Please standby. Your program is about to begin. Good day, ladies and gentlemen. And welcome to the Fourth Quarter 2024 ACRES Commercial Realty Corp. earnings conference call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session, with instructions to follow at that time. If anyone requires assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brengel, Vice President, Operations. You may begin. Good morning, and thank you for joining our call.

Good morning, and thank you for joining our call. I would like to highlight that we have posted the Fourth Quarter 2024 earnings presentation to our website. This presentation contains summary and detailed information about the quarterly results of the company. Before we begin, I want to remind everyone that certain statements made during this call are not based on historical information and may constitute forward-looking statements. When used in this conference call, the words believes, anticipates, expects and similar expressions are intended to identify forward-looking statements. Although the company believes that these forward-looking statements are based on reasonable assumptions, such statements are based on management's current expectations and beliefs and are subject to several trends, risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of its Form 10-K. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures may be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles are contained in the earnings presentation for the past quarter. With me on the call today are Mark Fogel, President and CEO, and Eldron Blackwell, ACRES CFO. Also available for Q&A is Andrew Fentress, Chairman of ACRES. I will now turn the call over to Mark.

Good morning, everyone, and thank you for joining our call. Today, I will provide an overview of our loan operations, real estate investments, and the health of the investment portfolio. Eldron Blackwell will discuss the financial statements, liquidity condition, book value, and operating results for the Fourth Quarter 2024. Of course, we look forward to your questions at the end of our prepared remarks. The ACRES team continues to execute on our business plan by developing a pipeline of high-quality investments, actively managing the portfolio, and continuing to focus on growing earnings and book value for our shareholders. Loan payoffs during the period were $107.5 million. We closed one new commitment of $47.9 million, an unfunded commitment of $28.4 million, and funded existing loan commitments during the quarter of $6.2 million, producing a net reduction of the loan portfolio of $81.8 million. The weighted average spread of the floating rate loans in our $1.5 billion commercial real estate loan portfolio is now 3.73% over one-month term SOFR rates. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. The company ended the quarter with $1.5 billion of commercial real estate loans across fifty-three individual investments and one loan held for sale at $11.1 million. At December 31st, our weighted average risk rating was 2.9, an increase from 2.7 at September 30th, and there were twelve loans rated four or five, which represented 27% of the par value of our portfolio, an increase of 4% as compared to the end of the Third Quarter 2024. Subsequent to December 31st, a four-rated loan with a principal balance of $30 million paid off at par, bringing our four or five rated loans to approximately 25% of the par value of our portfolio and our weighted average risk rating to 2.8 on a pro forma basis. We continue to manage several investments in real estate that we expect to monetize at gains in the future. These anticipated gains will be offset by deferred tax assets, and we expect to retain the equity and reinvest potential gains into our loan portfolio. One of those investments, an office property in Pennsylvania, was sold during the period for a gain of $7.5 million. In January, we sold a loan on an underperforming hotel in Orlando that was risk-rated four at 94% of our basis. We've already recorded the impact on book value at December 31st, and we will have a charge-off to EAD of $700,000 in the first quarter. The sale will allow us to redeploy the capital into new loans. Our student housing development at Florida State University opened in August 2024 at 95% occupancy. Preleasing for the 2025-2026 school year has been tracking well ahead of the current year in terms of both occupancy and rental rates. One asset's preleasing is approximately 20% higher as compared to this time last year, while another asset is seeing near double-digit rent growth compared to 2024-2025. We are working with our partner to sell the asset and will provide updates in future quarters on the monetization of this asset. As we exit our real estate investments, we expect to redeploy the capital into our CRE loan book and look to increase our levered returns on the portfolio. Along those lines, we are working on the liquidation of our two CRE securitizations structured in 2021. The leverage profile on an aggregate basis declined to 77% at December 31st. We look to refinance the assets in the first quarter. We have $2.3 million of unamortized debt issuance cost as of December 31st and will incur a charge with the acceleration. In summary, the ACRES team continues to be focused on the overall quality of the investment portfolio, including investments in real estate, with the goal of improving credit quality and recycling capital into performing categories. We will now have ACRES CFO, Eldron Blackwell, discuss the financial statements and operating results during the Fourth Quarter.

Thank you, and good morning, everyone. GAAP net income allocable to common shares in the Fourth Quarter was $4.1 million or $0.52 per share diluted. GAAP net income for the quarter included $8.6 million in net interest income, a net loss on real estate operations of $2.3 million, which included depreciation of $1.4 million, and as Mark previously mentioned, a gain of $7.5 million or $0.95 resulting from the sale of our interest in a real estate property. We saw a decrease in current expected credit losses or CECL reserves of $1.2 million or $0.15 per share as compared to a decrease in CECL reserves during the Third Quarter of $291,000. The $1.2 million Fourth Quarter reversal of CECL reserves was primarily driven by loan payoffs and improvements in expected macroeconomic factors, offset by an increase in model credit risk resulting from worsening property level performance on certain loans and a direct charge-off of $700,000 to the reserve related to the Orlando hotel loan Mark previously discussed, which was sold in the First Quarter of 2025. The total balance for credit losses at December 31st was $32.8 million and represented 2.2% or 220 basis points on our $1.5 billion loan portfolio at par and comprised $4.7 million in specific reserves, and $28.1 million in general credit reserves. Earnings available for distribution or EAD for the Fourth Quarter 2024 was $0.48 per share as compared to $0.24 per share for the Third Quarter. The difference primarily resulted from a $0.67 increase to EAD from the previously mentioned gain on sale property and was offset by a $0.24 decrease in net interest income driven by loan payoffs and a decline in FAR, a $0.15 decrease in real estate operation, and a $0.03 increase in operating GAAP book value per share was $28.87 on December 31st, versus $27.92 on September 30th. During the Fourth Quarter, we purchased $2.3 million from our previous repurchase plan and our board approved an additional $5 million on our buyback program. In total, we used $2.5 million to repurchase 155,000 common shares at an approximate 43% discount to book value on December 31st. There was approximately $4.8 million remaining on the board-approved program at year-end.

Available liquidity at December 31st was $76.9 million, which comprised $56.7 million of unrestricted cash and $20.2 million of projected financing available on unlevered assets. Our GAAP debt to equity leverage ratio slightly decreased to three times at December 31st from 3.3 times at September 30th, primarily as a result of payoffs and our two remaining CRE securitizations. And our recourse debt leverage ratio remained consistent. At the end of Q4, the company's net operating loss carry forward was $32.1 million or approximately $4.31 per share. As Mark indicated, we will have some one-time charge events in the First Quarter 2025. As we transact on some of our assets, refinance our delevered CLOs, and begin to reinvest the proceeds into our CRE loan book, we expect to see our EAD profile trend up from a low point in the early part of 2025. With that, I will turn the call to Andrew Fentress for closing remarks.

Thank you, Eldron.

We are at an important inflection point in the management strategy for the company. As discussed, we are actively monetizing the equity investments made to utilize the net operating loss inherited when we took over management in August of 2020. We expect to redeploy that equity capital into a loan book through active origination activity. We also expect to re-leverage the portfolio through the CRE CLO market and take leverage back to historical levels of between three and a half and four turns. Our mission is to drive mid-teens return on equity that nets down to a run rate of 8% to 10% EAD range. At book value. As always, careful origination and active asset management are the cornerstones of our approach to creating sound book value. As the above transition unfolds over the next couple of quarters, there will be some noise associated with DDI and other charges. It will take time. We are close.

We are confident in the team. We will get to our stated objectives. We are respectful of your confidence in us and look forward to your questions. Operator, this concludes our opening remarks, and I will turn the call back over for questions. Thank you.

Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. Once again, to ask a question, please press star and one on your telephone keypad. Take our first question from Matthew Erdner with Jones Trading. Please go ahead. Your line is open.

Hey. Good morning, guys. Thanks for taking the question. You know, looking at slide eight, it looks like there's a little over $100 million in payoffs that are expected to occur this year based on fully extended loans. Do you guys expect any additional payoffs to come through from some of those two-rated loans? And then, if you could, could you kind of give a little guidance in terms of portfolio growth and what you are targeting there on kind of a net basis.

Yeah. We do expect more payoffs on some of the higher-rated loans. In fact, we have already had during Q1, a few more payoffs than were expected. So I would anticipate that, given the fact that many of our properties are starting to stabilize, and the fact that there is a lot of availability in the bridge loan market to refinance loans, there certainly will be a higher level of payoff, but we expect to roll those back into our loan book very quickly. Ultimately, we expect that by the end of the year, our portfolio will be somewhere in the range of $1.8 billion to $2 billion, up from where it is today, $1.5 billion.

Great. That's helpful. And then, I guess in terms of opportunities, what are you guys seeing out there? I know you just mentioned Bridge, but is the target still kind of to increase multifamily? I guess just what are you guys seeing out in the market right now?

We are seeing a lot more activity in the market for sure. I think it was obviously pretty quiet over the last couple of years. We are seeing a lot of multifamily refinancings for loans coming out of construction. And at the same time, there are other asset classes which are attractive to us. We are seeing certainly improved fundamentals, whether that's hospitality or self-storage. You know, there's just a lot coming in the door more so than expected. So we will be able to choose some pretty good assets along the way.

Yeah. That's helpful. And then last one for me. You know, as you guys kind of delever and refinance these CLOs, are you guys expecting to kind of have a reinvestment there? Is it to leave it open for future loan originations that you guys do make?

Yeah. Absolutely. So the new structures will include a revolving period of at least twenty-four months. So that will give the company some flexibility to add names in the future while tying up liabilities at pretty attractive levels here. Great. Thank you, guys. Thank you.

Thank you. And as a reminder, it is star and one on your telephone keypad if you would like to join the queue. We will move next with Chris Muller with Citizens Bank. Please go ahead. Your line is open.

Hey, guys. Thanks for taking the question, and congrats on a nice finish to a challenging year. So I guess you guys are in a really good position to grow your book value as you continue to harvest these gains from the REO in addition to share buybacks. And both those were really nicely accretive in the Fourth Quarter. And that's really not something we are seeing in the rest of the group. So I guess this has been a long strategy you guys have been working on, and it's nice to see it start playing out. So I guess my question would be on the rest of the REO, are you guys expecting gains anywhere near what you saw on the office sale? Because that could really lead to some nice book value gains over the next year or two. So just any thoughts on the magnitude?

Yeah. So we have been purposely careful and not guiding too specifically in terms of where we think those sales are going to land. But I would echo what you've said, which is we believe and we said in the comments that there's going to be some future gain. And most importantly, when those gains are realized, that capital gets recycled back into the loan book, using the facilities that we are now creating. So I think that the strategy is the same as what we've discussed. And you'll see it play out over the next couple of quarters. And then we'll be, you know, out of that part of our strategy and history around making those investments and be squarely back into the full-time loan-making business.

Got it. And do you expect that to be mostly wrapped up in 2025 or some of those properties slip to 2026?

I would say it would be largely completed in 2025.

Got it. And then just the last one I have here. It's a little housekeeping one. So the increase in real estate expenses quarter over quarter, does that include some selling costs, or is there something else going on in that line item?

No. This is Owen speaking. No. For the most part, there's a bunch of cleanup items. We call them one-time items, and we don't expect to see them in 2025. But mostly cleanup. Got some new managers in there. We've been hitting hard the properties to better understand the stabilized cost structures. So for the most part, I would just say we are not looking forward to having those kinds of expenses when we get to that expense.

Got it. So Q4 is probably not a good run rate to use going forward though? That's very helpful.

No.

Thanks for taking the questions.

Sure thing.

Thank you. And it appears to be no further questions at this time. I will turn the call back to Andrew for closing remarks.

Thank you, operator, and thank you everyone for joining. We look forward to following up with you if not before, at our next quarterly call.

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.