vote of at least two-thirds of ACR’s independent directors, or by the affirmative vote of the holders of at least a majority of the outstanding shares of ACR’s common stock, based upon unsatisfactory performance that is materially detrimental to ACR or a determination by ACR’s independent directors that the management fees payable to the Company are not fair, subject to the Company’s right to prevent such a compensation termination by accepting a mutually acceptable reduction of management fees. ACR’s Board must provide 180 days’ prior notice of any such termination. If ACR terminates the management agreement, the Company is entitled to a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive compensation earned by the Company during the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination. ACR may also terminate the management agreement for cause with 30 days’ prior written notice from ACR’s Board. No termination fee is payable in the event of a termination for cause (as defined in the management agreement).
ACR incentive fees (management agreement)
The Company earns an incentive fee calculated and payable in arrears in an amount, not less than zero, equal to the excess of (1) the product of (a) 20% and (b) the excess of (i) Earnings Available for Distribution (“EAD”) (as defined in the management agreement) of ACR for the previous 12-month period, over (ii) the product of (A) ACR’s book value equity in the previous 12-month period, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to the Company with respect to the first three calendar quarters of such previous 12-month period; provided, however, that no incentive compensation shall be payable with respect to any calendar quarter unless EAD for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from September 30, 2022) in the aggregate is greater than zero.
Incentive compensation is calculated and payable quarterly to the Company to the extent it is earned. Up to 75% of the incentive compensation is payable in cash and at least 25% is payable in the form of an award of common stock of ACR. The Company may elect to receive more than 25% of its incentive compensation in common stock. All shares are fully vested upon issuance; however, the Company may not sell such shares for one year after the incentive compensation becomes due and payable unless the management agreement is terminated.
ACR incentive fees (Manager Incentive Plan)
In June 2021, the shareholders of ACR approved the ACR Manager Incentive Plan (“MIP”). The MIP provides for the issuance of ACR equity-based awards to the Company when certain ACR book value targets are met. Such awards vest over four years. The Company initially measures such grants at fair value on the grant date and recognizes income monthly on a straight-line basis over the service period to Incentive fees – related party on the consolidated statements of operations.
Reimbursable Compensation and Benefits
G-11
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
Reimbursable compensation and benefits include reimbursements, at cost, which arise primarily from the services employees of the Company provide pursuant to the ACR management agreement that are charged to ACR. The Company recognizes the revenue for reimbursements when the Company incurs the related reimbursable compensation and benefits and other costs on behalf of ACR.
Other Reimbursable Expenses
Other reimbursable expenses include reimbursements that arise from out-of-pocket expenses and certain other costs incurred by the Company that related directly to ACR’s operations or other reimbursable activity. The Company has determined that it controls the services provided by third parties for ACR and therefore the Company accounts for the cost of these services and the related reimbursement revenue on a gross basis.
Income Taxes
The Company accounts for its income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities by using the enacted tax rates in effect for the year in which differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers material positive and negative evidence, including results of recent operations, income in the carryback period, future reversals of existing taxable temporary differences, tax-planning strategies, and projected future taxable income. A valuation allowance is recorded to the extent the more-likely-than-not threshold is not met. If a valuation allowance is recorded and it is subsequently determined that the Company would be able to realize any portion of its deferred tax assets in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Uncertain tax positions are recorded in accordance with ASC 740 on the basis of a two-step process in which (1) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit.
Investments in Equity Affiliate
The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. The Company elected the fair value option for its equity method investment and determines fair value using the closing price of common shares as of the end of the period. The Company recognizes the unrealized and realized gains and losses on equity investments on the consolidated statements of operations as income from investments in equity affiliate - related party.
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. Based on the impairment tests performed as of October 1, 2025, there were no indications that goodwill was impaired and nor were there events or changes in circumstances indicating impairment at June 30, 2026 and December 31, 2025.
Leases
Arrangements are evaluated to identify leases at inception. The right to use an underlying asset for the lease term is recorded as operating lease right-of-use ("ROU") assets and obligations to make lease payments arising from the lease are recorded as lease liabilities. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company
G-12
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. At the adoption date, the Company made an accounting policy election to exclude leases with an initial term of twelve months or less.
Stock-Based Compensation
Issuances of options to purchase shares of the Company’s common stock are initially measured at fair value on the grant date and expensed monthly on a straight-line basis over the service period to equity compensation expense on the consolidated statements of operations, with a corresponding entry to additional paid-in capital on the consolidated balance sheets. In accordance with GAAP, the fair value of all unvested issuances of restricted stock and options is not remeasured after the initial grant date. The Company accounts for forfeitures of employee awards as they occur. As a result, the Company records compensation cost assuming all option holders will complete the requisite service period. If an employee forfeits an award because they fail to complete the requisite service period, the Company will reverse compensation cost previously recognized in the period the award is forfeited.
Reclassifications
Certain reclassifications have been made to prior year’s financial information to conform to the June 30, 2026 presentation. These reclassifications had no effect on net loss or total equity.
NOTE 3 - CONSOLIDATION
The Company has evaluated its loans, investments in unconsolidated entities, guarantees and other financial contracts in order to determine if they are variable interests in VIEs. The Company regularly monitors these legal interests and contracts and, to the extent it has determined that it has a variable interest, analyzes the related entity for potential consolidation.
Investments in Consolidated Variable Interest Entities
The Company consolidates entities in which the Company has a variable interest and, as the investment manager, has both the power to direct the most significant activities and a potentially significant economic interest. Investments in the consolidated VIEs are reported at fair value and represent the Company’s maximum exposure to loss.
ACRES Holdings, LLC is considered and treated as a VIE because the Company directs the significant activities of the entity and not the holders of equity at risk. The Company concluded its interest in ACRES Holdings, LLC represented a potentially significant economic interest and the Company represented the primary beneficiary of ACRES Holdings, LLC. As a result, the Company consolidated ACRES Holdings, LLC as of July 23, 2025 and it continues to be consolidated as of June 30, 2026 and December 31, 2025.
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 June 30, 2026 and December 31, 2025 and for the three and six months ended June 30, 2026 and 2025.
Investments in Non-Consolidated Variable Interest 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 June 30, 2026. The Company continuously reassesses whether it is deemed to be the primary beneficiary of its unconsolidated VIEs.
The Company completed a qualitative analysis to determine whether it is the primary beneficiary of ACRES SPV LLC, a wholly owned subsidiary of the Company, and determined that it was not the primary beneficiary as of June 30, 2026 and December 31, 2025. ACRES SPV LLC is considered and treated as a VIE due to a lack of sufficient equity. The Company (including related parties) are 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 June 30, 2026 and December 31, 2025. The Company has no investment at risk as of June 30, 2026 and December 31, 2025.
G-13
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
Consolidating Schedules
The following supplemental financial information illustrates the consolidating effects of the Consolidated Fund on the Company’s balance sheet, results from operations and cash flows:
|
|
As of June 30, 2026 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
1,831,859 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,831,859 |
|
Restricted cash |
|
|
837,594 |
|
|
|
— |
|
|
|
— |
|
|
|
837,594 |
|
Goodwill |
|
|
35,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
35,000,000 |
|
Accounts receivable |
|
|
716,426 |
|
|
|
— |
|
|
|
— |
|
|
|
716,426 |
|
Investments in equity affiliates, at fair value - related party |
|
|
127,908,705 |
|
|
|
— |
|
|
|
(107,074,675 |
) |
|
|
20,834,030 |
|
Due from related parties |
|
|
4,799,207 |
|
|
|
— |
|
|
|
(3,101,170 |
) |
|
|
1,698,037 |
|
Right-of-use assets |
|
|
5,471,030 |
|
|
|
— |
|
|
|
— |
|
|
|
5,471,030 |
|
Other assets, net of depreciation |
|
|
1,359,811 |
|
|
|
— |
|
|
|
— |
|
|
|
1,359,811 |
|
Assets of Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments, at fair value |
|
|
— |
|
|
|
2,025,830,311 |
|
|
|
— |
|
|
|
2,025,830,311 |
|
Cash and cash equivalents |
|
|
— |
|
|
|
54,578,489 |
|
|
|
— |
|
|
|
54,578,489 |
|
Restricted cash |
|
|
— |
|
|
|
9,999,992 |
|
|
|
— |
|
|
|
9,999,992 |
|
Accrued interest, servicing receivables and other assets |
|
|
— |
|
|
|
16,089,608 |
|
|
|
— |
|
|
|
16,089,608 |
|
Total assets |
|
$ |
177,924,632 |
|
|
$ |
2,106,498,400 |
|
|
$ |
(110,175,845 |
) |
|
$ |
2,174,247,187 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Borrowings |
|
$ |
147,246,398 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
147,246,398 |
|
Borrowings - related party |
|
|
10,250,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10,250,000 |
|
Accrued interest, accounts payable, and other liabilities |
|
|
5,791,410 |
|
|
|
— |
|
|
|
— |
|
|
|
5,791,410 |
|
Derivative liability |
|
|
24,034,846 |
|
|
|
— |
|
|
|
— |
|
|
|
24,034,846 |
|
Operating lease liabilities |
|
|
6,177,369 |
|
|
|
— |
|
|
|
— |
|
|
|
6,177,369 |
|
Liabilities of Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Borrowings |
|
|
— |
|
|
|
1,268,252,935 |
|
|
|
— |
|
|
|
1,268,252,935 |
|
Accrued interest, accounts payable and other liabilities |
|
|
— |
|
|
|
26,401,349 |
|
|
|
— |
|
|
|
26,401,349 |
|
Due to related party |
|
|
— |
|
|
|
3,101,170 |
|
|
|
(3,101,170 |
) |
|
|
— |
|
Total liabilities |
|
|
193,500,023 |
|
|
|
1,297,755,454 |
|
|
|
(3,101,170 |
) |
|
|
1,488,154,307 |
|
REDEEMABLE INTEREST IN CONSOLIDATED COMPANY ENTITIES |
|
|
36,279,758 |
|
|
|
— |
|
|
|
— |
|
|
|
36,279,758 |
|
NON-CONTROLLING INTEREST IN CONSOLIDATED FUND |
|
|
— |
|
|
|
808,742,946 |
|
|
|
(107,074,675 |
) |
|
|
701,668,271 |
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock, $0.0001 par value; 3,000,000 shares authorized and 2,539,481 shares outstanding at June 30, 2026 |
|
|
255 |
|
|
|
— |
|
|
|
— |
|
|
|
255 |
|
Additional paid-in capital |
|
|
17,769,351 |
|
|
|
— |
|
|
|
— |
|
|
|
17,769,351 |
|
Accumulated deficit |
|
|
(69,624,755 |
) |
|
|
— |
|
|
|
— |
|
|
|
(69,624,755 |
) |
TOTAL STOCKHOLDERS' DEFICIT |
|
|
(51,855,149 |
) |
|
|
— |
|
|
|
— |
|
|
|
(51,855,149 |
) |
TOTAL EQUITY |
|
|
(51,855,149 |
) |
|
|
808,742,946 |
|
|
|
(107,074,675 |
) |
|
|
649,813,122 |
|
TOTAL LIABILITIES, NON-CONTROLLING INTEREST AND EQUITY |
|
$ |
177,924,632 |
|
|
$ |
2,106,498,400 |
|
|
$ |
(110,175,845 |
) |
|
$ |
2,174,247,187 |
|
G-14
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
As of December 31, 2025 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
5,438,038 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,438,038 |
|
Restricted cash |
|
|
1,313,332 |
|
|
|
— |
|
|
|
— |
|
|
|
1,313,332 |
|
Goodwill |
|
|
35,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
35,000,000 |
|
Accounts receivable |
|
|
803,840 |
|
|
|
— |
|
|
|
— |
|
|
|
803,840 |
|
Investments in equity affiliate, at fair value - related party |
|
|
121,295,369 |
|
|
|
— |
|
|
|
(106,999,338 |
) |
|
|
14,296,031 |
|
Due from related parties |
|
|
4,899,486 |
|
|
|
— |
|
|
|
(3,014,787 |
) |
|
|
1,884,699 |
|
Right-of-use assets |
|
|
6,971,903 |
|
|
|
— |
|
|
|
— |
|
|
|
6,971,903 |
|
Other assets, net of depreciation |
|
|
1,150,067 |
|
|
|
— |
|
|
|
— |
|
|
|
1,150,067 |
|
Assets of Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments, at fair value |
|
|
— |
|
|
|
2,016,918,819 |
|
|
|
— |
|
|
|
2,016,918,819 |
|
Cash and cash equivalents |
|
|
— |
|
|
|
17,824,819 |
|
|
|
— |
|
|
|
17,824,819 |
|
Restricted cash |
|
|
— |
|
|
|
28,478,347 |
|
|
|
— |
|
|
|
28,478,347 |
|
Accrued interest, servicing receivables and other assets |
|
|
— |
|
|
|
38,509,145 |
|
|
|
— |
|
|
|
38,509,145 |
|
Total assets |
|
$ |
176,872,035 |
|
|
$ |
2,101,731,130 |
|
|
$ |
(110,014,125 |
) |
|
$ |
2,168,589,040 |
|
LIABILITIES (2) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Borrowings |
|
$ |
147,319,367 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
147,319,367 |
|
Borrowings - related party |
|
|
10,375,000 |
|
|
|
— |
|
|
|
— |
|
|
|
10,375,000 |
|
Accrued interest, accounts payable, and other liabilities |
|
|
5,605,251 |
|
|
|
— |
|
|
|
— |
|
|
|
5,605,251 |
|
Derivative liabilities |
|
|
9,240,299 |
|
|
|
— |
|
|
|
— |
|
|
|
9,240,299 |
|
Operating lease liabilities |
|
|
7,756,825 |
|
|
|
— |
|
|
|
— |
|
|
|
7,756,825 |
|
Liabilities of Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Borrowings |
|
|
— |
|
|
|
1,283,957,379 |
|
|
|
— |
|
|
|
1,283,957,379 |
|
Accrued interest, accounts payable and other liabilities |
|
|
— |
|
|
|
31,370,008 |
|
|
|
— |
|
|
|
31,370,008 |
|
Due to related party |
|
|
— |
|
|
|
3,014,787 |
|
|
|
(3,014,787 |
) |
|
|
— |
|
Total liabilities |
|
|
180,296,742 |
|
|
|
1,318,342,174 |
|
|
|
(3,014,787 |
) |
|
|
1,495,624,129 |
|
REDEEMABLE INTEREST IN CONSOLIDATED COMPANY ENTITIES |
|
|
33,960,107 |
|
|
|
— |
|
|
|
— |
|
|
|
33,960,107 |
|
NON-CONTROLLING INTERESTS IN CONSOLIDATED FUND (3) |
|
|
|
|
|
783,388,956 |
|
|
|
(106,999,338 |
) |
|
|
676,389,618 |
|
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock, $0.0001 par value; 3,000,000 shares authorized and 1,695,731 shares outstanding at December 31, 2025 |
|
|
170 |
|
|
|
— |
|
|
|
— |
|
|
|
170 |
|
Additional paid-in capital |
|
|
10,178,636 |
|
|
|
— |
|
|
|
— |
|
|
|
10,178,636 |
|
Accumulated deficit |
|
|
(47,563,620 |
) |
|
|
— |
|
|
|
— |
|
|
|
(47,563,620 |
) |
TOTAL STOCKHOLDERS' DEFICIT |
|
|
(37,384,814 |
) |
|
|
— |
|
|
|
— |
|
|
|
(37,384,814 |
) |
TOTAL EQUITY |
|
|
(37,384,814 |
) |
|
|
783,388,956 |
|
|
|
(106,999,338 |
) |
|
|
639,004,804 |
|
TOTAL LIABILITIES, REDEEMABLE INTEREST, NON-CONTROLLING INTERESTS, AND EQUITY |
|
$ |
176,872,035 |
|
|
$ |
2,101,731,130 |
|
|
$ |
(110,014,125 |
) |
|
$ |
2,168,589,040 |
|
G-15
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
For the Three Months Ended June 30, 2026 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and servicing fees, net |
|
$ |
183,667 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
183,667 |
|
Management and servicing fees, net - related party |
|
|
4,503,360 |
|
|
|
— |
|
|
|
(2,939,546 |
) |
|
|
1,563,814 |
|
Origination fees |
|
|
917,500 |
|
|
|
— |
|
|
|
— |
|
|
|
917,500 |
|
Incentive fees - related party |
|
|
6,198,506 |
|
|
|
— |
|
|
|
— |
|
|
|
6,198,506 |
|
Application fees and other income |
|
|
230,369 |
|
|
|
— |
|
|
|
— |
|
|
|
230,369 |
|
Reimbursable compensation and benefits - related party |
|
|
897,428 |
|
|
|
— |
|
|
|
— |
|
|
|
897,428 |
|
Other reimbursable expenses |
|
|
94,587 |
|
|
|
— |
|
|
|
— |
|
|
|
94,587 |
|
Other reimbursable expenses - related party |
|
|
432,093 |
|
|
|
— |
|
|
|
(151,774 |
) |
|
|
280,319 |
|
Total revenues |
|
|
13,457,510 |
|
|
|
— |
|
|
|
(3,091,320 |
) |
|
|
10,366,190 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
3,616,229 |
|
|
|
— |
|
|
|
— |
|
|
|
3,616,229 |
|
Equity compensation - related party |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
General, administrative and other expenses |
|
|
2,818,251 |
|
|
|
— |
|
|
|
— |
|
|
|
2,818,251 |
|
Interest expense |
|
|
3,063,753 |
|
|
|
— |
|
|
|
— |
|
|
|
3,063,753 |
|
Interest expense - related party |
|
|
77,919 |
|
|
|
— |
|
|
|
— |
|
|
|
77,919 |
|
Other reimbursable expenses |
|
|
94,587 |
|
|
|
— |
|
|
|
— |
|
|
|
94,587 |
|
Other reimbursable expenses - related party |
|
|
432,093 |
|
|
|
— |
|
|
|
(151,774 |
) |
|
|
280,319 |
|
Expenses of Consolidated Fund |
|
|
— |
|
|
|
3,842,345 |
|
|
|
(2,939,546 |
) |
|
|
902,799 |
|
Total operating expenses |
|
|
10,102,832 |
|
|
|
3,842,345 |
|
|
|
(3,091,320 |
) |
|
|
10,853,857 |
|
|
|
|
3,354,678 |
|
|
|
(3,842,345 |
) |
|
|
— |
|
|
|
(487,667 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Income (loss) from investments in equity affiliates - related party |
|
|
1,815,359 |
|
|
|
— |
|
|
|
(2,074,664 |
) |
|
|
(259,305 |
) |
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
— |
|
|
|
7,919,828 |
|
|
|
— |
|
|
|
7,919,828 |
|
Interest income of Consolidated Fund |
|
|
— |
|
|
|
28,950,881 |
|
|
|
— |
|
|
|
28,950,881 |
|
Interest expense of Consolidated Fund |
|
|
— |
|
|
|
(21,262,695 |
) |
|
|
— |
|
|
|
(21,262,695 |
) |
Derivative gain (loss) |
|
|
(17,220,073 |
) |
|
|
— |
|
|
|
— |
|
|
|
(17,220,073 |
) |
Total other income |
|
|
(15,404,714 |
) |
|
|
15,608,014 |
|
|
|
(2,074,664 |
) |
|
|
(1,871,364 |
) |
(LOSS) INCOME BEFORE TAXES |
|
|
(12,050,036 |
) |
|
|
11,765,669 |
|
|
|
(2,074,664 |
) |
|
|
(2,359,031 |
) |
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
NET (LOSS) INCOME |
|
|
(12,050,036 |
) |
|
|
11,765,669 |
|
|
|
(2,074,664 |
) |
|
|
(2,359,031 |
) |
Less: Net income attributable to non-controlling interest in Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
(9,691,005 |
) |
|
|
(9,691,005 |
) |
Less: Net income attributable to redeemable interest in Consolidated Company Entities |
|
|
(1,366,249 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,366,249 |
) |
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHARES |
|
$ |
(13,416,285 |
) |
|
$ |
11,765,669 |
|
|
$ |
(11,765,669 |
) |
|
$ |
(13,416,285 |
) |
G-16
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
For the Six Months Ended June 30, 2026 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and servicing fees, net |
|
$ |
395,183 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
395,183 |
|
Management and servicing fees, net - related party |
|
|
8,914,646 |
|
|
|
— |
|
|
|
(5,791,342 |
) |
|
|
3,123,304 |
|
Origination fees |
|
|
917,500 |
|
|
|
— |
|
|
|
— |
|
|
|
917,500 |
|
Incentive fees - related party |
|
|
6,731,593 |
|
|
|
— |
|
|
|
— |
|
|
|
6,731,593 |
|
Application fees and other income |
|
|
913,920 |
|
|
|
— |
|
|
|
— |
|
|
|
913,920 |
|
Reimbursable compensation and benefits - related party |
|
|
2,082,298 |
|
|
|
— |
|
|
|
— |
|
|
|
2,082,298 |
|
Other reimbursable expenses |
|
|
323,081 |
|
|
|
— |
|
|
|
— |
|
|
|
323,081 |
|
Other reimbursable expenses - related party |
|
|
881,597 |
|
|
|
— |
|
|
|
(331,475 |
) |
|
|
550,122 |
|
Total revenues |
|
|
21,159,818 |
|
|
|
— |
|
|
|
(6,122,817 |
) |
|
|
15,037,001 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
7,875,347 |
|
|
|
— |
|
|
|
— |
|
|
|
7,875,347 |
|
Equity compensation - related party |
|
|
7,240,715 |
|
|
|
— |
|
|
|
— |
|
|
|
7,240,715 |
|
General, administrative and other expenses |
|
|
5,701,603 |
|
|
|
— |
|
|
|
— |
|
|
|
5,701,603 |
|
Interest expense |
|
|
6,093,839 |
|
|
|
— |
|
|
|
— |
|
|
|
6,093,839 |
|
Interest expense - related party |
|
|
155,544 |
|
|
|
— |
|
|
|
— |
|
|
|
155,544 |
|
Other reimbursable expenses |
|
|
323,081 |
|
|
|
— |
|
|
|
— |
|
|
|
323,081 |
|
Other reimbursable expenses - related party |
|
|
881,597 |
|
|
|
— |
|
|
|
(331,475 |
) |
|
|
550,122 |
|
Expenses of Consolidated Fund |
|
|
— |
|
|
|
7,595,411 |
|
|
|
(5,791,342 |
) |
|
|
1,804,069 |
|
Total operating expenses |
|
|
28,271,726 |
|
|
|
7,595,411 |
|
|
|
(6,122,817 |
) |
|
|
29,744,320 |
|
|
|
|
(7,111,908 |
) |
|
|
(7,595,411 |
) |
|
|
— |
|
|
|
(14,707,319 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Income (loss) from investments in equity affiliates - related party |
|
|
2,514,971 |
|
|
|
— |
|
|
|
(4,127,508 |
) |
|
|
(1,612,537 |
) |
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
— |
|
|
|
15,455,180 |
|
|
|
— |
|
|
|
15,455,180 |
|
Interest income of Consolidated Fund |
|
|
— |
|
|
|
60,087,546 |
|
|
|
— |
|
|
|
60,087,546 |
|
Interest expense of Consolidated Fund |
|
|
— |
|
|
|
(44,323,261 |
) |
|
|
— |
|
|
|
(44,323,261 |
) |
Derivative gain (loss) |
|
|
(14,794,547 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14,794,547 |
) |
Total other income |
|
|
(12,279,576 |
) |
|
|
31,219,465 |
|
|
|
(4,127,508 |
) |
|
|
14,812,381 |
|
(LOSS) INCOME BEFORE TAXES |
|
|
(19,391,484 |
) |
|
|
23,624,054 |
|
|
|
(4,127,508 |
) |
|
|
105,062 |
|
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
NET (LOSS) INCOME |
|
|
(19,391,484 |
) |
|
|
23,624,054 |
|
|
|
(4,127,508 |
) |
|
|
105,062 |
|
Less: Net income attributable to non-controlling interest in Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
(19,496,546 |
) |
|
|
(19,496,546 |
) |
Less: Net income attributable to redeemable interest in Consolidated Company Entities |
|
|
(2,669,650 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,669,650 |
) |
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHARES |
|
$ |
(22,061,134 |
) |
|
$ |
23,624,054 |
|
|
$ |
(23,624,054 |
) |
|
$ |
(22,061,134 |
) |
G-17
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
For the Three Months Ended June 30, 2025 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and servicing fees, net |
|
$ |
142,443 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
142,443 |
|
Management and servicing fees, net - related party |
|
|
4,009,745 |
|
|
|
— |
|
|
|
(2,348,856 |
) |
|
|
1,660,889 |
|
Origination fees |
|
|
2,739,200 |
|
|
|
— |
|
|
|
— |
|
|
|
2,739,200 |
|
Incentive fees - related party |
|
|
795,034 |
|
|
|
— |
|
|
|
— |
|
|
|
795,034 |
|
Application fees and other income |
|
|
332,371 |
|
|
|
— |
|
|
|
— |
|
|
|
332,371 |
|
Reimbursable compensation and benefits - related party |
|
|
904,236 |
|
|
|
— |
|
|
|
— |
|
|
|
904,236 |
|
Other reimbursable expenses |
|
|
192,269 |
|
|
|
— |
|
|
|
— |
|
|
|
192,269 |
|
Other reimbursable expenses - related party |
|
|
298,918 |
|
|
|
— |
|
|
|
(121,129 |
) |
|
|
177,789 |
|
Total revenues |
|
|
9,414,216 |
|
|
|
— |
|
|
|
(2,469,985 |
) |
|
|
6,944,231 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
3,193,620 |
|
|
|
— |
|
|
|
— |
|
|
|
3,193,620 |
|
Equity compensation - related party |
|
|
465,955 |
|
|
|
— |
|
|
|
— |
|
|
|
465,955 |
|
General, administrative and other expenses |
|
|
2,741,390 |
|
|
|
— |
|
|
|
— |
|
|
|
2,741,390 |
|
Interest expense |
|
|
5,683,232 |
|
|
|
— |
|
|
|
— |
|
|
|
5,683,232 |
|
Interest expense - related party |
|
|
80,194 |
|
|
|
— |
|
|
|
— |
|
|
|
80,194 |
|
Other reimbursable expenses |
|
|
192,269 |
|
|
|
— |
|
|
|
— |
|
|
|
192,269 |
|
Other reimbursable expenses - related party |
|
|
298,918 |
|
|
|
— |
|
|
|
(121,129 |
) |
|
|
177,789 |
|
Expenses of Consolidated Fund |
|
|
— |
|
|
|
2,951,251 |
|
|
|
(2,348,856 |
) |
|
|
602,395 |
|
Total operating expenses |
|
|
12,655,578 |
|
|
|
2,951,251 |
|
|
|
(2,469,985 |
) |
|
|
13,136,844 |
|
|
|
|
(3,241,362 |
) |
|
|
(2,951,251 |
) |
|
|
— |
|
|
|
(6,192,613 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from investments in equity affiliates - related party |
|
|
777,427 |
|
|
|
— |
|
|
|
(2,042,120 |
) |
|
|
(1,264,693 |
) |
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
— |
|
|
|
(28,985 |
) |
|
|
— |
|
|
|
(28,985 |
) |
Interest income of Consolidated Fund |
|
|
— |
|
|
|
27,792,156 |
|
|
|
— |
|
|
|
27,792,156 |
|
Interest expense of Consolidated Fund |
|
|
— |
|
|
|
(13,739,704 |
) |
|
|
— |
|
|
|
(13,739,704 |
) |
Total other income (expense) |
|
|
777,427 |
|
|
|
14,023,467 |
|
|
|
(2,042,120 |
) |
|
|
12,758,774 |
|
INCOME BEFORE TAXES |
|
|
(2,463,935 |
) |
|
|
11,072,216 |
|
|
|
(2,042,120 |
) |
|
|
6,566,161 |
|
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
NET INCOME |
|
|
(2,463,935 |
) |
|
|
11,072,216 |
|
|
|
(2,042,120 |
) |
|
|
6,566,161 |
|
Less: Net income attributable to non-controlling interest in Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
(9,030,096 |
) |
|
|
(9,030,096 |
) |
NET INCOME ATTRIBUTABLE TO COMMON SHARES |
|
$ |
(2,463,935 |
) |
|
$ |
11,072,216 |
|
|
$ |
(11,072,216 |
) |
|
$ |
(2,463,935 |
) |
G-18
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
For the Six Months Ended June 30, 2025 |
|
|||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
||||
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Management and servicing fees, net |
|
$ |
300,878 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
300,878 |
|
Management and servicing fees, net - related party |
|
|
7,973,826 |
|
|
|
— |
|
|
|
(4,722,358 |
) |
|
|
3,251,468 |
|
Origination fees |
|
|
4,050,856 |
|
|
|
— |
|
|
|
— |
|
|
|
4,050,856 |
|
Incentive fees - related party |
|
|
1,581,330 |
|
|
|
— |
|
|
|
— |
|
|
|
1,581,330 |
|
Application fees and other income |
|
|
504,486 |
|
|
|
— |
|
|
|
— |
|
|
|
504,486 |
|
Reimbursable compensation and benefits - related party |
|
|
2,185,056 |
|
|
|
— |
|
|
|
— |
|
|
|
2,185,056 |
|
Other reimbursable expenses |
|
|
362,705 |
|
|
|
— |
|
|
|
— |
|
|
|
362,705 |
|
Other reimbursable expenses - related party |
|
|
492,393 |
|
|
|
— |
|
|
|
(189,357 |
) |
|
|
303,036 |
|
Total revenues |
|
|
17,451,530 |
|
|
|
— |
|
|
|
(4,911,715 |
) |
|
|
12,539,815 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
6,467,218 |
|
|
|
— |
|
|
|
— |
|
|
|
6,467,218 |
|
Equity compensation - related party |
|
|
890,625 |
|
|
|
— |
|
|
|
— |
|
|
|
890,625 |
|
General, administrative and other expenses |
|
|
4,625,414 |
|
|
|
— |
|
|
|
— |
|
|
|
4,625,414 |
|
Interest expense |
|
|
11,251,307 |
|
|
|
— |
|
|
|
— |
|
|
|
11,251,307 |
|
Interest expense - related party |
|
|
160,069 |
|
|
|
— |
|
|
|
— |
|
|
|
160,069 |
|
Other reimbursable expenses |
|
|
362,705 |
|
|
|
— |
|
|
|
— |
|
|
|
362,705 |
|
Other reimbursable expenses - related party |
|
|
492,393 |
|
|
|
— |
|
|
|
(189,357 |
) |
|
|
303,036 |
|
Expenses of Consolidated Fund |
|
|
— |
|
|
|
5,693,271 |
|
|
|
(4,722,358 |
) |
|
|
970,913 |
|
Total operating expenses |
|
|
24,249,731 |
|
|
|
5,693,271 |
|
|
|
(4,911,715 |
) |
|
|
25,031,287 |
|
|
|
|
(6,798,201 |
) |
|
|
(5,693,271 |
) |
|
|
— |
|
|
|
(12,491,472 |
) |
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from investments in equity affiliates - related party |
|
|
5,240,986 |
|
|
|
— |
|
|
|
(4,043,172 |
) |
|
|
1,197,814 |
|
Net realized and unrealized gains on investments of Consolidated Fund |
|
|
— |
|
|
|
(28,985 |
) |
|
|
— |
|
|
|
(28,985 |
) |
Interest income of Consolidated Fund |
|
|
— |
|
|
|
53,098,250 |
|
|
|
— |
|
|
|
53,098,250 |
|
Interest expense of Consolidated Fund |
|
|
— |
|
|
|
(26,273,947 |
) |
|
|
— |
|
|
|
(26,273,947 |
) |
Total other income (expense) |
|
|
5,240,986 |
|
|
|
26,795,318 |
|
|
|
(4,043,172 |
) |
|
|
27,993,132 |
|
INCOME BEFORE TAXES |
|
|
(1,557,215 |
) |
|
|
21,102,047 |
|
|
|
(4,043,172 |
) |
|
|
15,501,660 |
|
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
NET INCOME |
|
|
(1,557,215 |
) |
|
|
21,102,047 |
|
|
|
(4,043,172 |
) |
|
|
15,501,660 |
|
Less: Net income attributable to non-controlling interest in Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
(17,058,875 |
) |
|
|
(17,058,875 |
) |
NET INCOME ATTRIBUTABLE TO COMMON SHARES |
|
$ |
(1,557,215 |
) |
|
$ |
21,102,047 |
|
|
$ |
(21,102,047 |
) |
|
$ |
(1,557,215 |
) |
G-19
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
For the Six Months Ended June 30, 2026 |
|||||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
(19,391,484 |
) |
|
$ |
23,624,054 |
|
|
$ |
(4,127,508 |
) |
|
$ |
105,062 |
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation |
|
|
59,322 |
|
|
|
— |
|
|
|
— |
|
|
|
59,322 |
|
|
Equity compensation - related party |
|
|
7,240,715 |
|
|
|
— |
|
|
|
— |
|
|
|
7,240,715 |
|
|
Amortization of debt acquisition costs |
|
|
427,031 |
|
|
|
— |
|
|
|
— |
|
|
|
427,031 |
|
|
Income from investments in equity affiliates - related party |
|
|
(2,514,971 |
) |
|
|
— |
|
|
|
4,127,508 |
|
|
|
1,612,537 |
|
|
Derivative loss (gain) |
|
|
14,794,547 |
|
|
|
|
|
|
|
|
|
14,794,547 |
|
|
||
Distributions from equity affiliates - related party |
|
|
4,052,171 |
|
|
|
— |
|
|
|
(4,052,171 |
) |
|
|
— |
|
|
Satisfaction of incentive fees in stock |
|
|
(8,150,536 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,150,536 |
) |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities allocable to controlling and non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|||
Net realized gain from investments |
|
|
— |
|
|
|
(17,529,500 |
) |
|
|
— |
|
|
|
(17,529,500 |
) |
|
Net change in unrealized gains on investments |
|
|
— |
|
|
|
2,074,320 |
|
|
|
— |
|
|
|
2,074,320 |
|
|
Purchase and funding of loan notes, participations and equity interests |
|
|
— |
|
|
|
(172,390,385 |
) |
|
|
— |
|
|
|
(172,390,385 |
) |
|
Sales proceeds and principal payments received on loan notes and participations |
|
|
— |
|
|
|
139,864,692 |
|
|
|
— |
|
|
|
139,864,692 |
|
|
Distribution from investments in equity interests |
|
|
— |
|
|
|
31,065,038 |
|
|
|
— |
|
|
|
31,065,038 |
|
|
Amortization of debt issuance costs |
|
|
— |
|
|
|
3,630,384 |
|
|
|
— |
|
|
|
3,630,384 |
|
|
Deferred fees |
|
|
— |
|
|
|
790,114 |
|
|
|
— |
|
|
|
790,114 |
|
|
Amortization of deferred fees |
|
|
— |
|
|
|
(1,127,959 |
) |
|
|
— |
|
|
|
(1,127,959 |
) |
|
Cash flows due to changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
|
87,414 |
|
|
|
— |
|
|
|
— |
|
|
|
87,414 |
|
|
Other assets, net of depreciation |
|
|
(269,066 |
) |
|
|
— |
|
|
|
— |
|
|
|
(269,066 |
) |
|
Due from related parties |
|
|
100,279 |
|
|
|
— |
|
|
|
86,534 |
|
|
|
186,813 |
|
|
Right-of-use assets |
|
|
1,500,873 |
|
|
|
— |
|
|
|
— |
|
|
|
1,500,873 |
|
|
Operating lease liabilities |
|
|
(1,579,456 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,579,456 |
) |
|
Accrued interest, accounts payable, and other liabilities |
|
|
(461,841 |
) |
|
|
— |
|
|
|
— |
|
|
|
(461,841 |
) |
|
Cash flows due to changes in operating assets and liabilities allocable to controlling and non-controlling interest in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in cash and cash equivalents held at Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
(18,275,315 |
) |
|
|
(18,275,315 |
) |
|
Change in other assets and receivables held at Consolidated Fund |
|
|
— |
|
|
|
22,419,537 |
|
|
|
— |
|
|
|
22,419,537 |
|
|
Change in other liabilities and payables held at Consolidated Fund |
|
|
— |
|
|
|
3,459,912 |
|
|
|
(86,534 |
) |
|
|
3,373,378 |
|
|
Net cash (used in) provided by operating activities |
|
|
(4,105,002 |
) |
|
|
35,880,207 |
|
|
|
(22,327,486 |
) |
|
|
9,447,719 |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Paydowns of credit facilities and notes payable |
|
|
(500,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(500,000 |
) |
|
Paydowns of loan payable - related party |
|
|
(125,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(125,000 |
) |
|
Exercise of stock options |
|
|
648,085 |
|
|
|
|
|
|
|
|
|
648,085 |
|
|
||
Allocable to controlling and non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contributions from non-controlling interests in Consolidated Fund |
|
|
— |
|
|
|
27,437,108 |
|
|
|
— |
|
|
|
27,437,108 |
|
|
Distributions to non-controlling interests in Consolidated Fund |
|
|
— |
|
|
|
(25,707,172 |
) |
|
|
4,052,171 |
|
|
|
(21,655,001 |
) |
|
Borrowings under loan obligations by Consolidated Fund |
|
|
— |
|
|
|
503,111,067 |
|
|
|
— |
|
|
|
503,111,067 |
|
|
Repayments under loan obligations by Consolidated Fund |
|
|
— |
|
|
|
(513,480,633 |
) |
|
|
— |
|
|
|
(513,480,633 |
) |
|
Payment of debt acquisition costs by Consolidated Fund |
|
|
— |
|
|
|
(8,965,262 |
) |
|
|
— |
|
|
|
(8,965,262 |
) |
|
Net cash (used in) provided by financing activities |
|
|
23,085 |
|
|
|
(17,604,892 |
) |
|
|
4,052,171 |
|
|
|
(13,529,636 |
) |
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
(4,081,917 |
) |
|
|
18,275,315 |
|
|
|
(18,275,315 |
) |
|
|
(4,081,917 |
) |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
6,751,370 |
|
|
|
46,303,166 |
|
|
|
(46,303,166 |
) |
|
|
6,751,370 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
$ |
2,669,453 |
|
|
$ |
64,578,481 |
|
|
$ |
(64,578,481 |
) |
|
$ |
2,669,453 |
|
|
G-20
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
For the Six Months Ended June 30, 2025 |
|||||||||||||||
|
|
Consolidated Company Entities |
|
|
Consolidated Fund |
|
|
Eliminations |
|
|
Consolidated |
|
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
(1,557,213 |
) |
|
$ |
21,102,047 |
|
|
$ |
(4,043,172 |
) |
|
$ |
15,501,662 |
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation |
|
|
59,550 |
|
|
|
— |
|
|
|
— |
|
|
|
59,550 |
|
|
Equity compensation - related party |
|
|
890,625 |
|
|
|
— |
|
|
|
— |
|
|
|
890,625 |
|
|
Amortization of debt acquisition costs |
|
|
240,344 |
|
|
|
— |
|
|
|
— |
|
|
|
240,344 |
|
|
Amortization of capitalized mortgage servicing rights |
|
|
81,472 |
|
|
|
— |
|
|
|
— |
|
|
|
81,472 |
|
|
Non-cash interest expense |
|
|
3,795,816 |
|
|
|
— |
|
|
|
— |
|
|
|
3,795,816 |
|
|
Income from investments in equity affiliates -related party |
|
|
(5,240,986 |
) |
|
|
— |
|
|
|
4,043,172 |
|
|
|
(1,197,814 |
) |
|
Distributions from equity affiliates - related party |
|
|
5,736,538 |
|
|
|
— |
|
|
|
(5,736,538 |
) |
|
|
— |
|
|
Satisfaction of incentive fees in stock |
|
|
(3,615,868 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,615,868 |
) |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities allocable to controlling and non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net change in unrealized gains on investments |
|
|
— |
|
|
|
28,985 |
|
|
|
— |
|
|
|
28,985 |
|
|
Purchase and funding of loan notes and participations |
|
|
— |
|
|
|
(265,989,351 |
) |
|
|
— |
|
|
|
(265,989,351 |
) |
|
Sales proceeds and principal payments received on loan notes and participations |
|
|
— |
|
|
|
85,389,152 |
|
|
|
— |
|
|
|
85,389,152 |
|
|
Amortization of debt issuance costs |
|
|
— |
|
|
|
1,815,570 |
|
|
|
— |
|
|
|
1,815,570 |
|
|
Deferred fees |
|
|
— |
|
|
|
1,971,260 |
|
|
|
— |
|
|
|
1,971,260 |
|
|
Amortization of deferred fees |
|
|
— |
|
|
|
(2,515,818 |
) |
|
|
— |
|
|
|
(2,515,818 |
) |
|
Cash flows due to changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
|
(19,615 |
) |
|
|
— |
|
|
|
— |
|
|
|
(19,615 |
) |
|
Other assets, net of depreciation |
|
|
(1,096,199 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,096,199 |
) |
|
Due from related parties |
|
|
1,729,456 |
|
|
|
— |
|
|
|
212,003 |
|
|
|
1,941,459 |
|
|
Right-of-use assets |
|
|
(4,435,444 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,435,444 |
) |
|
Operating lease liabilities |
|
|
4,779,661 |
|
|
|
— |
|
|
|
— |
|
|
|
4,779,661 |
|
|
Accrued interest, accounts payable, and other liabilities |
|
|
2,809,995 |
|
|
|
— |
|
|
|
— |
|
|
|
2,809,995 |
|
|
Cash flows due to changes in operating assets and liabilities allocable to controlling and non-controlling interest in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in cash and cash equivalents held at Consolidated Fund |
|
|
— |
|
|
|
— |
|
|
|
46,591,469 |
|
|
|
46,591,469 |
|
|
Change in other assets and receivables held at Consolidated Fund |
|
|
— |
|
|
|
(2,681,500 |
) |
|
|
|
|
|
(2,681,500 |
) |
|
|
Change in other liabilities and payables held at Consolidated Fund |
|
|
— |
|
|
|
(679,442 |
) |
|
|
(212,003 |
) |
|
|
(891,445 |
) |
|
Net cash provided by (used in) operating activities |
|
|
4,158,132 |
|
|
|
(161,559,098 |
) |
|
|
40,854,931 |
|
|
|
(116,546,035 |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Paydowns of credit facilities and notes payable |
|
|
(150,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(150,000 |
) |
|
Paydowns of loan payable - related party |
|
|
(150,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(150,000 |
) |
|
Allocable to controlling and non-controlling interests in Consolidated Fund: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contributions from non-controlling interests in Consolidated Fund |
|
|
— |
|
|
|
59,284,874 |
|
|
|
— |
|
|
|
59,284,874 |
|
|
Distributions to non-controlling interests in Consolidated Fund |
|
|
— |
|
|
|
(36,778,196 |
) |
|
|
5,736,538 |
|
|
|
(31,041,658 |
) |
|
Borrowings under loan obligations by Consolidated Fund |
|
|
— |
|
|
|
157,601,000 |
|
|
|
— |
|
|
|
157,601,000 |
|
|
Repayments under loan obligations by Consolidated Fund |
|
|
— |
|
|
|
(61,452,000 |
) |
|
|
— |
|
|
|
(61,452,000 |
) |
|
Payment of debt acquisition costs by Consolidated Fund |
|
|
— |
|
|
|
(3,688,049 |
) |
|
|
— |
|
|
|
(3,688,049 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(300,000 |
) |
|
|
114,967,629 |
|
|
|
5,736,538 |
|
|
|
120,404,167 |
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
3,858,132 |
|
|
|
(46,591,469 |
) |
|
|
46,591,469 |
|
|
|
3,858,132 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
|
|
7,217,108 |
|
|
|
57,490,000 |
|
|
|
(57,490,000 |
) |
|
|
7,217,108 |
|
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
|
$ |
11,075,240 |
|
|
$ |
10,898,531 |
|
|
$ |
(10,898,531 |
) |
|
$ |
11,075,240 |
|
|
G-21
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides a reconciliation of cash, cash equivalents and restricted cash on the consolidated balance sheets to the total amount shown on the consolidated statements of cash flows:
|
|
June 30, 2026 |
|
|
June 30, 2025 |
|
||
Cash and cash equivalents |
|
$ |
1,831,859 |
|
|
$ |
8,865,657 |
|
Restricted cash |
|
|
837,594 |
|
|
|
2,209,582 |
|
Total cash, cash equivalents and restricted cash shown on the |
|
$ |
2,669,453 |
|
|
$ |
11,075,239 |
|
The following table summarizes the Company’s supplemental disclosure of cash flow information:
|
|
For the Six Months Ended June 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Supplemental cash flows: |
|
|
|
|
|
|
||
Interest expense paid in cash |
|
$ |
5,796,727 |
|
|
$ |
7,313,212 |
|
Income taxes paid in cash |
|
|
791,427 |
|
|
|
826,622 |
|
Non-cash investing and financing activities include the following: |
|
|
|
|
|
|
||
Purchase of derivative liability |
|
$ |
(10,838,750 |
) |
|
$ |
— |
|
Exercise of stock options |
|
|
10,838,750 |
|
|
|
— |
|
NOTE 5 – RESTRICTED CASH
The Company maintains loan expense deposits collected from prospective borrowers used to offset underwriting expenses associated with originating loans. As of June 30, 2026 and December 31, 2025, loan expense deposits amounted to $0.8 million and $1.3 million, respectively. Loan escrow and expense deposits are segregated in bank accounts held outside of corporate assets and are reflected as restricted cash on the consolidated balance sheets.
The Company is required to maintain certain deposits in escrow for, among other purposes, interest, taxes, insurance, and construction reserves under the underlying mortgage loan agreements serviced by the Company. As of June 30, 2026 and December 31, 2025, the Company held total escrow balances of approximately $0.6 million and $35.8 million, respectively, which are not included on the Company’s consolidated balance sheets. These escrows are maintained in separate accounts at federally insured depository institutions, which may exceed FDIC insured limits.
NOTE 6 – INVESTMENTS OF THE CONSOLIDATED FUND
The following tables summarizes investments held in the Consolidated Fund:
|
|
|
|
June 30, 2026 |
|
|||||
Asset Type |
|
Asset Location |
|
Fair Value |
|
|
Percentage of Total Investments |
|
||
First mortgage loan |
|
|
|
|
|
|
|
|
||
Various |
|
Various |
|
|
1,505,994,434 |
|
|
|
74.3 |
% |
Equity Investments |
|
|
|
|
|
|
|
|
||
ACRES SPE 2025-1 LLC |
|
Various |
|
|
136,139,903 |
|
|
|
6.7 |
% |
Various |
|
Various |
|
|
383,695,974 |
|
|
|
19.0 |
% |
Total investments, at fair value |
|
|
|
$ |
2,025,830,311 |
|
|
|
100.0 |
% |
G-22
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
|
|
December 31, 2025 |
|
|||||
Asset Type |
|
Asset Location |
|
Fair Value |
|
|
Percentage of Total Investments |
|
||
First mortgage loan |
|
|
|
|
|
|
|
|
||
Various |
|
Various |
|
$ |
1,539,203,250 |
|
|
|
76.3 |
% |
Equity Investments |
|
|
|
|
|
|
|
|
||
ACRES SPE 2025-1 LLC |
|
Various |
|
|
127,411,735 |
|
|
|
6.3 |
% |
Various |
|
Various |
|
|
350,303,834 |
|
|
|
17.4 |
% |
Total investments, at fair value |
|
|
|
$ |
2,016,918,819 |
|
|
|
100.0 |
% |
NOTE 7 – INVESTMENTS IN EQUITY AFFILIATE
Investments in equity affiliate - related party are summarized as follows:
|
|
Cost Basis |
|
|
Net Gains (Losses) |
|
|
Fair Value |
|
|||
June 30, 2026 |
|
|
|
|
|
|
|
|
|
|||
ACR (1,171,112 common stock shares) |
|
$ |
16,185,349 |
|
|
$ |
4,648,681 |
|
|
$ |
20,834,030 |
|
December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
ACR (669,917 common stock shares) |
|
$ |
8,034,812 |
|
|
$ |
6,261,219 |
|
|
$ |
14,296,031 |
|
The MIP provides for the issuance of ACR equity-based awards to the Company when each of the following book value targets are met: $21.00, $24.00, $27.00, $30.00, $33.00 and $36.00. Such grants are subject to a four-year vesting period. On June 14, 2021 and May 6, 2022, the $21.00 and $24.00 book value targets, respectively, were met and ACRES Share Holdings, LLC, a wholly owned subsidiary of the Company, was granted 299,999 shares for each of the years ended December 31, 2022 and 2021, which vest 25% for four years, on each anniversary of the issuance date. On May 7, 2024, the $27.00 book value target was met and ACRES Share Holdings, LLC was granted 295,237 shares for the year ended December 31, 2024, which will vest 25% for four years, on each anniversary of the issuance date. On March 5, 2026, the $30.00 book value target was met and ACRES Share Holdings, LLC was granted 204,765 shares for the six months ended June 30, 2026, which will vest 25% for four years, on each anniversary of the issuance date. For each of the three and six months ended June 30, 2026 and 2025, 501,195 shares and 223,810 shares, respectively, of ACR were vested.
Under the ACR management agreement, the Company is entitled to receive incentive compensation, payable quarterly, based on ACR’s performance. No such incentive compensation was earned by the Company for the three and six months ended June 30, 2026 and 2025.
The following table summarizes the Company’s restricted common stock transactions under the MIP and ACR’s management agreement:
|
|
Shares |
|
|
Unvested shares at January 1, 2025 |
|
|
520,240 |
|
Issued |
|
|
— |
|
Vested |
|
|
(223,810 |
) |
Unvested shares at December 31, 2025 |
|
|
296,430 |
|
Issued |
|
|
204,765 |
|
Vested |
|
|
(501,195 |
) |
Unvested shares at June 30, 2026 |
|
|
— |
|
The aggregate market value of the Company’s investment in ACR as of June 30, 2026 and December 31, 2025, based on quoted market prices, was $20.8 million and $14.3 million, respectively. The Company possesses the ability to exercise significant influence, but not control, over the operating and financial policies of ACR and, therefore, accounts for its investment in ACR using the equity method of accounting. The Company elected the fair value option for its equity method investment in ACR and determines the fair value of its equity investment using the closing price of ACR’s common shares as of the end of the period, which was a Level 1 fair value input, and recorded changes in fair value in earnings on the Company’s consolidated statements of operations. The unrealized gains (losses) on the Company’s consolidated statements of operations related to the Company’s investment in ACR was ($0.3) million and ($1.3) million for the three months ended June 30, 2026 and 2025, respectively and ($1.6) million and $1.2 million for the six months ended June 30, 2026 and 2025, respectively. During the three and six months ended June 30, 2026 and 2025, the Company received no distributions from ACR.
G-23
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
The condensed balance sheets for the Company’s unconsolidated investment in equity affiliate are as follows (in thousands):
|
|
June 30, 2026 |
|
|
December 31, 2025 |
|
||
Condensed Balance Sheets: |
|
ACR |
|
|
ACR |
|
||
Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
41,098 |
|
|
$ |
83,768 |
|
Real estate assets |
|
|
2,298,142 |
|
|
|
2,016,821 |
|
Other assets |
|
|
67,438 |
|
|
|
61,775 |
|
Total assets |
|
|
2,406,678 |
|
|
|
2,162,364 |
|
Liabilities: |
|
|
|
|
|
|
||
Notes payable |
|
|
1,783,346 |
|
|
|
1,544,938 |
|
Other liabilities |
|
|
73,101 |
|
|
|
66,834 |
|
Total liabilities |
|
|
1,856,447 |
|
|
|
1,611,772 |
|
Stockholders' equity |
|
|
413,318 |
|
|
|
420,796 |
|
Non-controlling interests |
|
|
136,913 |
|
|
|
129,796 |
|
Total stockholders' equity |
|
|
550,231 |
|
|
|
550,592 |
|
Total liabilities and equity |
|
$ |
2,406,678 |
|
|
$ |
2,162,364 |
|
The condensed statements of operations for the Company’s unconsolidated investments in equity affiliate are as follows (in thousands):
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
||||||||||
|
|
June 30, 2026 |
|
|
June 30, 2025 |
|
|
June 30, 2026 |
|
|
June 30, 2025 |
|
||||
Condensed Statements of Operations: |
|
ACR |
|
|
ACR |
|
|
ACR |
|
|
ACR |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real estate income |
|
$ |
10,430 |
|
|
$ |
13,273 |
|
|
$ |
18,977 |
|
|
$ |
24,639 |
|
Interest income |
|
|
38,400 |
|
|
|
28,831 |
|
|
|
72,760 |
|
|
|
57,557 |
|
Other income |
|
|
31 |
|
|
|
33 |
|
|
|
62 |
|
|
|
66 |
|
Total revenues |
|
|
48,861 |
|
|
|
42,137 |
|
|
|
91,799 |
|
|
|
82,262 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
27,881 |
|
|
|
20,264 |
|
|
|
52,995 |
|
|
|
43,387 |
|
Management and servicing fees - related party |
|
|
1,564 |
|
|
|
1,601 |
|
|
|
3,125 |
|
|
|
3,232 |
|
Equity compensation - related party |
|
|
4,893 |
|
|
|
585 |
|
|
|
5,433 |
|
|
|
1,400 |
|
General and administrative |
|
|
2,722 |
|
|
|
2,736 |
|
|
|
5,758 |
|
|
|
5,895 |
|
Real estate expense |
|
|
10,523 |
|
|
|
13,349 |
|
|
|
20,233 |
|
|
|
26,691 |
|
Other expenses (income) |
|
|
6,812 |
|
|
|
(760 |
) |
|
|
5,864 |
|
|
|
(2,459 |
) |
Total expenses |
|
|
54,395 |
|
|
|
37,775 |
|
|
|
93,408 |
|
|
|
78,146 |
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total other income (expense) |
|
|
512 |
|
|
|
(31 |
) |
|
|
4,116 |
|
|
|
(439 |
) |
Income tax benefit (expense) |
|
|
- |
|
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(83 |
) |
Net income (loss) |
|
$ |
(5,022 |
) |
|
$ |
4,324 |
|
|
$ |
2,506 |
|
|
$ |
3,594 |
|
Net income allocated to preferred shares |
|
|
(5,096 |
) |
|
|
(5,282 |
) |
|
|
(10,210 |
) |
|
|
(10,595 |
) |
Net (income) loss allocable to non-controlling interests, net of taxes |
|
|
(2,401 |
) |
|
|
226 |
|
|
|
(5,838 |
) |
|
|
410 |
|
Net loss allocable to common shares |
|
|
(12,519 |
) |
|
|
(732 |
) |
|
|
(13,542 |
) |
|
|
(6,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Company's share of (loss) income (1) |
|
$ |
(259 |
) |
|
$ |
(1,265 |
) |
|
$ |
(1,613 |
) |
|
$ |
1,198 |
|
NOTE 8 - LEASES
The Company has operating leases for office space and office equipment. The leases have terms that expire between December 2027 and June 2032. The leases on the office space and office equipment contain options for early termination granted to the Company and the lessor. Lease payments are determined as follows:
G-24
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
The following table summarizes the Company’s operating leases:
|
|
June 30, 2026 |
|
|
December 31, 2025 |
|
||
Operating Leases: |
|
|
|
|
|
|
||
Right of use assets |
|
$ |
5,471,030 |
|
|
$ |
6,971,903 |
|
Lease liabilities |
|
|
(6,177,369 |
) |
|
|
(7,756,825 |
) |
Weighted average remaining lease term: |
|
5.71 years |
|
|
6.21 years |
|
||
Weighted average discount rate (1): |
|
|
8.31 |
% |
|
|
8.21 |
% |
(1) The market discount rate is used, when readily determinable, in calculating the present value of lease payments for the operating lease liability. Otherwise, the incremental borrowing rate at the beginning of the period of adoption (January 1, 2022) or on the commencement date is used.
The following table summarizes the Company’s operating lease costs and cash payments during the periods indicated:
|
|
For the Three Months Ended June 30, |
|
|
For the Six Months Ended June 30, |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Lease Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease cost |
|
$ |
312,991 |
|
|
$ |
301,411 |
|
|
$ |
625,982 |
|
|
$ |
557,265 |
|
Short-term lease cost |
|
$ |
3,529 |
|
|
$ |
3,947 |
|
|
$ |
7,058 |
|
|
$ |
7,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other Information: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating cash flows from operating leases |
|
$ |
318,023 |
|
|
$ |
106,526 |
|
|
$ |
636,047 |
|
|
$ |
213,050 |
|
The following table summarizes the Company’s operating leases cash flow obligations on an undiscounted, annual basis:
|
|
Operating Leases |
|
|
Remainder of 2026 |
|
$ |
638,997 |
|
2027 |
|
|
1,287,268 |
|
2028 |
|
|
1,329,372 |
|
2029 |
|
|
1,371,757 |
|
2030 |
|
|
1,410,176 |
|
2031 |
|
|
1,450,775 |
|
Thereafter |
|
|
322,680 |
|
Subtotal |
|
|
7,811,025 |
|
Less: impact of discount |
|
|
(1,633,656 |
) |
Total |
|
$ |
6,177,369 |
|
NOTE 9 - FAIR VALUE
The Company uses valuation techniques that are consistent with the market approach, the income approach and/or the cost approach to measure assets and liabilities that are measured at fair value. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, accounting standards establish a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The fair value hierarchy is as follows:
G-25
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability that a market participant would use.
The following is a description of the valuation methodologies used to measure fair value, as well as the general classification of such instruments pursuant to the fair value hierarchy:
Investments, at fair value. Investments, at fair value, are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value of investments, at fair value, are determined using valuations obtained from a third party that specializes in providing valuations of such financial assets.
Investments in equity affiliate related to ACR. Investments in equity affiliate, at fair value – related party includes ACR common shares held by the Company that are estimated using the closing price of ACR common shares, a Level 1 fair value input, as of the reporting period end date. The Company’s equity method investment in ACR is classified within Level 1 of the valuation hierarchy.
Derivative liabilities. Derivative liabilities are recorded at fair value and classified as Level 3 in the fair value hierarchy. The fair value of derivative liabilities are comprised of the fair value of common stock warrant liabilities and the fair value of embedded derivatives. The fair value of common stock warrant liabilities and embedded derivatives are determined using valuations obtained from a third party that specializes in providing valuations of such financial liabilities. The third party utilized the Black-Scholes-Merton multiple option approach to determine the fair value of the common stock warrant liabilities and the discounted cash flow approach to determine the fair value of the embedded derivatives.
The fair values of the Company’s short-term financial instruments, such as (i) cash and cash equivalents, (ii) restricted cash, (iii) accrued interest, servicing receivables and other assets, (iv) due from related parties, (v) accrued interest, accounts payable and other liabilities, and (vi) due to related parties approximate their carrying values on the consolidated balance sheet due to their terms, liquidity, or short-term nature.
The following tables summarizes financial assets and financial liabilities measured at fair value for the Company and the Consolidated Fund as of June 30, 2026 and December 31, 2025:
|
|
Fair Value Measurements |
|
|||||||||
Financial Instruments of the Company |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
At June 30, 2026 |
|
|
|
|
|
|
|
|
|
|||
Financial assets: |
|
|
|
|
|
|
|
|
|
|||
Equity method investment in ACR |
|
$ |
20,834,030 |
|
|
$ |
— |
|
|
$ |
— |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|||
Derivative liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24,034,846 |
|
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
Financial assets: |
|
|
|
|
|
|
|
|
|
|||
Equity method investment in ACR |
|
$ |
14,296,031 |
|
|
$ |
— |
|
|
$ |
— |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|||
Derivative liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,240,299 |
|
G-26
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
Fair Value Measurements |
|
|||||||||
Financial Instruments of the Consolidated Fund |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
At June 30, 2026 |
|
|
|
|
|
|
|
|
|
|||
Financial assets: |
|
|
|
|
|
|
|
|
|
|||
Investments, at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,025,830,311 |
|
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
Financial assets: |
|
|
|
|
|
|
|
|
|
|||
Investments, at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,016,918,819 |
|
The following tables summarize the quantitative inputs and assumptions used for the Company’s and the Consolidated Fund’s Level 3 measurements as of June 30, 2026:
As of June 30, 2026 |
||||||||||
Level 3 Measurements of the |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Embedded derivatives |
|
$ |
1,630,000 |
|
|
Discounted cash flow |
|
Discount rate |
|
23.53% |
Freestanding warrants |
|
|
22,404,846 |
|
|
Discounted cash flow |
|
Discount rate |
|
15.25% - 16.25% |
As of June 30, 2026 |
||||||||||
Level 3 Measurements of the |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
First mortgage loans |
|
$ |
1,505,994,434 |
|
|
Discounted cash flow |
|
Discount rate |
|
6.73% - 8.53% |
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$0.5 million - $1.1 |
|
Equity investments |
|
|
519,835,877 |
|
|
Discounted cash flow |
|
Discount rate |
|
3.00% - 8.53% |
|
|
|
|
|
|
|
Capitalization rate |
|
4.75% - 7.50% |
|
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$474 / sq. ft. |
|
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$73,453 / key |
|
|
|
|
|
|
Net recovery analysis |
|
Discount yield |
|
22% |
|
|
|
|
|
|
Income capitalization |
|
Capitalization rate |
|
5.00% - 5.75% |
|
The following tables summarize the quantitative inputs and assumptions used for the Consolidated Fund’s Level 3 measurements as of December 31, 2025:
G-27
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
As of December 31, 2025 |
||||||||||
Level 3 Measurements of the |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Embedded derivatives |
|
$ |
1,280,000 |
|
|
Discount cash flow |
|
Discount rate |
|
22.86% |
Freestanding warrants |
|
|
7,960,299 |
|
|
Black-Scholes- |
|
Expected volatility |
|
70.0% |
As of December 31, 2025 |
||||||||||
Level 3 Measurements of the |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
First mortgage loans |
|
$ |
1,539,203,250 |
|
|
Discounted cash flow |
|
Discount rate |
|
6.73% - 8.38% |
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$0.5 million - $1.3 |
|
Equity investments |
|
|
477,715,569 |
|
|
Discounted cash flow |
|
Discount rate |
|
3.60% - 10.25% |
|
|
|
|
|
|
|
Capitalization rate |
|
4.70% - 7.50% |
|
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$473 / sq. ft. |
|
|
|
|
|
|
Comparable sales |
|
Sales price per |
|
$72,267 / key |
|
|
|
|
|
|
Income capitalization |
|
Capitalization rate |
|
5.75% |
|
The following tables set forth a summary of changes in the fair value of the Level 3 measurements:
Level 3 Assets and Liabilities of the Company |
|
Derivative |
|
|
Balance as of December 31, 2025 |
|
$ |
(9,240,299 |
) |
Change in fair value (1) |
|
|
(14,794,547 |
) |
Balance as of June 30, 2026 |
|
$ |
(24,034,846 |
) |
(1) Changes in fair value are included in earnings and relate to financial liabilities.
Level 3 Assets and Liabilities of the Company |
|
Derivative |
|
|
Balance as of December 31, 2024 |
|
$ |
— |
|
Established in connection with equity issuance (see Note 15) |
|
|
(12,324,588 |
) |
Change in fair value (1) |
|
|
3,084,289 |
|
Balance as of December 31, 2025 |
|
$ |
(9,240,299 |
) |
(1) Changes in fair value are included in earnings and relate to financial liabilities.
Level 3 Assets of the Consolidated Fund |
|
Investments, at |
|
|
Balance as of December 31, 2025 |
|
$ |
2,016,918,819 |
|
Purchases (1) |
|
|
172,390,385 |
|
Sales/settlements (2) |
|
|
(178,934,073 |
) |
Realized and unrealized appreciation, net (3) |
|
|
15,455,180 |
|
Balance as of June 30, 2026 |
|
$ |
2,025,830,311 |
|
G-28
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
Level 3 Assets of the Consolidated Fund |
|
Investments, at |
|
|
Balance as of December 31, 2024 |
|
$ |
1,168,593,933 |
|
Purchases (1) |
|
|
1,149,910,966 |
|
Sales/settlements (2) |
|
|
(313,071,796 |
) |
Realized and unrealized appreciation, net (3) |
|
|
11,485,716 |
|
Balance as of December 31, 2025 |
|
$ |
2,016,918,819 |
|
There were no transfers between any of the levels within the fair value hierarchy during the three and six months ended June 30, 2026 and 2025.
NOTE 10 - BORROWINGS
Certain information with respect to the Company’s borrowings is summarized in the following table:
|
|
Principal Outstanding |
|
|
Unamortized Issuance Costs |
|
|
Outstanding Borrowings |
|
|
Borrowing Rate |
|
Maturity |
|||
At June 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
$130 million credit facility |
|
$ |
130,000,000 |
|
|
$ |
(6,086,935 |
) |
|
$ |
123,913,065 |
|
|
8.625% |
|
July 23, 2033 |
$26 million earnout liability |
|
|
23,333,333 |
|
|
|
— |
|
|
|
23,333,333 |
|
|
0% |
|
Until paid in full |
Total |
|
$ |
153,333,333 |
|
|
$ |
(6,086,935 |
) |
|
$ |
147,246,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
$130 million credit facility |
|
$ |
130,000,000 |
|
|
$ |
(6,513,966 |
) |
|
$ |
123,486,034 |
|
|
8.625% |
|
July 23, 2033 |
$26 million earnout liability |
|
|
23,833,333 |
|
|
|
— |
|
|
|
23,833,333 |
|
|
0% |
|
Until paid in full |
Total |
|
$ |
153,833,333 |
|
|
$ |
(6,513,966 |
) |
|
$ |
147,319,367 |
|
|
|
|
|
The Company entered into a credit agreement, dated June 26, 2018, with several investment management firms to provide a maximum credit facility of $140.0 million. On July 1, 2020, this facility was amended to increase the maximum borrowings to $163.0 million. During the period of January 1, 2025 to July 23, 2025, interest was paid on a quarterly basis on the outstanding principal amount of the advances at a rate per annum equal to a cash interest rate ranging from 8.00% to 10.00% depending on certain covenant requirements. The capitalized (paid-in-kind) interest rate ranged from 4.25% to 4.75% depending on certain covenant requirements. For the period of January 1, 2025 to July 23, 2025, total cash interest incurred on advances amounted to $8.3 million. The lenders on the facility were entitled to receive warrants to purchase common stock of the Company as advances were issued under the facility or under anti-dilution protection provisions. As of July 23, 2025, warrants to purchase 190,801 shares of common stock at an exercise price of $0.01 per share and 177,120 shares of common stock at an exercise price of $15.80 per share were outstanding. The credit facility matured on June 26, 2025. On July 23, 2025, the Company entered into the following transactions:
G-29
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
As of June 30, 2026, the Company has fully drawn the $130.0 million credit facility. During the three and six months ended June 30, 2026, interest was paid on a quarterly basis on the outstanding principal amount of the advances at the interest rate of 8.625%. For the three and six months ended June 30, 2026, interest incurred on advances amounted to $2.8 million and $5.6 million, respectively. No interest was payable as of June 30, 2026.
As of June 30, 2026 and December 31, 2025, the earnout liability had an outstanding balance of $23.3 million and $23.8 million, respectively, and is recorded as borrowings on the consolidated balance sheets as of June 30, 2026 and December 31, 2025. The earnout liability does not accrue interest and has no set maturity date.
Borrowings – related party
Related party borrowings are as follows:
|
|
Principal Outstanding |
|
|
Unamortized Issuance Costs |
|
|
Outstanding Borrowings |
|
|
Borrowing Rate |
|
Maturity |
|||
At June 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Loan Payable |
|
$ |
10,250,000 |
|
|
$ |
— |
|
|
$ |
10,250,000 |
|
|
3.00% |
|
July 31, 2026 |
At December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Loan Payable |
|
$ |
10,375,000 |
|
|
$ |
— |
|
|
$ |
10,375,000 |
|
|
3.00% |
|
July 31, 2026 |
In conjunction with the 2020 acquisition of the ACR management agreement, a wholly owned subsidiary of ACR, a related party, provided a $12.0 million loan to the Company (“Loan Payable”). The Loan Payable accrues interest at 3.00% per annum, payable monthly. The monthly amortization payment is $25,000. The Loan Payable matures in July 2026, subject to two one-year extensions, at the Company’s option subject to the payment of a 0.5% extension fee to ACR on the outstanding principal amount of the Loan Payable. For each of the three months ended June 30, 2026 and 2025, the Company recorded interest expense of $0.1 million on the Loan Payable. For each of the six months ended June 30, 2026 and 2025, the Company recorded interest expense of $0.2 million on the Loan Payable. At June 30, 2026 and December 31, 2025, the Loan Payable had an outstanding principal balance of $10.3 million and $10.4 million, respectively. At June 30, 2026, the Loan Payable had less than $0.1 million interest payable. At December 31, 2025, the Loan Payable had no interest payable.
The maturity dates on debt obligations are as follows:
Year Ending December 31, |
|
Outstanding Debt at June 30, 2026 |
|
|
2026 |
|
$ |
10,250,000 |
|
2027 |
|
|
— |
|
2028 |
|
|
— |
|
2029 |
|
|
— |
|
2030 and thereafter |
|
|
153,333,333 |
|
Total |
|
$ |
163,583,333 |
|
As of June 30, 2026 and December 31, 2025, the Company is in compliance with all material covenants contained in the relevant agreements of the Company’s debt obligations.
G-30
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
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 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 June 30, 2026 and December 31, 2025, the Consolidated Fund was in compliance with all covenants under such borrowings.
The Consolidated Fund had the following borrowings outstanding (in thousands):
At June 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 |
|
|
30,000 |
|
|
|
452 |
|
|
|
29,548 |
|
|
|
30,000 |
|
|
1M TERM SOFR + 0.11448% and 1.00% |
|
June 25, 2027 |
|
10.82% |
|
|
210,196 |
|
AMFE Facility |
|
|
369,484 |
|
|
|
15,028 |
|
|
|
354,456 |
|
|
|
369,484 |
|
|
1M TERM SOFR plus range of 1.50% - 3.50% |
|
May 26, 2030 |
|
6.04% |
|
|
686,115 |
|
AMF Levered 3 Facility |
|
|
102,852 |
|
|
|
4,727 |
|
|
|
98,125 |
|
|
|
56,706 |
|
|
1M TERM SOFR plus range of 2.25% - 3.00% |
|
December 18, 2028 |
|
6.13% |
|
|
194,242 |
|
ACRES 2025-FL3 Senior Notes |
|
|
789,720 |
|
|
|
3,596 |
|
|
|
786,124 |
|
|
|
817,442 |
|
|
Class A - 1M TERM SOFR + 1.619% |
|
August 20, 2040 |
|
5.65% |
|
|
920,120 |
|
Total |
|
$ |
1,292,056 |
|
|
$ |
23,803 |
|
|
$ |
1,268,253 |
|
|
$ |
1,273,632 |
|
|
|
|
|
|
|
|
$ |
2,010,673 |
|
At December 31, 2025: |
|
Principal Outstanding |
|
|
Unamortized Issuance Costs and Discounts |
|
|
Outstanding Borrowings |
|
|
Average Borrowings |
|
|
Borrowing Rate |
|
Maturity |
|
Wtd. Avg. Rate |
|
Fair Value of Collateral |
|
|||||
AMFL II First Lien Facility |
|
$ |
209,200 |
|
|
$ |
5,870 |
|
|
$ |
203,330 |
|
|
$ |
187,426 |
|
|
Greater of (i) 1M TERM SOFR or (ii) 1.00%, plus 3.15% |
|
August 21, 2028 |
|
7.55% |
|
$ |
203,330 |
|
AMFL II Junior Facility |
|
|
80,000 |
|
|
|
2,440 |
|
|
|
77,560 |
|
|
|
80,000 |
|
|
Greater of (i) 1M TERM SOFR + 0.11448% or (ii) 1.00%, plus 7.05% |
|
August 21, 2028 |
|
11.59% |
|
|
539,834 |
|
AMFE Facility |
|
|
174,400 |
|
|
|
1,334 |
|
|
|
173,066 |
|
|
|
214,181 |
|
|
1M TERM SOFR + 2.50% |
|
October 2, 2033 |
|
6.88% |
|
|
314,769 |
|
AMF Levered 3 Facility |
|
|
19,225 |
|
|
|
4,030 |
|
|
|
15,195 |
|
|
|
19,812 |
|
|
1M TERM SOFR plus range of 2.25% - 3.00% |
|
December 18, 2028 |
|
6.66% |
|
|
27,464 |
|
ACRES 2025-FL3 Senior Notes |
|
|
819,600 |
|
|
|
4,794 |
|
|
|
814,806 |
|
|
|
819,600 |
|
|
Class A - 1M TERM SOFR + 1.619% |
|
August 20, 2040 |
|
6.18% |
|
|
931,522 |
|
Total |
|
$ |
1,302,425 |
|
|
$ |
18,468 |
|
|
$ |
1,283,957 |
|
|
$ |
1,321,019 |
|
|
|
|
|
|
|
|
$ |
2,016,919 |
|
G-31
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
NOTE 11 - EMPLOYEE BENEFIT PLANS
401k Plan
The Company’s employees participate in the 401(k)-plan sponsored by ACRES Capital LLC. 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 vests immediately. For each of the three months ended June 30, 2026 and 2025, the plan expense for the Company was $0.1 million and is recorded in compensation and benefits on the consolidated statements of operations. For each of the six months ended June 30, 2026 and 2025, the plan expense for the Company was $0.1 million and $0.2 million, respectively, and is recorded in compensation and benefits on the consolidated statements of operations.
Equity Compensation Plan
In June 2018, the Company’s shareholders approved the ACRES Capital Corp. 2018 Equity Incentive Plan (the “Plan”), an equity compensation plan that provides for the issuance of options to purchase shares of common stock of the Company. The options vest on the fourth anniversary and expire on the tenth anniversary of the grant date. In December 2023, the Company’s shareholders approved an amendment to the Plan to increase the number of shares of common stock authorized for issuance by an additional 100,000 shares. In July 2025, as a result of unanimous written consent of the Board of Directors of the Company, the Company increased the number of shares of common stock authorized for issuance by an additional 388,609 shares. The maximum number of shares that may be subject to awards granted under the Plan will be 991,745 shares of common stock.
On March 4, 2026, non-vesting options to purchase 250,000 shares of common stock of the Company were issued at a strike price of $15.00. The Company also modified existing options to purchase 479,750 shares of common stock of the Company to revise the strike price to $15.00 and designate the options as immediately exercisable.
On March 4, 2026, options to purchase 843,750 shares of common stock of the Company were exercised resulting in the issuance of 843,750 shares of common stock of the Company to option holders. In connection with the exercise of the options, the Company provided loans of $11.2 million to existing shareholders and certain members of management of the Company to finance the acquisition of common stock of the Company under option agreements. Such loans were accounted for as stock options. The transactions resulted in the Company recognizing additional equity compensation expense of $7.2 million for the six months ended June 30, 2026. No such loans were provided or transactions occurred for the three months ended June 30, 2026 and for the three and six months ended June 30, 2025.
The Company recognized stock-based compensation expense of $0.5 million during the three months ended June 30, 2025. The Company did not recognize stock-based compensation expense during the three months ended June 30, 2026. The Company recognized stock-based compensation expense of $7.2 million and $0.9 million during the six months ended June 30, 2026 and 2025, respectively, related to stock options.
The following table summarizes the Company’s stock option activity under the Plan:
|
|
Stock Option Shares |
|
|
Weighted average exercise price per share |
|
||
Outstanding at December 31, 2024 |
|
|
566,250 |
|
|
$ |
22.51 |
|
Granted in 2025 |
|
|
37,750 |
|
|
|
44.36 |
|
Forfeited in 2025 |
|
|
(3,250 |
) |
|
|
16.34 |
|
Outstanding at December 31, 2025 |
|
|
600,750 |
|
|
$ |
23.91 |
|
Granted in 2026 |
|
|
250,000 |
|
|
|
15.00 |
|
Exercised in 2026 |
|
|
(843,750 |
) |
|
|
13.61 |
|
Outstanding at June 30, 2026 |
|
|
7,000 |
|
|
$ |
7.14 |
|
|
|
As of June 30, 2026 |
|
|
As of December 31, 2025 |
|
||
Shares exercisable, end of year |
|
|
7,000 |
|
|
|
404,000 |
|
The Company estimates the fair value of each stock option granted on the date of grant using the Black-Scholes-Merton multiple option approach. The following table presents the weighted-average assumptions used in the valuation models:
G-32
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
As of |
|
|
|
|
June 30, 2026 |
|
|
Expected volatility |
|
|
75.00 |
% |
Expected life (in years) |
|
|
6.39 |
|
Risk-free interest rate |
|
|
3.77 |
% |
The weighted-average fair value of options at their grant date was $15.00 and $21.26 for 2026 and 2025, respectively.
The following table summarizes information about stock options outstanding and exercisable at June 30, 2026:
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||
Exercise price per share |
|
|
Stock Option Shares |
|
|
Weighted-average remaining contractual life (Years) |
|
|
Stock Option shares exercisable |
|
||||
$ |
2.00 |
|
|
|
5,000 |
|
|
|
2.7 |
|
|
|
5,000 |
|
$ |
20.00 |
|
|
|
2,000 |
|
|
|
5.8 |
|
|
|
2,000 |
|
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company may become involved in litigation on various matters due to the nature of its 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 financial statements at June 30, 2026.
Purchase Obligations
The Company entered into a takeout commitment and agreement with an affiliate of the lender on the Company’s $130.0 million credit facility whereby the Company, or an affiliate of the Company, commits to purchase loans that were previously brokered by an affiliate of the Company and originated by an affiliate of the lender. The Company, or an affiliate of the Company, may be required to purchase such loans at specified dates subsequent to the closing date of the loan. For the year ended December 31, 2025, the lender originated loans with total commitments of $662.2 million that were brokered by an affiliate of the Company. No such activity occurred for the three and six months ended June 30, 2026. For the year ended December 31, 2025, the Consolidated Fund purchased $712.6 million of such loans, based on commitments, from the affiliate of the lender. For the three and six months ended June 30, 2026, the Consolidated Fund purchased $139.8 million and $190.2 million, respectively, of such loans, based on commitments, from the affiliate of the lender. As of June 30, 2026 and December 31, 2025, the Company had no commitments to purchase loans that were previously brokered by an affiliate of the Company and originated by an affiliate of the lender. The takeout commitment and agreement was terminated on December 19, 2025.
NOTE 13 - INCOME TAXES
The Company recorded a full valuation allowance against its net deferred tax assets at June 30, 2026, as the Company believes it is more likely than not that the deferred tax assets will not be realized.
NOTE 14 - RELATED PARTY TRANSACTIONS
Due from Related Parties
The Company has the following receivables from related parties which are recorded as due from related parties on the consolidated balance sheets:
|
|
June 30, 2026 |
|
|
December 31, 2025 |
|
||
|
|
|
|
|
|
|
||
Due from ACRES Commercial Realty Corp. (1) |
|
$ |
1,698,037 |
|
|
$ |
1,884,699 |
|
Total |
|
$ |
1,698,037 |
|
|
$ |
1,884,699 |
|
G-33
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
The Company recorded $1.6 million and $3.1 million for the three and six months ended June 30, 2026 and $1.6 million and $3.2 million for the three and six months ended June 30, 2025, respectively, of management fees in management and servicing fees on the consolidated statements of operations. At June 30, 2026, $0.5 million of management fees are recorded as due from related parties on the consolidated balance sheets. There were no management fees due as of December 31, 2025.
The Company recorded $0.9 million and $2.1 million for the three and six months ended June 30, 2026 and $0.9 million and $2.2 million for the three and six months ended June 30, 2025, respectively, of reimbursable compensation and benefits in reimbursable compensation and benefits - related party on the consolidated statements of operations. The Company recorded $0.3 million and $0.5 million for the three and six months ended June 30, 2026 and $0.2 million and $0.3 million for the three and six months ended June 30, 2025, respectively, of other reimbursable expenses - related party in other reimbursable expenses on the consolidated statements of operations. At June 30, 2026 and December 31, 2025, $1.2 million and $0.5 million, respectively, of reimbursable expenses paid by the Company on behalf of ACR are recorded as due from related parties on the consolidated balance sheets.
The Company recorded $6.2 million and $6.7 million for the three and six months ended June 30, 2026 and $0.8 million and $1.6 million for the three and six months ended June 30, 2025, respectively, of incentive fees in incentive fees – related party on the consolidated statements of operations. At December 31, 2025, $1.4 million of incentive fees are recorded as due from related parties on the consolidated balance sheets. There were no incentive fees due as of June 30, 2026.
The Company earns fees which are eliminated in consolidation for performing certain asset management and loan servicing functions on behalf of AMF. The Company earned $2.9 million and $5.8 million for three and six months ended June 30, 2026 and $2.3 million and $4.7 million for three and six months ended June 30, 2025 of such fees in management and servicing fees which are eliminated in consolidation.
ACRES Insurance Agency, LLC (“AIA”) is a wholly owned subsidiary of the Company. AIA receives referral fees for promoting and marketing insurance products and services to borrowers and sponsors under investments held directly, or indirectly, by AMF and ACR. The Company earned $0.1 million and $0.2 million for the three and six months ended June 30, 2026, respectively of such fees on the consolidated statement of operations. No such fees were earned by AIA for the three and six months ended June 30, 2025.
Borrowings – related party
In 2020, in conjunction with the closing of the acquisition of the ACR management agreement, a wholly owned subsidiary of ACR, a related party, provided a $12.0 million loan to the Company. See Note 10.
Other Related Party Transactions
ACRES Capital Servicing LLC, a wholly owned subsidiary of the Company, serves as the portfolio servicer for ACR’s $250.0 million loan and servicing agreement with an insurance company and other lenders. During the three and six months ended June 30, 2026 and 2025, ACRES Capital Servicing LLC earned no portfolio servicing fees.
ACRES Capital Servicing LLC also served as special servicer of commercial real estate debt securitizations ACR 2021-FL1 and ACR 2021-FL2 prior to their liquidation in March 2025. In February 2026, ACR closed the 2026-FL4 securitization transaction and ACRES Capital Servicing LLC serves as special servicer. During the six months ended June 30, 2025, ACRES Capital Servicing LLC earned $0.2 million in special servicing fees recorded in management and servicing fees – related party on the consolidated statements of operations. No such fees were earned during the three and six months ended June 30, 2026 and the three months ended June 30, 2025.
G-34
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
ACRES Collateral Manager, LLC, a wholly owned subsidiary of the Company, 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, ACR closed the 2026-FL4 securitization transaction and ACRES Collateral Manager, LLC serves as collateral manager, a role for which it waived its fee.
The Company has equity investments in ACR (see Note 7).
NOTE 15 – REDEEMABLE INTEREST
Redeemable interest in the Company represents preferred equity securities issued by a subsidiary of the Company to a third party and is presented at the redemption amount within temporary equity within the consolidated balance sheets. The following table summarizes the activities associated with the redeemable interest:
|
|
Total |
|
|
Balance as of December 31, 2025 |
|
$ |
33,960,107 |
|
Accretion of redeemable interest to redemption value |
|
|
(350,000 |
) |
Net income attributable to redeemable interest |
|
|
2,669,650 |
|
Balance as of June 30, 2026 |
|
$ |
36,279,757 |
|
|
|
Total |
|
|
Balance as of December 31, 2024 |
|
$ |
— |
|
Gross proceeds from subsidiary’s issuance of preferred equity securities |
|
|
33,000,000 |
|
Issuance costs |
|
|
(2,194,971 |
) |
Reclassification of derivative liabilities |
|
|
(12,324,588 |
) |
Accretion of redeemable interest to redemption value |
|
|
13,239,559 |
|
Net income attributable to redeemable interest |
|
|
2,240,107 |
|
Balance as of December 31, 2025 |
|
$ |
33,960,107 |
|
NOTE 16 - DERIVATIVE INSTRUMENTS
The Company recognizes derivative instruments as either assets or liabilities on the balance sheet and measures them at fair value in accordance with applicable accounting guidance. The Company evaluates its financing arrangements to determine whether certain arrangements contain features that qualify as embedded derivatives requiring bifurcation in accordance with ASC 815. Embedded derivatives that are required to be bifurcated from the host instrument or arrangement are accounted for and valued as separate financial instruments.
The Company’s derivative liabilities consists of freestanding warrants and certain embedded features that are not clearly and closely related to the host instrument to be bifurcated and recorded at the fair value as derivative liabilities.
The fair value of derivative liabilities are measured at each reporting date, with changes in fair value recorded in the consolidated statements of operations as a derivative gain (loss). The Company engaged an independent financial advisory firm to estimate the fair value of derivative liabilities using valuation methodologies that incorporate both observable and unobservable inputs.
As of June 30, 2026, the fair value of derivative liabilities are $24.0 million as compared to $9.2 million as of December 31, 2025. For the three and six months ended June 30, 2026, the Company recognized a loss of $17.2 million and $14.8 million, respectively, related to the change in fair value of derivative liabilities.
The following table summarizes the activities associated with the derivative liabilities:
|
|
Embedded Derivatives |
|
|
Freestanding Warrants |
|
|
Total |
|
|||
Balance as of December 31, 2025 |
|
$ |
1,280,000 |
|
|
$ |
7,960,299 |
|
|
$ |
9,240,299 |
|
Derivative loss (gain) |
|
|
350,000 |
|
|
|
14,444,547 |
|
|
|
14,794,547 |
|
Balance as of June 30, 2026 |
|
$ |
1,630,000 |
|
|
$ |
22,404,846 |
|
|
$ |
24,034,846 |
|
G-35
ACRES CAPITAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2026
(unaudited)
|
|
Embedded Derivatives |
|
|
Freestanding Warrants |
|
|
Total |
|
|||
Balance as of December 31, 2024 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Fair value of derivative liabilities at issuance as of July 23, 2025 |
|
|
1,410,000 |
|
|
|
10,914,588 |
|
|
|
12,324,588 |
|
Derivative gain |
|
|
(130,000 |
) |
|
|
(2,954,289 |
) |
|
|
(3,084,289 |
) |
Balance as of December 31, 2025 |
|
$ |
1,280,000 |
|
|
$ |
7,960,299 |
|
|
$ |
9,240,299 |
|
The following tables summarize the quantitative inputs and assumptions used for the Company’s Level 3 measurements of derivative liabilities as of July 23, 2025 (initial date of recognition):
As of July 23, 2025 |
||||||||||
Level 3 Measurements of the Company |
|
Fair Value |
|
|
Valuation Techniques |
|
Unobservable Inputs |
|
Range (Weighted Average) |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Embedded derivatives |
|
$ |
1,410,000 |
|
|
Discount cash flow |
|
Discount rate |
|
23.59% |
Freestanding warrants |
|
|
10,914,588 |
|
|
Black-Scholes-Merton multiple option approach |
|
Expected volatility |
|
70.0% |
NOTE 17 - SUBSEQUENT EVENTS
The Company has evaluated events and transactions subsequent to the balance sheet date through August 4, 2026, the date the financial statements were available to be issued and determined that there have not been any events that have occurred that would require adjustments to or disclosures in the consolidated financial statements except for those referenced below.
On July 31, 2026, a wholly owned subsidiary of ACR entered into a letter agreement with the Company (the “Letter Agreement”) in connection with the $12.0 million Loan Payable. The Letter Agreement extended the maturity date of the Loan Payable to August 30, 2026 and waived the extension fee.
G-36
Exhibit 99.3
ACRES COMMERCIAL REALTY CORP.
ANNOUNCES COMPLETION OF MERGER, INTERNALIZATION AND PRIVATE NOTES OFFERING
Completion of Merger and Internalization
Uniondale, NY, August 6, 2026 -- ACRES Commercial Realty Corp. (NYSE: ACR) (the “ACR” or “Company”) announced today that it has completed its previously disclosed acquisition of ACRES Capital Corp. (“ACC”) in an all-stock transaction (the “Merger”) and transitioned from an externally-managed REIT to an internally-managed REIT (the “Internalization”). Upon closing of the Merger and Internalization, the Company issued approximately 7.5 million shares of ACR common stock to ACC stockholders as merger consideration and terminated the existing Management Agreement. The net increase in ACR common shares outstanding is approximately 6.3 million shares after giving effect to the elimination of ACR shares held by ACC in consolidation.
"The entire ACRES team is excited to have completed this transaction. Collectively, we will own over forty percent of ACR common shares and are highly motivated to drive value for all stakeholders. We believe this combination will enable the company to continue to meet the needs of our customers as they turn to ACRES for capital and service. We look forward to the next phase of growth for the company." said Andrew Fentress Chairman of the Board and Mark Fogel President of ACRES Commercial Realty Corp.
Private Offering of Senior Secured Notes
The Company also announced today that it has completed a private placement of $200 million of 8.625% Senior Secured Notes due 2031 (the “Notes”), pursuant to a Note Purchase Agreement between the Company, the Purchasers party thereto and UMB Bank, N.A. (the “Collateral Agent”). The Company intends to use a portion of the proceeds from the sale of the Notes to repay in full its $150 million of 5.75% Senior Unsecured Notes upon their maturity in August 2026, with the remaining portion used for general corporate purposes.
The Notes will mature on July 31, 2031 and will be secured on a first lien basis by the pledge of certain capital stock in its subsidiaries, residual equity interests in securitized financing vehicles and certain other CRE assets (the “Collateral”), and guaranteed by certain subsidiaries of the Company that granted security interests in the Collateral in favor of the Collateral Agent.
"We are pleased to announce the successful completion of this refinancing with Raymond James who has been a trusted advisor and partner since our acquisition of the ACR contract six years ago." said Andrew Fentress Chairman of the Board and Mark Fogel President of ACRES Commercial Realty Corp.
About ACRES Commercial Realty Corp.
ACRES Commercial Realty Corp. is a public commercial mortgage REIT that is primarily focused on originating, holding and managing commercial real estate mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. The Company is dedicated to nationwide middle market lending with a focus on multifamily, student housing, hospitality, industrial and office properties in top U.S. markets. For more information, please visit the Company’s website at www.acresreit.com or contact investor relations at IR@acresreit.com.
Forward-Looking Statements
This press release 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,” “trend,” “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 can affect future results are discussed in the documents filed by the Company from time to time with U.S. Securities and Exchange Commission (the “SEC”). These risks and uncertainties include, but are not limited to, risks and uncertainties relating to the Company’s ability to successfully manage the transition to self-management and the ability to achieve expected cost savings or other benefits of the Internalization and the timing thereof; unanticipated expenditures relating to or liabilities arising from the internalization; litigation or regulatory issues relating to the Internalization; the impact of the Internalization on the Company’s common stock dividend, and the impact of the Internalization on relationships with, and potential difficulties retaining, the Company’s executive officers, employees and directors on a go-forward basis. The foregoing list of factors is not exhaustive. Accordingly, you should not place undue reliance on any forward-looking statements contained herein. For a discussion of some of the risks and important factors that could affect such forward-looking statements, please refer to the Company’s most recent annual and quarterly reports and other filings filed with the SEC, which are available on the Company’s website (www.acresreit.com). The Company undertakes no obligation to update or revise any forward-looking statement to reflect new or changing information or events after the date hereof or to reflect the occurrence of unanticipated events, except as may be required by law.