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What changed in ACRES Commercial Realty Corp.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ACRES Commercial Realty Corp.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+373 added−377 removedSource: 10-K (2025-03-17) vs 10-K (2024-03-07)

Top changes in ACRES Commercial Realty Corp.'s 2024 10-K

373 paragraphs added · 377 removed · 304 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

47 edited+3 added−6 removed79 unchanged
Biggest changeWith respect to each fiscal quarter commencing with the quarter ending December 31, 2022, an incentive management fee calculated and payable in arrears in an amount, not less than zero, equal to: • for the first full calendar quarter ending December 31, 2022 , the product of (a) 20% and (b) the excess of (i) EAD of the Company for such calendar quarter, over (ii) the product of (A) the Company’s book value equity as of the end of such calendar quarter, and (B) 7% per annum; • for each of the second, third and fourth full calendar quarters following the calendar quarter ending December 31, 2022 , the excess of (1) the product of (a) 20% and (b) the excess of (i) EAD of the Company for the calendar quarter(s) following September 30, 2022, over (ii) the product of (A) the Company’s book value equity in the calendar quarter(s) following September 30, 2022, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to the Manager with respect to the prior calendar quarter(s) following September 30, 2022 (other than the most recent calendar quarter); and • for each calendar quarter thereafter , the excess of (1) the product of (a) 20% and (b) the excess of (i) EAD of the Company for the previous 12-month period, over (ii) the product of (A) the Company’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 Manager 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 twelve most recently completed calendar quarters (or such lesser number of completed calendar quarters from September 30, 2022) in the aggregate is greater than zero.
Biggest changeWith respect to each fiscal quarter commencing with the quarter ending December 31, 2022, an incentive management fee calculated and payable in arrears in an amount, not less than zero, equal to: • for the first full calendar quarter ending December 31, 2022 , the product of (a) 20% and (b) the excess of (i) EAD of the Company for such calendar quarter, over (ii) the product of (A) the Company’s book value equity as of the end of such calendar quarter, and (B) 7% per annum; • for each of the second, third and fourth full calendar quarters following the calendar quarter ending December 31, 2022 , the excess of (1) the product of (a) 20% and (b) the excess of (i) EAD of the Company for the calendar quarter(s) following September 30, 2022, over (ii) the product of (A) the Company’s book value equity in the calendar quarter(s) following September 30, 2022, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to the Manager with respect to the prior calendar quarter(s) following September 30, 2022 (other than the most recent calendar quarter); and • for each calendar quarter thereafter , the excess of (1) the product of (a) 20% and (b) the excess of (i) EAD of the Company for the previous 12-month period, over (ii) the product of (A) the Company’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 Manager 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 twelve most recently completed calendar quarters (or such lesser number of completed calendar quarters from September 30, 2022) in the aggregate is greater than zero. • Per-loan underwriting and review fees in connection with valuations of and potential investments in certain subordinate commercial mortgage pass-through certificates, in amounts approved by a majority of the independent directors. • Reimbursement of out-of-pocket expenses and certain other costs incurred by our Manager and its affiliates that relate directly to us and our operations. • Reimbursement of our Manager’s and its affiliates’ expenses for (A) the wages, salaries and benefits of our Chief Financial Officer, and (B) a portion of the wages, salaries and benefits of accounting, finance, tax and investor relations professionals, in proportion to such personnel’s percentage of time allocated to our operations.
We have established investment policies, procedures and guidelines that are reviewed and approved by our Manager’s investment committee and our Board. The investment committee and/or our Board, as applicable, meets regularly to consider and approve proposed specific investments. Our Board monitors the execution of our overall investment strategies and targeted asset classes. We acquire our investments primarily for income.
We have established investment policies, procedures and guidelines that are reviewed and approved by our Manager’s investment committee and our Board. Our investment committee and/or our Board, as applicable, meets regularly to consider and approve proposed specific investments. Our Board monitors the execution of our overall investment strategies and targeted asset classes. We acquire our investments primarily for income.
After we make investments, our Manager actively monitors them for early detection of trouble or deterioration. If a default occurs, we will use our senior management team’s asset management experience in seeking to mitigate the severity of any loss and to optimize the recovery from assets collateralizing the investment.
After we make investments, our Manager actively monitors them for early detection of trouble or deterioration. If a default occurs, we use our senior management team’s asset management experience in seeking to mitigate the severity of any loss and to optimize the recovery from assets collateralizing the investment.
In a business environment where benchmark interest rates are increasing significantly, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default.
In a business environment where benchmark interest rates are increasing, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default.
Mezzanine loans may also have prepayment lockouts, penalties, minimum profit hurdles and other mechanisms to protect and enhance returns in the event of premature repayment. At December 31, 2023, our loan portfolio included one mezzanine loan with no carrying value. Preferred equity investments. Historically, we have invested in preferred equity investments in entities that own or acquire CRE properties.
Mezzanine loans may also have prepayment lockouts, penalties, minimum profit hurdles and other mechanisms to protect and enhance returns in the event of premature repayment. At December 31, 2024, our loan portfolio included one mezzanine loan with no carrying value. Preferred equity investments. Historically, we have invested in preferred equity investments in entities that own or acquire CRE properties.
Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements” of this report. We continuously monitor our compliance with all of the financial covenants. We were in compliance with all financial covenants, as defined in the respective agreements, at December 31, 2023. Diversification of investments .
Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements” of this report. We continuously monitor our compliance with all of the financial covenants. We were in compliance with all financial covenants, as defined in the respective agreements, at December 31, 2024. Diversification of investments .
Historically, we have held “whole pool certificates” in mortgage loans, although, at December 31, 2023 and 2022, we had no whole pool certificates in our portfolios. Pursuant to existing SEC staff guidance, we consider whole pool certificates to be Qualifying Interests.
Historically, we have held “whole pool certificates” in mortgage loans, although, at December 31, 2024 and 2023, we had no whole pool certificates in our portfolios. Pursuant to existing SEC staff guidance, we consider whole pool certificates to be Qualifying Interests.
The Management Agreement’s current contract term ends on July 31, 2024, and the agreement provides for automatic one-year renewals on such date and on each July 31 thereafter until terminated. Our Board reviews our Manager’s performance annually.
The Management Agreement’s current contract term ends on July 31, 2025, and the agreement provides for automatic one-year renewals on such date and on each July 31 thereafter until terminated. Our Board reviews our Manager’s performance annually.
With respect to our portfolio at December 31, 2023, our whole loan investments had loan-to-collateral value, or LTV, ratios that typically do not exceed 85%. Typically, our whole loans are structured with an original term of up to three years, with one-year extensions that bring the loan to a maximum term of five years.
With respect to our portfolio at December 31, 2024, our whole loan investments had loan-to-collateral value, or LTV, ratios that typically do not exceed 85%. Typically, our whole loans are structured with an original term of up to three years, with two one-year extensions that bring the loan to a maximum term of five years.
We do not have a policy that requires us to focus our investments in one or more particular geographic areas or industries. Financing policies. We use leverage in order to increase potential returns to our stockholders and for financing our portfolio. We do not speculate on changes in interest rates.
We do not have a policy that requires us to focus our investments in one or more particular geographic areas or industries. (Back to Index) 6 (Back to Index) Financing policies. We use leverage in order to increase potential returns to our stockholders and for financing our portfolio. We do not speculate on changes in interest rates.
We bear the expense of the wages, salaries and benefits of our Chief Financial Officer, and the accounting, finance, tax and investor relations professionals to the extent dedicated to us.
We bear the expense of the wages, salaries and benefits of our Chief Financial Officer, and the accounting, finance, tax and investor relations professionals to the extent allocated to us.
We believe that ACRES Realty Funding, Inc., (“ACRES RF”) the subsidiary that at December 31, 2023 held substantially all of our CRE loan assets, is excluded from Investment Company Act regulation under Section 3(c)(5)(C), a provision designed for companies that do not issue redeemable securities and are primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.
(Back to Index) 13 (Back to Index) We believe that ACRES Realty Funding, Inc., (“ACRES RF”) the subsidiary that at December 31, 2024 held substantially all of our CRE loan assets, is excluded from Investment Company Act regulation under Section 3(c)(5)(C), a provision designed for companies that do not issue redeemable securities and are primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.
At December 31, 2023, we held four investments in real estate acquired through direct equity investments and two investments in real estate acquired from lending activities (i.e. through the receipt of the deeds-in-lieu of foreclosure on the properties that collateralized former non-performing loans). At December 31, 2023, two of these investments were classified as held for sale.
At December 31, 2024, we held three investments in real estate acquired through direct equity investments and four investments in real estate acquired from lending activities (i.e. through the receipt of the deeds-in-lieu of foreclosure on the properties that collateralized former non-performing loans). At December 31, 2024, four of these investments were classified as held for sale.
(Back to Index) 9 (Back to Index) The following charts describe the property type and the geographic breakdown, by National Council of Real Estate Investment Fiduciaries (“NCREIF”) region of our CRE loan portfolio at December 31, 2023 (based on carrying value): The total CRE loan portfolio, at carrying value, was $1.8 billion at December 31, 2023.
(Back to Index) 9 (Back to Index) The following charts describe the property type and the geographic breakdown, by National Council of Real Estate Investment Fiduciaries (“NCREIF”) region of our CRE loan portfolio at December 31, 2024 (based on carrying value): The total CRE loan portfolio, at carrying value, was $1.5 billion at December 31, 2024.
Moreover, we must ensure that ACRES Commercial Realty Corp. itself qualifies for an exclusion from regulation under the Investment Company Act. We do so by monitoring the value of our interests in our subsidiaries so that we can ensure that ACRES Commercial Realty Corp. satisfies the 40% test.
(Back to Index) 14 (Back to Index) Moreover, we must ensure that ACRES Commercial Realty Corp. itself qualifies for an exclusion from regulation under the Investment Company Act. We do so by monitoring the value of our interests in our subsidiaries so that we can ensure that ACRES Commercial Realty Corp. satisfies the 40% test.
Also includes $44.9 million of construction in progress, which is also not depreciable until placed in service. (2) Primarily comprises a $19.2 million right of use asset, associated with a $43.2 million ground lease accounted for as an operating lease. Amortization is booked to real estate expenses on the consolidated statements of operations.
Also includes $3.2 million of construction in progress, which is also not depreciable until placed in service. (2) Primarily comprises a $18.6 million right of use asset, associated with a $43.9 million ground lease accounted for as an operating lease. Amortization is booked to real estate expenses on the consolidated statements of operations.
At December 31, 2023, our entire portfolio of floating rate whole loans and floating rate borrowings have transitioned to SOFR.
At December 31, 2024, our entire portfolio of floating rate whole loans and floating rate borrowings have transitioned to SOFR.
Additionally, our CRE loan portfolio comprised one fully reserved $4.7 million mezzanine loan at December 31, 2023. Our Business Strategy The core components of our business strategy are: Investment in CRE assets . We are currently invested in CRE whole loans, CRE mezzanine loans and CRE equity investments.
Additionally, our CRE loan portfolio included one fully reserved $4.7 million mezzanine loan at December 31, 2024. Our Business Strategy The core components of our business strategy are: Investment in CRE assets . We are currently invested in CRE whole loans, CRE mezzanine loans and CRE equity investments.
(Back to Index) 13 (Back to Index) Regulatory Aspects of Our Investment Strategy: Exclusion from Regulation Under the Investment Company Act We operate our business so as to be excluded from regulation under the Investment Company Act.
Regulatory Aspects of Our Investment Strategy: Exclusion from Regulation Under the Investment Company Act We operate our business so as to be excluded from regulation under the Investment Company Act.
(Back to Index) 14 (Back to Index) RCC TRS, LLC, or RCC TRS, and our other former subsidiaries, RCC Commercial, Inc., or RCC Commercial, RCC Commercial II, Inc., or Commercial II, RCC Commercial III, Inc., or Commercial III, Resource TRS, LLC, or Resource TRS, and RSO EquityCo, LLC, or RSO Equity, do not qualify for the Section 3(c)(5)(C) exclusion.
RCC TRS, LLC, or RCC TRS, and our other former subsidiaries, RCC Commercial, Inc., or RCC Commercial, RCC Commercial II, Inc., or Commercial II, RCC Commercial III, Inc., or Commercial III, Resource TRS, LLC, or Resource TRS, and RSO EquityCo, LLC, or RSO Equity, do not qualify for the Section 3(c)(5)(C) exclusion.
Our goal is to allocate 90% to 100% of our equity to our CRE assets. Managing our investment portfolio . At December 31, 2023, we managed $2.2 billion of assets, including $1.5 billion of assets that were financed and held in variable interest entities.
Our goal is to allocate 90% to 100% of our equity to our CRE assets. Managing our investment portfolio . At December 31, 2024, we managed $1.9 billion of assets, including $1.1 billion of assets that were financed and held in variable interest entities.
At December 31, 2023, our loan portfolio included 2 related-party whole loan syndications with a par value of $46.4 million. Senior interests in whole loans (A-notes ). We may invest in senior interests in whole loans, referred to as A-notes, either directly originated or purchased from third parties. We do not intend to obtain ratings on these investments.
At December 31, 2024, our loan portfolio included one related-party whole loan syndication with a par value of $46.5 million. Senior interests in whole loans (A-notes ). We may invest in senior interests in whole loans, referred to as A-notes, either directly originated or purchased from third parties. We do not intend to obtain ratings on these investments.
We did not hold any preferred equity investments at December 31, 2023.
We did not hold any preferred equity investments at December 31, 2024.
We expect our investments in participation loans to have LTV ratios not to exceed 85%. At December 31, 2023, our loan portfolio included 2 related-party whole loan participations with a par value of $59.7 million. Whole Loan Syndications.
We expect our investments in participation loans to have LTV ratios not to exceed 85%. At December 31, 2024, our loan portfolio included two related-party whole loan participations with a par value of $57.4 million. Whole Loan Syndications.
We did not hold any B-note investments at December 31, 2023. In addition to the accrued interest receivable on a B-note, we may earn fees charged to the borrower under the note or additional income by receiving principal payments in excess of the discounted price (below par value) we paid to acquire the note.
In addition to the accrued interest receivable on a B-note, we may earn fees charged to the borrower under the note or additional income by receiving principal payments in excess of the discounted price (below par value) we paid to acquire the note.
We expect our typical B-note investments to have LTV ratios between 55% and 80% and will generally be structured with an original term of up to three years, with one-year extensions that bring the loan to a maximum term of five years. We expect to hold any B-note investments to maturity.
We do not intend to obtain ratings on these investments. We expect our typical B-note investments to have LTV ratios between 55% and 80% and will generally be structured with an original term of up to three years, with one-year extensions that bring the loan to a maximum term of five years.
(2) Includes real estate-related right of use assets of $19.2 million, mortgages payable of $41.8 million, intangible assets of $7.9 million, lease liabilities of $43.5 million and other liabilities of $27,000. (3) Includes property held for sale-related liabilities of $3.0 million. (4) There are no stated rates associated with these investments.
(2) Includes real estate-related right of use assets of $19.3 million, mortgages payable of $79.6 million, intangible assets of $7.0 million, lease liabilities of $44.6 million and other liabilities of $12,000. (3) Includes property held for sale-related liabilities of $3.2 million. (4) There are no stated rates associated with these investments.
Our Manager’s investment committee has the discretion, without the need for further approval by our Board, to increase the amount of leverage we incur above our targeted range for individual asset classes subject, however, to any leverage constraints that may be imposed by existing financing arrangements.
Our Manager’s investment committee has the discretion, without the need for further approval by our Board, to increase the amount of leverage we incur above our targeted range for individual asset classes subject, however, to any leverage constraints that may be imposed by existing financing arrangements. We use borrowing and securitization strategies to accomplish our long-term match funding financing strategy.
Substantially all of our CRE loans held at December 31, 2023 were whole loans. We expect to hold our whole loans to maturity. Whole Loan Participations.
Substantially all of our CRE loans held at December 31, 2024 were whole loans. We expect to hold most of our whole loans to maturity. (Back to Index) 8 (Back to Index) Whole Loan Participations.
In most cases the sponsors will need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. At December 31, 2023, 85.4% of the par value of our CRE loan portfolio had interest rate caps in place with a weighted-average maturity of six months.
The sponsors may need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. At December 31, 2024, 74.7% of the par value of our CRE loan portfolio had interest rate caps or funded debt service reserves in place with a weighted-average maturity of six months.
Incentive compensation is calculated and payable quarterly to our Manager 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. Our Manager may elect to receive more than 25% of its incentive compensation in common stock.
(Back to Index) 12 (Back to Index) Incentive compensation is calculated and payable quarterly to our Manager 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.
The Mountain region constituted 15.0% of our portfolio, of which 62.4% was in Arizona, and its collateral comprised 92.3% multifamily properties. We view our investment and credit strategies as being adequately diversified across property types in the Southwest, Southeast and Mountain regions.
The Southeast region constituted 16.5% of our portfolio, of which 58.3% was in Florida, and its collateral comprised 76.3% multifamily properties. We view our investment and credit strategies as being adequately diversified across property types in the Southwest, Southeast and Mountain regions.
During the year ended December 31, 2023, we selectively originated three CRE loans with total commitments of $68.2 million. At December 31, 2023, our CRE loan portfolio at par comprised $1.9 billion of floating-rate CRE whole loans with a weighted average spread of 3.77% over the one-month benchmark interest rates utilized, which have a weighted average floor of 0.70%.
During the year ended December 31, 2024, we selectively originated one CRE loan with a total commitment of $47.9 million. At December 31, 2024, our CRE loan portfolio at par comprised $1.5 billion of CRE whole loans with a weighted average spread of 3.73% over the one-month benchmark interest rates utilized, which have a weighted average floor of 0.97%.
All shares are fully vested upon issuance; however, our Manager may not sell such shares for one year after the incentive compensation becomes due and payable unless the Management Agreement is terminated.
Our Manager may elect to receive more than 25% of its incentive compensation in common stock. All shares are fully vested upon issuance; however, our Manager may not sell such shares for one year after the incentive compensation becomes due and payable unless the Management Agreement is terminated.
We did not hold any A-note investments at December 31, 2023. (Back to Index) 8 (Back to Index) Subordinate interests in whole loans (B-notes ). To a lesser extent, we may invest in subordinate interests in whole loans, referred to as B-notes, which we will either directly originate or purchase from third parties.
We did not hold any A-note investments at December 31, 2024. Subordinate interests in whole loans (B-notes ). To a lesser extent, we may invest in subordinate interests in whole loans, referred to as B-notes, which we will either directly originate or purchase from third parties. B-notes are loans secured by a first mortgage but are subordinated to an A-note.
(8) Excludes items of working capital, either acquired or assumed. Competition See “Item 1A.
(7) Comprises an operating lease liability. (8) Excludes items of working capital, either acquired or assumed. Competition See “Item 1A.
We may acquire CRE equity investments through a joint venture or wholly-owned subsidiary and may classify these investments in real estate as held for investment or held for sale. We intend to primarily use an affiliate of our Manager to manage the CRE equity investments when held.
We may acquire CRE equity investments through a joint venture or wholly-owned subsidiary and may classify these investments in real estate as held for investment or held for sale.
Additionally, we have NOL carryforwards of $60.2 million, of which $20.4 million have an indefinite carryforward period and $39.8 million begin to expire in 2044, and CLCFs of $1.0 million, which are set to expire on December 31, 2024, at our taxable REIT subsidiaries (“TRSs”).
We also have $121.9 million of CLCFs from prior years, which are set to expire on December 31, 2025. Additionally, we have NOL carryforwards of $60.9 million, of which $21.1 million have an indefinite carryforward period and $39.8 million begin to expire in 2044.
B-notes share certain credit characteristics with second mortgages in that both are subject to greater credit risk with respect to the underlying mortgage collateral than the corresponding first mortgage or A-note. We do not intend to obtain ratings on these investments.
B-note lenders have the same obligations, collateral and borrower as the A-note lender, but typically are subordinated in recovery upon a default to the A-note lender. B-notes share certain credit characteristics with second mortgages in that both are subject to greater credit risk with respect to the underlying mortgage collateral than the corresponding first mortgage or A-note.
(Back to Index) 7 (Back to Index) The negative impact of COVID-19 on our commercial mortgage-backed securities, or CMBS, investments and 2020 results created net operating loss (“NOL”) carryforwards and net capital loss carryforwards (“CLCFs”).
The negative impact of COVID-19 on our commercial mortgage-backed securities, or CMBS, investments and 2020 results created net operating loss (“NOL”) carryforwards and net capital loss carryforwards (“CLCFs”). We have $32.1 million of NOL carryforwards, which was reported on our tax return filed in October 2024 for the 2023 tax year.
The Southwest region constituted 26.6% of our portfolio, of which 100.0% was in Texas, and its collateral comprised 96.1% multifamily properties. The Southeast region constituted 22.0% of our portfolio, of which 73.3% was in Florida, and its collateral comprised 80.1% multifamily properties.
The Southwest region constituted 25.0% of our portfolio, of which 100.0% was in Texas, and its collateral comprised 100.0% multifamily properties. The Mountain region constituted 19.2% of our portfolio, of which 62.1% was in Arizona, and its collateral comprised 92.4% multifamily properties.
Investment Portfolio The table below summarizes the amortized costs and net carrying amounts of our investments at December 31, 2023, classified by asset type (dollars in thousands, except amounts in footnotes): At December 31, 2023 Amortized Cost Net Carrying Amount (1) Percent of Portfolio Weighted Average Coupon Loans held for investment: CRE whole loans, floating-rate $ 1,852,393 $ 1,828,336 91.93 % 9.15% CRE mezzanine loan 4,700 — 0.00 % 10.00% 1,857,093 1,828,336 91.93 % Other investments: Investments in unconsolidated entities 1,548 1,548 0.08 % N/A (4) Investments in real estate (2) 99,338 99,338 4.99 % N/A (4) Properties held for sale (3) 59,580 59,580 3.00 % N/A (4) 160,466 160,466 8.07 % Total investment portfolio $ 2,017,559 $ 1,988,802 100.00 % (1) Net carrying amount includes an allowance for credit losses of $28.8 million.
(Back to Index) 7 (Back to Index) Investment Portfolio The table below summarizes the amortized costs and net carrying amounts of our investments at December 31, 2024, classified by asset type (dollars in thousands, except amounts in footnotes): At December 31, 2024 Amortized Cost Net Carrying Amount Percent of Portfolio Weighted Average Coupon Loans held for investment: CRE whole loans (1) $ 1,482,692 $ 1,454,545 87.41 % 8.31% CRE mezzanine loan 4,700 — 0.00 % 10.00% 1,487,392 1,454,545 87.41 % Loans held for sale: CRE whole loans 11,100 11,100 0.67 % 13.14% 11,100 11,100 0.67 % Other investments: Investments in unconsolidated entities 21,857 21,857 1.31 % N/A (4) Investments in real estate (2) 58,283 58,283 3.50 % N/A (4) Property held for sale (3) 118,344 118,344 7.11 % N/A (4) 198,484 198,484 11.92 % Total investment portfolio $ 1,696,976 $ 1,664,129 100.00 % (1) Net carrying amount includes an allowance for credit losses of $32.8 million.
In some instances, the B-note lender may require a security interest in the stock or other equity interests of the borrower as part of the transaction. B-note lenders have the same obligations, collateral and borrower as the A-note lender, but typically are subordinated in recovery upon a default to the A-note lender.
The subordination of a B-note is generally evidenced by an intercreditor or participation agreement between the holders of the A-note and the B-note. In some instances, the B-note lender may require a security interest in the stock or other equity interests of the borrower as part of the transaction.
At December 31, 2023, our financing arrangements were as follows (in thousands): Outstanding Borrowings (1) Value of Collateral Equity at Risk (2) At December 31, 2023: CRE Securitizations ACR 2021-FL1 $ 640,797 $ 770,460 $ 127,420 ACR 2021-FL2 563,773 700,000 133,000 Senior Secured Financing Facility Massachusetts Mutual Life Insurance Company $ 61,568 $ 157,722 $ 93,518 CRE -Term Warehouse Financing Facilities JPMorgan Chase Bank, N.A. $ 74,694 $ 125,044 $ 49,570 Morgan Stanley Mortgage Capital Holdings LLC 93,894 129,037 35,471 Mortgages Payable ReadyCap Commercial, LLC $ 19,365 $ 25,400 $ 5,672 Oceanview Life and Annuity Company (3) 7,330 58,339 34,180 Florida Pace Funding Agency (3) 15,091 — — Total $ 1,476,512 $ 1,966,002 (1) CRE securitizations, senior secured financing facility and mortgages payable include deferred debt issuance costs.
At December 31, 2024, our financing arrangements were as follows (in thousands): Outstanding Borrowings (1) Value of Collateral Equity at Risk (2) At December 31, 2024: CRE Securitizations ACR 2021-FL1 $ 471,847 $ 599,927 $ 127,420 ACR 2021-FL2 390,957 525,571 133,000 Senior Secured Financing Facility Massachusetts Mutual Life Insurance Company $ 60,910 $ 162,578 $ 99,899 CRE -Term Warehouse Financing Facilities JPMorgan Chase Bank, N.A. $ 90,995 $ 158,639 $ 67,802 Morgan Stanley Mortgage Capital Holdings LLC 65,744 98,373 33,566 Mortgages Payable ReadyCap Commercial, LLC $ 20,240 $ 26,960 $ 6,566 Oceanview Life and Annuity Company (3) 44,211 92,549 31,809 Florida Pace Funding Agency (3) 15,105 — — Total $ 1,160,009 $ 1,664,597 (1) CRE securitizations, senior secured financing facility and mortgages payable include deferred debt issuance costs.
(5) Includes one property acquired in November 2020 and one property acquired via deed-in-lieu of foreclosure in June 2023. (6) Primarily comprises a $43.2 million ground lease with a remaining term of 93 years. Lease expenses for the year ended December 31, 2023 were $2.7 million. (7) Comprises an operating lease liability.
At September 30, 2024, two additional properties, a newly constructed multi-family property placed in service in September 2024 and an office complex acquired July 2024, were classified as properties held for sale. (6) Primarily comprises a $43.9 million ground lease with a remaining term of 92 years. Lease expenses for the year ended December 31, 2024 were $2.8 million.
The following table summarizes the investments in real estate at December 31, 2023 (in thousands, except amounts in footnotes): December 31, 2023 Cost Basis Accumulated Depreciation & Amortization Carrying Value Assets acquired: Investments in real estate, equity: Investments in real estate (1) $ 162,662 $ (5,041 ) $ 157,621 Right of use assets (2)(3) 19,664 (478 ) 19,186 Intangible assets (4) 11,474 (3,592 ) 7,882 Subtotal 193,800 (9,111 ) 184,689 Investments in real estate from lending activities: Properties held for sale (5) 62,605 — 62,605 Total 256,405 (9,111 ) 247,294 Liabilities assumed: Investments in real estate, equity: Mortgages payable 40,297 1,489 41,786 Other liabilities 247 (220 ) 27 Lease liabilities (3)(6) 43,538 — 43,538 Subtotal 84,082 1,269 85,351 Investments in real estate from lending activities: Liabilities held for sale (7) 3,025 — 3,025 Total 87,107 1,269 88,376 Total net investments in real estate and properties held for sale (8) $ 169,298 $ 158,918 (1) Includes $38.4 million of land, which is not depreciable.
The following table summarizes the investments in real estate at December 31, 2024 (in thousands, except amounts in footnotes): December 31, 2024 Cost Basis Accumulated Depreciation & Amortization Carrying Value Assets acquired: Investments in real estate, equity: Investments in real estate (1) $ 82,265 $ (5,657 ) $ 76,608 Right of use assets (2)(3) 20,064 (759 ) 19,305 Intangible assets (4) 9,833 (2,845 ) 6,988 Subtotal 112,162 (9,261 ) 102,901 Investments in real estate from lending activities: Properties held for sale (5) 201,125 — 201,125 Total 313,287 (9,261 ) 304,026 Liabilities assumed: Investments in real estate, equity: Mortgage payables 76,631 2,925 79,556 Other liabilities 41 (29 ) 12 Lease liabilities (3)(6) 44,606 — 44,606 Subtotal 121,278 2,896 124,174 Investments in real estate from lending activities: Liabilities held for sale (7) 3,226 — 3,226 Total 124,504 2,896 127,400 Total net investments in real estate and properties held for sale (8) $ 188,783 $ 176,626 (1) Includes $15.2 million of land, which is not depreciable.
(3) Refer to Note 9 in the Notes to the Consolidated Financial Statements for additional information on our remaining operating leases. (4) Primarily comprises a franchise intangible of $4.7 million, a management contract intangible of $2.9 million and a customer list intangible of $223,000.
(3) Refer to Note 9 in the Notes to the Consolidated Financial Statements for additional information on our remaining operating leases. Additionally, in December 2024 we entered into an operating lease associated with a parking lease at a newly acquired property. The associated right of use asset has a value of $367,000.
Removed
(Back to Index) 6 (Back to Index) We use borrowing and securitization strategies to accomplish our long-term match funding financing strategy.
Added
We expect to hold any B-note investments to maturity. We did not hold any B-note investments at December 31, 2024.
Removed
At December 31, 2023, after the utilization of the dividends paid deduction, we estimate that we will generate $19.0 million of taxable income that we will offset with our available NOLs. We have $46.6 million of NOL carryforwards, which was reported on our tax return filed in October 2023 for the 2022 tax year.
Added
(4) Primarily comprises a franchise intangible of $4.1 million, a management contract intangible of $2.8 million, in-place leases of $68,000 and a customer list intangible of $371,000. (5) Properties held for sale included a hotel acquired via deed-in-lieu of foreclosure in November 2020 as well as an office property acquired via deed-in-lieu of foreclosure in June 2023.
Removed
We also have $121.9 million of CLCFs from prior years, which are set to expire on December 31, 2025.
Added
The calculation is adjusted for one-time events due to changes in accounting principles generally accepted in the U.S., or GAAP, as well as other non-cash charges, upon approval of our independent directors.
Removed
B-notes are loans secured by a first mortgage but are subordinated to an A-note. The subordination of a B-note is generally evidenced by an intercreditor or participation agreement between the holders of the A-note and the B-note.
Removed
The calculation is adjusted for one-time events due to changes in accounting principles generally accepted in the U.S., or GAAP, as well as other non-cash charges, upon approval of our independent directors. • Incentive compensation, calculated quarterly until the quarter ended December 31, 2022 as follows: (A) 20% of the amount by which our Earnings Available for Distribution ("EAD") (as defined in the Management Agreement) for a quarter exceeded the product of (i) the weighted average of (x) the book value divided by 10,293,783 and (y) the per share price (including the conversion price, if applicable) paid for our common shares in each offering (or issuance upon the conversion of convertible securities) by us subsequent to September 30, 2017, multiplied by (ii) the greater of (x) 1.75% and (y) 0.4375% plus one-fourth of the Ten Year Treasury Rate for such quarter; multiplied by (B) the weighted average number of common shares outstanding during such quarter; subject to adjustment (a) to exclude events pursuant to changes in GAAP or the application of GAAP as well as non-recurring or unusual transactions or events, after discussion between our Manager and the independent directors and approval by a majority of the independent directors in the case of non-recurring or unusual transactions or events, and (b) to deduct an amount equal to any fees paid directly by a TRS (or any subsidiary thereof) to employees, agents and/or affiliates of the Manager with respect to profits of such TRS (or subsidiary thereof) generated from the services of such employees, agents and/or affiliates, the fee structure of which shall have been approved by a majority of the independent directors and which fees may not exceed 20% of the net income (before such fees) of such TRS (or subsidiary thereof).
Removed
(Back to Index) 12 (Back to Index) • Per-loan underwriting and review fees in connection with valuations of and potential investments in certain subordinate commercial mortgage pass-through certificates, in amounts approved by a majority of the independent directors. • Reimbursement of out-of-pocket expenses and certain other costs incurred by our Manager and its affiliates that relate directly to us and our operations. • Reimbursement of our Manager’s and its affiliates’ expenses for (A) the wages, salaries and benefits of our Chief Financial Officer, and (B) a portion of the wages, salaries and benefits of accounting, finance, tax and investor relations professionals, in proportion to such personnel’s percentage of time allocated to our operations.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

29 edited+14 added−16 removed340 unchanged
Biggest changeIn addition, in conducting periodic reviews, the directors may rely primarily on information provided to them by our Manager. Furthermore, our Manager may use complex strategies, and transactions entered into by our Manager, which may be difficult or impossible to unwind by the time they are reviewed by the directors.
Biggest changeFurthermore, our Manager may use complex strategies, and transactions entered into by our Manager, which may be difficult or impossible to unwind by the time they are reviewed by the directors. Our Manager has great latitude within the broad investment guidelines in determining the types of investments it makes for us.
Net operating income of an income producing property can be affected by, among other things: • tenant mix, success of tenant businesses, tenant bankruptcies and property management decisions; • property location and condition; • competition from comparable types of properties; • shifts in consumer habits or adoption of telework policies; • changes in laws that increase operating expenses or limit rents that may be charged; • any need to address environmental contamination at the property; • the occurrence of any uninsured casualty at the property; • changes in national, regional or local economic conditions and/or the conditions of specific industry segments in which the lessees may operate; • declines in regional or local real estate values; • declines in regional or local rental or occupancy rates; • increases in interest rates, real estate tax rates and other operating expenses; • the availability of debt or equity financing; • increases in costs of construction material; • changes in governmental rules, regulations and fiscal policies, including environmental legislation and zoning laws; and • acts of God, terrorism, pandemic, social unrest and civil disturbances.
Net operating income of an income producing property can be affected by, among other things: • tenant mix, success of tenant businesses, tenant bankruptcies and property management decisions; • property location and condition; • competition from comparable types of properties; • shifts in consumer habits or adoption of telework policies; • changes in laws that increase operating expenses or limit rents that may be charged; • any need to address environmental contamination at the property; • the occurrence of any uninsured casualty at the property; • changes in national, regional or local economic conditions and/or the conditions of specific industry segments in which the lessees may operate; • declines in regional or local real estate values; • declines in regional or local rental or occupancy rates; • increases in interest rates, real estate tax rates and other operating expenses; • the availability of debt or equity financing; • increases in costs of construction material; (Back to Index) 26 (Back to Index) • changes in governmental rules, regulations and fiscal policies, including environmental legislation and zoning laws; and • acts of God, terrorism, pandemic, social unrest and civil disturbances.
For risks related to the use of uninvested offering proceeds or borrowings to fund distributions to stockholders, see - “Risks Related to Our Organization and Structure. - We have not established a minimum distribution payment level and we cannot assure you of our ability to make distributions in the future.” Our ownership of and relationship with our TRSs will be limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
For risks related to the use of uninvested offering proceeds or borrowings to fund distributions to stockholders, see - “Risks Related to Our Organization and Structure. - We have not established a minimum distribution payment level and we cannot assure you of our ability to make distributions in the future.” Our ownership of and relationship with our TRS will be limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
While we believe that our allowance for credit losses at December 31, 2023 is adequate to cover our anticipated losses, we cannot assure you that it will not increase in the future. Any increase in our allowance for credit losses will reduce our income and, if sufficiently large, could cause us to incur significant losses.
While we believe that our allowance for credit losses at December 31, 2024 is adequate to cover our anticipated losses, we cannot assure you that it will not increase in the future. Any increase in our allowance for credit losses will reduce our income and, if sufficiently large, could cause us to incur significant losses.
Although at December 31, 2023, all of our CRE debt securitizations met their performance tests, we cannot assure you that our CRE debt securitizations will satisfy the performance tests in the future. For information concerning compliance by our CRE debt securitizations with their over-collateralization tests and interest coverage tests, see “Item 7.
Although at December 31, 2024, all of our CRE debt securitizations met their performance tests, we cannot assure you that our CRE debt securitizations will satisfy the performance tests in the future. For information concerning compliance by our CRE debt securitizations with their over-collateralization tests and interest coverage tests, see “Item 7.
In certain situations, we may: • acquire investments subject to rights of senior classes and servicers under inter-creditor or servicing agreements; • acquire only a minority and/or non-controlling participation in an underlying investment; • co-invest with third parties through partnerships, joint ventures or other entities, thereby acquiring non-controlling interests; or (Back to Index) 25 (Back to Index) • rely on independent third-party management or strategic partners with respect to the management of an asset.
In certain situations, we may: • acquire investments subject to rights of senior classes and servicers under inter-creditor or servicing agreements; • acquire only a minority and/or non-controlling participation in an underlying investment; • co-originate or participate in loans with third parties; (Back to Index) 25 (Back to Index) • co-invest with third parties through partnerships, joint ventures or other entities, thereby acquiring non-controlling interests; or • rely on independent third-party management or strategic partners with respect to the management of an asset.
If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC that we would be unable to enforce contracts with third parties, that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company, and that we would be subject to limitations on corporate leverage that would have an adverse impact on our investment returns.
(Back to Index) 33 (Back to Index) If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC that we would be unable to enforce contracts with third parties, that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company, and that we would be subject to limitations on corporate leverage that would have an adverse impact on our investment returns.
If voting rights or control shares acquired in a control share acquisition are not approved at a stockholders’ meeting or if the acquiring person does not deliver an acquiring person statement as required by the Maryland Act then, subject to specific conditions and limitations, the issuer may redeem any or all of the control shares for fair value.
(Back to Index) 31 (Back to Index) If voting rights or control shares acquired in a control share acquisition are not approved at a stockholders’ meeting or if the acquiring person does not deliver an acquiring person statement as required by the Maryland Act then, subject to specific conditions and limitations, the issuer may redeem any or all of the control shares for fair value.
Our investments in real estate and commercial mortgage loans, mezzanine loans and CRE equity investments are subject to the risks inherent in owning the real estate securing or underlying those investments that could result in losses to us.
Our investments in CRE loans, mezzanine loans and CRE equity investments are subject to the risks inherent in owning the real estate securing or underlying those investments that could result in losses to us.
If we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations. Our investment portfolio may have material geographic, sector, property-type and sponsor concentrations.
If we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations. (Back to Index) 27 (Back to Index) Our investment portfolio may have material geographic, sector, property-type and sponsor concentrations.
In addition, we may be obligated to fund the defense costs incurred by our directors and officers. Our right to take action against our Manager is limited. The obligation of our Manager under the Management Agreement is to render its services in good faith.
In addition, we may be obligated to fund the defense costs incurred by our directors and officers. (Back to Index) 32 (Back to Index) Our right to take action against our Manager is limited. The obligation of our Manager under the Management Agreement is to render its services in good faith.
Additionally, our co-lenders, servicers or joint venture partners may have financial difficulties and may not be able to perform their (Back to Index) 28 (Back to Index) financial obligations in accordance with their respective agreements, in which case we may be obligated to perform on their behalf.
Additionally, our co-lenders, servicers or joint venture partners may have financial difficulties and may not be able to perform their financial obligations in accordance with their respective agreements, in which case we may be obligated to perform on their behalf.
Our policies and procedures may not be sufficient to address any conflicts of interest that arise. Our Manager’s liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities.
Our policies and procedures may not be sufficient to address any conflicts of interest that arise. (Back to Index) 30 (Back to Index) Our Manager’s liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities.
(Back to Index) 33 (Back to Index) Rapid changes in the values of our real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exclusion from regulation under the Investment Company Act.
Rapid changes in the values of our real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exclusion from regulation under the Investment Company Act.
Commercial mortgage loans are secured by, and mezzanine loans depend on, the performance of the underlying property and are subject to risks of delinquency and foreclosure, and risks of loss, that are greater than similar risks associated with loans made on the security of single-family residential properties.
CRE loans are secured by, and mezzanine loans depend on, the performance of the underlying property and are subject to risks of delinquency and foreclosure, and risks of loss, that are greater than similar risks associated with loans made on the security of single-family residential properties.
(Back to Index) 26 (Back to Index) We risk loss of principal on defaulted CRE loans we hold to the extent of any deficiency between the value we can realize from the sale of the collateral securing the loan upon foreclosure and the loan’s principal and accrued interest.
We risk loss of principal on defaulted CRE loans we hold to the extent of any deficiency between the value we can realize from the sale of the collateral securing the loan upon foreclosure and the loan’s principal and accrued interest.
(Back to Index) 27 (Back to Index) The B-notes in which we may invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us. We may invest in B-notes.
The B-notes in which we may invest may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us. We may invest in B-notes.
In addition, we will indemnify our Manager, ACRES and their officers and affiliates for any actions taken by them in good faith. (Back to Index) 32 (Back to Index) We have not established a minimum distribution payment level and we cannot assure you of our ability to make distributions in the future.
In addition, we will indemnify our Manager, ACRES and their officers and affiliates for any actions taken by them in good faith. We have not established a minimum distribution payment level and we cannot assure you of our ability to make distributions in the future. In the future, we may use uninvested offering proceeds or borrowed funds to make distributions.
(Back to Index) 30 (Back to Index) Risks Related to Our Organization and Structure Our charter and bylaws contain provisions that may inhibit potential acquisition bids that you and other stockholders may consider favorable, and the market price of our common stock may be lower as a result.
Risks Related to Our Organization and Structure Our charter and bylaws contain provisions that may inhibit potential acquisition bids that you and other stockholders may consider favorable, and the market price of our common stock may be lower as a result. Our charter and bylaws contain provisions that may have an anti-takeover effect and inhibit a change in our Board.
We believe the risks associated with our business will be more severe during periods of economic slowdown or recession if these periods are accompanied by declining real estate values.
A prolonged economic slowdown or lengthy or severe recession causing declining real estate values could impair our investments and harm our operations. We believe the risks associated with our business will be more severe during periods of economic slowdown or recession if these periods are accompanied by declining real estate values.
Our Manager manages our portfolio pursuant to very broad investment guidelines and our Board does not approve each investment decision, which may result in our making riskier investments. Our Manager is authorized to follow very broad investment guidelines. While our directors periodically review our investment guidelines and our investment portfolio, they do not review all of our proposed investments.
(Back to Index) 29 (Back to Index) Our Manager manages our portfolio pursuant to very broad investment guidelines and our Board does not approve each investment decision, which may result in our making riskier investments. Our Manager is authorized to follow very broad investment guidelines.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder.
However, our Board may amend our bylaws in the future to repeal this exemption. Business combinations. Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder.
While we may, through our TRSs retain earnings as new capital, we are subject to REIT qualification requirements that limit the value of TRS stock and securities relative to the other assets owned by a REIT. A prolonged economic slowdown or lengthy or severe recession causing declining real estate values could impair our investments and harm our operations.
While we may, through our taxable REIT subsidiary (“TRS”) retain earnings as new capital, we are subject to REIT qualification requirements that limit the value of TRS stock and securities relative to the other assets owned by a REIT.
Our Manager has great latitude within the broad investment guidelines in determining the types of investments it makes for us. Poor investment decisions could impair our ability to make distributions to our stockholders. (Back to Index) 29 (Back to Index) Termination of the Management Agreement by us without cause is difficult and could be costly.
Poor investment decisions could impair our ability to make distributions to our stockholders. Termination of the Management Agreement by us without cause is difficult and could be costly. Termination of our Management Agreement without cause is difficult and could be costly.
We have not established a minimum distribution payment level, and our ability to make distributions may be impaired by the risk factors described in this report.
We expect to make quarterly distributions to our stockholders in amounts such that we distribute all or substantially all of our taxable income in each year, subject to certain adjustments. We have not established a minimum distribution payment level, and our ability to make distributions may be impaired by the risk factors described in this report.
No assurances can be given that we will recognize full value, at a price and at terms that are acceptable to us, for any property that we are required to sell for liquidity reasons. Our inability to respond rapidly to changes in the performance of our investments could adversely affect our financial condition and results of operations.
No assurances can be given that we will recognize full value, at a price and at terms that are acceptable to us, for any property that we are required to (Back to Index) 28 (Back to Index) sell for liquidity reasons.
Our charter and bylaws contain provisions that may have an anti-takeover effect and inhibit a change in our Board. These provisions include the following: • There are ownership limits and restrictions on transferability and ownership in our charter.
These provisions include the following: • There are ownership limits and restrictions on transferability and ownership in our charter.
We may not have control, or control may be limited, over certain of our loans and real estate equity investments.
Our inability to respond rapidly to changes in the performance of our investments could adversely affect our financial condition and results of operations. We may not have control, or control may be limited, over certain of our loans and real estate equity investments.
The outbreak of widespread contagious disease, such as COVID-19, has caused, and may continue to cause, disruptions to the U.S. and global economy and to our business, which has had, and may continue to have, an adverse impact on our financial condition, our results of operations and our liquidity and capital resources.
The effects of the spread of illnesses or other public health emergencies on the global economy, the markets and our business may have an adverse impact on our financial condition, our results of operations and our liquidity and capital resources.
Removed
Outbreaks of contagious diseases, such as COVID-19 or any future pandemic or epidemic, may have a material adverse impact on our financial condition, liquidity and results of operations and the market price of our common stock and preferred stock.
Added
A public health emergency could adversely affect the economy as well as individual issuers, assets and capital markets and could have serious negative effects on social, economic and financial systems, including significant uncertainty and volatility in the financial markets.
Removed
We expect that while the direct impacts of COVID-19 have subsided, indirect impacts are likely to continue to some extent as the longer-term macro-economic effects of the pandemic continue.
Added
Future infectious illness outbreaks or other public health emergencies could have similar or other unforeseen impacts and may exacerbate pre-existing political, social and economic risks in certain countries or globally, which could adversely affect the market price of our common stock.
Removed
The rapid development of the pandemic and the resulting economic effects have created uncertainty surrounding the ultimate impact of the COVID-19 pandemic on the global economy generally, and the CRE business in particular.
Added
A public health emergency could result in an increase of the costs and affect liquidity in the market, either of which could adversely affect our results of operations and market price of our common stock.
Removed
As a result, we cannot project the ultimate adverse impact of COVID-19 and any future pandemics or epidemics, on the global economy or our business, including our financial condition and performance.
Added
In addition, a public health emergency could impair the information technology and other operational systems upon which we rely and could otherwise disrupt the ability of ACRES employees to perform essential tasks on behalf of the company.
Removed
The extent of the impact of COVID-19, or any future pandemics or epidemics, will depend on future developments, including new information that may emerge about the severity of the pandemic or epidemic, the timing, scope and effectiveness of additional governmental responses to the pandemic or epidemic, including the potential re-imposition of quarantines, states of emergencies, restrictions on travel and stay-at-home orders and the ensuing reactions by consumers, companies, governmental entities and global markets.
Added
Governmental and quasi-governmental authorities and regulators throughout the world have at times responded to major economic disruptions with a variety of fiscal and monetary policy changes, including, but not limited to, direct capital infusions into companies and other issuers, new monetary tools and lower interest rates.
Removed
Historically, we have used the London Interbank Offered Rate (“LIBOR”) as the benchmark interest rate for our floating-rate whole loans and we have been exposed to LIBOR through our floating-rate borrowings.
Added
An unexpected or sudden reversal of these policies, or the ineffectiveness of these policies, is likely to increase volatility in the market, which could adversely affect the market price of our common stock.
Removed
In March 2021, the United Kingdom’s, or U.K.’s, Financial Conduct Authority (“FCA”) announced that it would cease publication of the one-week and the two-month USD LIBOR immediately after December 31, 2021, and cease publication of the remaining tenors immediately after June 30, 2023. In July 2021, the U.S.
Added
While our directors periodically review our investment guidelines and our investment portfolio, they do not review all of our proposed investments. In addition, in conducting periodic reviews, the directors may rely primarily on information provided to them by our Manager.
Removed
Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprising large U.S. financial institutions, identified Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. Following this announcement, we began to transition the contractual benchmark rates of existing floating-rate whole loans and borrowings to alternate rates.
Added
We may not be able to generate future taxable income to fully utilize our net capital loss carryforwards. As of December 31, 2024, we had an CLCF of $121.9 million that expires on December 31, 2025.
Removed
At December 31, 2023, our entire portfolio of floating rate whole loans and floating rate borrowings have transitioned to SOFR.
Added
We can utilize our CLCF to reduce our net capital gain income that would be subject to income taxes to the extent it is not distributed to our shareholders. Utilizing our CLCF may allow us to reduce our required distributions to shareholders or income tax liability which would allow us to retain future taxable income as capital.
Removed
Termination of our Management Agreement without cause is difficult and could be costly.
Added
However, we may not generate sufficient taxable income of the appropriate tax character to fully utilize this carryforward prior to its expiration. To the extent that our CLCF expires unutilized, we may not fully realize the benefit of this tax attribute which could lead to higher annual distribution requirements or tax liabilities after 2025.
Removed
However, our Board may amend our bylaws in the future to repeal this exemption. (Back to Index) 31 (Back to Index) Business combinations.
Added
(Back to Index) 38 (Back to Index) Our qualification as a REIT could be jeopardized as a result of an interest in joint ventures. We hold and may continue to hold certain limited partner or non-managing member interests in partnerships or limited liability companies that are joint ventures.
Removed
In the future, we may use uninvested offering proceeds or borrowed funds to make distributions. We expect to make quarterly distributions to our stockholders in amounts such that we distribute all or substantially all of our taxable income in each year, subject to certain adjustments.
Added
If a partnership or limited liability company in which we own an interest takes or expects to take actions that could jeopardize our qualification as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity.
Removed
General Risk Factors We cannot predict the effects on us of actions taken by the U.S. government and governmental agencies in response to economic conditions in the U.S.
Added
In addition, it is possible that a partnership or limited liability company could take an action which could cause us to fail a REIT gross income or asset test, and that we would not become aware of such action in time to dispose of our interest in the partnership or limited liability company or take other corrective action on a timely basis.
Removed
In response to economic and market conditions, U.S. and foreign governments and governmental agencies have established or proposed a number of programs designed to improve the financial system and credit markets, and to stimulate economic growth.
Added
In that case, we could fail to continue to qualify as a REIT unless we are able to qualify for a statutory REIT “savings” provision, which may require us to pay a significant penalty tax to maintain our REIT qualification. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Removed
Many governments, including federal, state and local governments in the U.S., are incurring substantial budget deficits and seeking financing in international and national credit markets as well as proposing or enacting austerity programs that seek to reduce government spending, raise taxes, or both.
Removed
Many credit providers, including banks, may need to obtain additional capital before they will be able to expand (Back to Index) 38 (Back to Index) their lending activities. We are unable to evaluate the effects these programs and conditions will have upon our financial condition, income, or ability to make distributions to our stockholders. ITEM 1B. UNRESOLVED STAFF COMMENTS None.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

2 edited+0 added−0 removed11 unchanged
Biggest changeThe chair of the audit committee would be notified following any cybersecurity incident meeting specified severity levels, and the Company’s Board would also be expected to review the Manager’s materiality assessment regarding any cybersecurity incident requiring disclosure to the SEC. (Back to Index) 39 (Back to Index)
Biggest changeThe chair of the audit committee would be notified following any cybersecurity incident meeting specified severity levels, and the Company’s Board would also be expected to review the Manager’s materiality assessment regarding any cybersecurity incident requiring disclosure to the SEC.
In addition, the Company’s Board receives periodic reports from our cybersecurity compliance firm on the primary cybersecurity risks that we and our Manager face and the measures we are taking to mitigate such risks.
In addition, the Company’s Board receives periodic reports from our cybersecurity compliance firm on the (Back to Index) 39 (Back to Index) primary cybersecurity risks that we and our Manager face and the measures we are taking to mitigate such risks.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

12 edited+1 added−1 removed9 unchanged
Biggest change(Back to Index) 42 (Back to Index) The following table presents information about our common stock repurchases made during the year ended December 31, 2023 in accordance with our repurchase program (dollars in thousands, except per share amounts): Common Stock Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs January 19, 2023 - January 31, 2023 9,822 $ 9.78 9,822 $ 7,121 February 1, 2023 - February 28, 2023 24,754 9.48 24,754 6,887 March 1, 2023 - March 31, 2023 45,168 9.39 45,168 6,464 April 3, 2023 - April 28, 2023 45,645 9.48 45,645 6,032 May 1, 2023 - May 31, 2023 62,001 8.61 62,001 5,499 June 1, 2023 - June 30, 2023 27,770 8.41 27,770 5,266 July 3, 2023 - July 31, 2023 29,242 9.01 29,242 5,003 August 1, 2023 - August 31, 2023 36,137 8.77 36,137 4,687 September 4, 2023 - September 29, 2023 17,918 8.29 17,918 4,539 October 2, 2023 - October 31, 2023 19,199 7.83 19,199 4,389 November 1, 2023 - November 30, 2023 42,291 7.68 42,291 14,065 December 1, 2023 - December 29, 2023 539,138 7.88 539,138 9,827 Total 899,085 $ 8.24 899,085 (1) The average price paid per share as reflected above includes broker fees and commissions.
Biggest changeThe following table presents information about our common stock repurchases made during the year ended December 31, 2024 in accordance with our repurchase program (dollars in thousands, except per share amounts): Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs January 2, 2024 - January 31, 2024 75,138 $ 9.86 75,138 $ 9,087,747 January 17, 2024 (2) 100,000 21.57 100,000 6,932,747 February 1, 2024 - February 29, 2024 52,195 10.14 52,195 6,404,704 March 1, 2024 - March 28, 2024 67,494 11.84 67,494 5,607,039 April 1, 2024 - April 30, 2024 52,812 13.83 52,812 4,877,655 May 1, 2024 - May 31, 2024 39,994 13.37 39,994 4,343,681 June 3, 2024 - June 28, 2024 22,652 12.80 22,652 4,054,292 July 1, 2024 - July 31, 2024 24,936 13.73 24,936 3,712,310 August 1, 2024 - August 30, 2024 47,682 15.52 47,682 2,973,466 September 3, 2024 - September 30, 2024 41,340 15.53 41,340 2,332,294 October 1, 2024 - October 31, 2024 47,846 15.51 47,846 1,591,322 November 1, 2024 - November 29, 2024 59,354 16.44 59,354 5,616,804 December 2, 2024 - December 31, 2024 48,013 17.05 48,013 4,799,117 (Back to Index) 42 (Back to Index) (1) The average price paid per share as reflected above includes broker fees and commissions.
As a result of losses incurred during the year ended December 31, 2020 in connection with the economic impact of the novel coronavirus (“COVID-19”) pandemic, we received significant net operating loss (“NOL”) carryforwards. NOLs are able to offset future taxable income, limiting the requirement for common share distributions.
As a result of losses incurred during the year ended December 31, 2020 in connection with the economic impact of the novel coronavirus (“COVID-19”) pandemic, we have significant net operating loss (“NOL”) carryforwards. NOLs are able to offset future taxable income, limiting the requirement for common share distributions.
The graph and table assume that $100 was invested in each of our common stock, the Russell 2000 Index and the FTSE NAREIT All REIT Index on December 31, 2018, and that all dividends were reinvested. This data is furnished by the Research Data Group.
The graph and table assume that $100 was invested in each of our common stock, the Russell 2000 Index and the FTSE NAREIT All REIT Index on December 31, 2019, and that all dividends were reinvested. This data is furnished by the Research Data Group.
The following table summarizes our current and estimated tax loss carryforwards (dollars in millions): Tax Year Recognized REIT (QRS) Tax Loss Carryforwards TRS Tax Loss Carryforwards Tax Asset Item Operating Capital Operating Capital Net Operating Loss Carryforwards: Cumulative as of 2022 2022 Return $ 46.6 $ — $ 60.2 $ — Net Capital Loss Carryforwards: Cumulative as of 2022 2022 Return — 121.9 — 1.0 Total tax asset estimates $ 46.6 $ 121.9 $ 60.2 $ 1.0 Useful life Unlimited 5 years Various 5 years At December 31, 2023, we had $46.6 million of cumulative NOL to carry forward to future years.
The following table summarizes our current and estimated tax loss carryforwards (dollars in millions): Tax Year Recognized REIT (QRS) Tax Loss Carryforwards TRS Tax Loss Carryforwards Tax Asset Item Operating Capital Operating Capital Net Operating Loss Carryforwards: Cumulative as of 2023 2023 Return $ 32.1 $ — $ 60.9 $ — Net Capital Loss Carryforwards: Cumulative as of 2023 2023 Return — 121.9 — 1.0 Total tax asset estimates $ 32.1 $ 121.9 $ 60.9 $ 1.0 Useful life Unlimited 5 years Various 5 years At December 31, 2024, we had $32.1 million of cumulative NOL to carry forward to future years.
Manager Incentive Plan at December 31, 2023: (a) (b) (c) Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans Excluding Securities Reflected in Column (a) Equity compensation approved by security holders: Restricted stock (1) 416,675 N/A Equity compensation plans not approved by security holders N/A N/A Total 416,675 1,034,155 (1) All restricted stock awards consist of unvested shares.
Manager Incentive Plan at December 31, 2024: (a) (b) (c) Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans Excluding Securities Reflected in Column (a) Equity compensation approved by security holders: Restricted stock (1) 574,538 N/A Equity compensation plans not approved by security holders N/A N/A Total 574,538 700,822 (1) All restricted stock awards consist of unvested shares.
Such information was obtained through our registrar and transfer agent. (Back to Index) 41 (Back to Index) The following table summarizes certain information about our 2005 Stock Incentive Plan, Third Amended and Restated Omnibus Equity Compensation Plan and ACRES Commercial Realty Corp.
(Back to Index) 41 (Back to Index) The following table summarizes certain information about our 2005 Stock Incentive Plan, Third Amended and Restated Omnibus Equity Compensation Plan and ACRES Commercial Realty Corp.
Our 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock, or Series C Preferred Stock, is listed on the NYSE and trades under the symbol “ACRPrC.” We have declared and paid the specified quarterly dividend per share of $0.5390625 through January 2024. No dividends are currently in arrears on the Series C Preferred Stock.
Our 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock, or Series C Preferred Stock, is listed on the NYSE and trades under the symbol “ACRPrC.” We have declared and paid dividends through January 2025. No dividends are currently in arrears on the Series C Preferred Stock.
We have declared and paid the specified quarterly dividend per share of $0.4921875 through January 2024. No dividends are currently in arrears on the Series D Preferred Stock. Issuer Purchases of Equity Securities In March 2016, our Board approved a securities repurchase program.
We have declared and paid dividends through January 2025. No dividends are currently in arrears on the Series D Preferred Stock. Issuer Purchases of Equity Securities In March 2016, our Board approved a securities repurchase program.
We also recognized net capital loss carryforwards as finalized in our 2020 tax return. During the year ended December 31, 2023, all taxable income was offset by our NOLs, and therefore, no common share distribution was required.
We also recognized net capital loss carryforwards as finalized in our 2020 tax return. During the year ended December 31, 2024, all taxable income was distributed to our preferred shareholders, and therefore, no common share distribution was required.
Performance Graph The following line graph presentation compares cumulative total shareholder returns on our common stock with the Russell 2000 Index and the FTSE NAREIT All REIT Index for the period from December 31, 2018 to December 31, 2023.
(2) These repurchases pertain to our Series D Cumulative Preferred Stock. All other repurchases listed pertain to our common stock. Performance Graph The following line graph presentation compares cumulative total shareholder returns on our common stock with the Russell 2000 Index and the FTSE NAREIT All REIT Index for the period from December 31, 2019 to December 31, 2024.
At March 4, 2024, there were 7,748,393 shares of common stock outstanding held by 196 holders of record. The 196 holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock.
The 180 holders of record include Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of our common stock. Such information was obtained through our registrar and transfer agent.
At December 31, 2023, our TRSs have $60.2 million of NOLs comprising: $39.8 million of pre-TCJA NOLs, some of which are set to expire beginning in 2044 and $20.4 million of NOLs with an indefinite carryforward period. Additionally, our TRSs have cumulative total net capital losses of $1.0 million, which are set to expire on December 31, 2024.
At December 31, 2024, our TRS had $60.9 million of NOLs comprising: $39.8 million of pre-TCJA NOLs, some of which are set to expire beginning in 2044 and $21.1 million of NOLs with an indefinite carryforward period. At March 13, 2025, there were 7,456,150 shares of common stock outstanding held by 180 holders of record.
Removed
At December 31, 2023, $9.8 million remains available under this repurchase program.
Added
In December 2024, our Board authorized and approved the repurchase of an additional $5.0 million of outstanding shares of both common and preferred stock. At December 31, 2024, $4.8 million remains available under this repurchase program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeCredit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in footnotes): 2023 2022 2021 2020 2019 Prior Total (1) At December 31, 2023: Whole loans, floating-rate: (2) Rating 2 $ 63,634 $ 212,175 $ 636,487 $ 22,556 $ 38,572 $ — $ 973,424 Rating 3 — 168,791 364,369 34,232 — 13,640 581,032 Rating 4 — 82,918 123,333 — 5,645 44,889 256,785 Rating 5 — 14,000 — — 19,127 8,025 41,152 Total whole loans, floating-rate 63,634 477,884 1,124,189 56,788 63,344 66,554 1,852,393 Mezzanine loan (rating 5) — — — — — 4,700 4,700 Total $ 63,634 $ 477,884 $ 1,124,189 $ 56,788 $ 63,344 $ 71,254 $ 1,857,093 Current Period Gross Write-Offs $ — $ — $ — $ — $ (948 ) $ — $ (948 ) 2022 2021 2020 2019 2018 Prior Total (1) At December 31, 2022: Whole loans, floating-rate: (2) Rating 2 $ 526,606 $ 1,003,060 $ 64,944 $ 26,977 $ 13,789 $ — $ 1,635,376 Rating 3 — 192,490 44,657 27,881 44,463 — 309,491 Rating 4 — — — 20,742 64,484 — 85,226 Rating 5 — — — 22,797 — — 22,797 Total whole loans, floating-rate 526,606 1,195,550 109,601 98,397 122,736 — 2,052,890 Mezzanine loan (rating 4) — — — — 4,700 — 4,700 Total $ 526,606 $ 1,195,550 $ 109,601 $ 98,397 $ 127,436 $ — $ 2,057,590 Current Period Gross Write-Offs $ — $ — $ — $ — $ — $ (2,297 ) $ (2,297 ) (1) The total amortized cost of CRE loans excluded accrued interest receivable of $11.8 million and $11.9 million at December 31, 2023 and 2022, respectively.
Biggest changeCredit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in footnotes): 2024 (1) 2023 2022 2021 2020 Prior Total (2) At December 31, 2024: Whole loans: (3) Rating 1 $ — $ — $ — $ 27,869 $ — $ — $ 27,869 Rating 2 19,023 48,106 46,416 382,195 56,284 13,944 565,968 Rating 3 — — 249,907 242,155 — 11,063 503,125 Rating 4 80,672 15,811 85,004 153,740 — 44,889 380,116 Rating 5 — — — — — 5,614 5,614 Total whole loans 99,695 63,917 381,327 805,959 56,284 75,510 1,482,692 Mezzanine loan (rating 5) — — — — — 4,700 4,700 Total $ 99,695 $ 63,917 $ 381,327 $ 805,959 $ 56,284 $ 80,210 $ 1,487,392 Current Period Gross Write-Offs $ — $ — $ — $ (700 ) $ — $ — $ (700 ) 2023 2022 2021 2020 2019 Prior Total (2) At December 31, 2023: Whole loans: (3) Rating 2 $ 63,634 $ 212,175 $ 636,487 $ 22,556 $ 38,572 $ — $ 973,424 Rating 3 — 168,791 364,369 34,232 — 13,640 581,032 Rating 4 — 82,918 123,333 — 5,645 44,889 256,785 Rating 5 — 14,000 — — 19,127 8,025 41,152 Total whole loans 63,634 477,884 1,124,189 56,788 63,344 66,554 1,852,393 Mezzanine loan (rating 5) — — — — — 4,700 4,700 Total $ 63,634 $ 477,884 $ 1,124,189 $ 56,788 $ 63,344 $ 71,254 $ 1,857,093 Current Period Gross Write-Offs $ — $ — $ — $ — $ (948 ) $ — $ (948 ) (1) Includes two novated CRE whole loans that resulted from loan workouts.
The loan had an initial maturity of March 2022, was modified three times to extend its maturity to June 2022 and has since entered into payment default.
The loan had an initial maturity of March 2022 and was modified three times to extend its maturity to June 2022 and has since entered into payment default.
Modifications We are required to disclose modifications where we determined the borrower is experiencing financial difficulty and modified the agreement to: (i) forgive principal, (ii) reduce the interest rate, (iii) cause an other-than-insignificant payment delay, (iv) extend the loan term or (v) any combination thereof.
Loan Modifications We are required to disclose modifications where we determined the borrower is experiencing financial difficulty and modified the agreement to: (i) forgive principal, (ii) reduce the interest rate, (iii) cause an other-than-insignificant payment delay, (iv) extend the loan term or (v) any combination thereof.
The Mortgage is interest only and has a maximum principal balance of $20.4 million, of which, $18.7 million was advanced in the initial funding. Initially, the Mortgage charged interest of 30-day average SOFR plus a spread of 3.80%. In October 2022, the Mortgage was amended to charge interest of one-month Term SOFR.
The Mortgage is interest only and has a maximum principal balance of $20.4 million, of which, $18.7 million was advanced in the initial funding. Initially, the Mortgage charged interest of 30-day average SOFR plus a spread of 3.80%. In October 2022, the Mortgage was amended to charge interest of one-month Term SOFR plus a spread of 3.80%.
Pursuant to the guarantees, Jason Pollack, Frank Dellaglio and ACRES RF (collectively, the "Guarantors"), for the benefit of Oceanview, provided limited "bad boy" guaranties to Oceanview pursuant to the Construction Loan Agreement until the earlier of the payment in full of the indebtedness or the date of a sale of the property pursuant to a foreclosure of the mortgage or deed or other transfer in lieu of foreclosure is accepted by Oceanview.
Pursuant to the guarantees, Jason Pollack, Frank Dellaglio and ACRES RF (collectively, the "Guarantors"), for the benefit of Oceanview, provided limited "bad boy" guaranties to Oceanview pursuant to the Construction Loan Agreement until the earlier of the payment in full of the indebtedness or the date of a sale of the property pursuant to a foreclosure of the mortgage or deed or other transfer in lieu of foreclosure is accepted by Oceanview.
(2) Each of our CRE debt securitizations initially provided for a two-year reinvestment period that allowed us to reinvest CRE loan payoffs and principal paydown proceeds into the securitizations, pending certain eligibility criteria are met and rating agency approval is obtained. The reinvestment periods on both our securitizations ended in May 2023 and December 2023.
(2) Each of our CRE debt securitizations initially provided for a two-year reinvestment period that allowed us to reinvest CRE loan payoffs and principal paydown proceeds into the securitizations, pending certain eligibility criteria are met and rating agency approval is obtained. The reinvestment periods on both our securitizations ended in May 2023 and December 2023, respectively.
Financing Availability We utilize a variety of financing arrangements to finance certain assets. We generally utilize the following five types of financing arrangements: 1. Senior Secured Financing Facility: Our senior secured financing facility allows us to borrow against loans and real estate investments that we own.
Financing Availability We utilize a variety of financing arrangements to finance certain assets. We generally utilize the following types of financing arrangements: 1. Senior Secured Financing Facility: Our senior secured financing facility allows us to borrow against loans and real estate investments that we own.
With respect to each fiscal quarter commencing with the quarter ended December 31, 2022, an incentive management fee calculated and payable in arrears in an amount, not less than zero, equal to: (i) for the first full calendar quarter ended December 31, 2022 , the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for such calendar quarter, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) as of the end of such calendar quarter, and (B) 7% per annum; (ii) for each of the second, third and fourth full calendar quarters following the calendar quarter ended December 31, 2022 , the excess of (1) the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for the calendar quarter(s) following September 30, 2022, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) in the calendar quarter(s) following September 30, 2022, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to our Manager with respect to the prior calendar quarter(s) following September 30, 2022 (other than the most recent calendar quarter); and (iii) for each calendar quarter thereafter , the excess of (1) the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for the previous 12-month period, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) in the previous 12-month period, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to our Manager 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 (as defined in the Management Agreement) 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.
With respect to each fiscal quarter commencing with the quarter ended December 31, 2022, an incentive management fee calculated and payable in arrears in an amount, not less than zero, equal to: (i) for the first full calendar quarter ended December 31, 2022 , the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for such calendar quarter, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) as of the end of such calendar quarter, and (B) 7% per annum; (ii) for each of the second, third and fourth full calendar quarters following the calendar quarter ended December 31, 2022 , the excess of (1) the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for the calendar quarter(s) following September 30, 2022, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) in the calendar quarter(s) following September 30, 2022, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to our Manager with respect to the prior calendar quarter(s) following September 30, 2022 (other than the most recent calendar quarter); and (Back to Index) 69 (Back to Index) (iii) for each calendar quarter thereafter , the excess of (1) the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for the previous 12-month period, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) in the previous 12-month period, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to our Manager 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 (as defined in the Management Agreement) 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.
The Guarantors also entered into a Completion Guaranty Agreement for the benefit of Oceanview to guaranty the timely completion of the project in accordance with the Construction Loan Agreement, as well as a Carry Guaranty Agreement, for the benefit of Oceanview to guaranty and unconditional payment by Chapel Drive East, LLC of all customary or necessary costs and expenses incurred in connection with the operation, maintenance and management of the property and an Environmental Indemnity Agreement jointly and severally in favor of Oceanview whereby the Guarantors serving as Indemnitors provided environmental representations and warranties, covenants and indemnifications (collectively the "Guaranties").
The Guarantors also entered into a Completion Guaranty Agreement for the benefit of Oceanview to guaranty the timely completion of the project in accordance with the Construction Loan Agreement, as well as a Carry Guaranty Agreement, for the benefit of Oceanview to guaranty unconditional payment by Chapel Drive East, LLC of all customary or necessary costs and expenses incurred in connection with the operation, maintenance and management of the property and an Environmental Indemnity Agreement jointly and severally in favor of Oceanview whereby the Guarantors provided environmental representations and warranties, covenants and indemnifications (collectively the "Guaranties").
(Back to Index) 70 (Back to Index) Incentive Compensation Hurdle Prior to the quarter ended December 31, 2022, in accordance with the Management Agreement, incentive compensation was earned by our Manager when our EAD (as defined in the Management Agreement) for such quarter exceeded an amount equal to: (1) the weighted average of (a) book value (as defined in the Management Agreement) as of the end of such quarter divided by 10,293,783 shares and (b) the price per share (including the conversion price, if applicable) paid for common shares in each offering (or issuance, upon the conversion of convertible securities) by us subsequent to September 30, 2017, in each case at the time of issuance, multiplied by (2) the greater of (a) 1.75% and (b) 0.4375% plus one-fourth of the ten year treasury rate, as defined in the Management Agreement, for such quarter (the “Incentive Compensation Hurdle”).
Incentive Compensation Hurdle Prior to the quarter ended December 31, 2022, in accordance with the Management Agreement, incentive compensation was earned by our Manager when our EAD (as defined in the Management Agreement) for such quarter exceeded an amount equal to: (1) the weighted average of (a) book value (as defined in the Management Agreement) as of the end of such quarter divided by 10,293,783 shares and (b) the price per share (including the conversion price, if applicable) paid for common shares in each offering (or issuance, upon the conversion of convertible securities) by us subsequent to September 30, 2017, in each case at the time of issuance, multiplied by (2) the greater of (a) 1.75% and (b) 0.4375% plus one-fourth of the ten year treasury rate, as defined in the Management Agreement, for such quarter (the “Incentive Compensation Hurdle”).
(Back to Index) 58 (Back to Index) Credit quality indicators Commercial Real Estate Loans CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten loan-to-collateral value (“LTV”) ratios, loan structure and exit plan.
(Back to Index) 56 (Back to Index) Credit quality indicators Commercial Real Estate Loans CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten loan-to-collateral value (“LTV”) ratios, loan structure and exit plan.
(collectively, “ACRES”), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, office and industrial property in top United States (“U.S.”) markets. Our Manager draws upon the management team of ACRES and its collective investment experience to provide its services.
(collectively, “ACRES”), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, office and industrial properties in top United States (“U.S.”) markets. Our Manager draws upon the management team of ACRES and its collective investment experience to provide its services.
Mortgage payable: We have entered into a loan agreement to finance the acquisition of a student housing complex. This loan is interest only and has a maximum principal balance, most of which was advanced in the initial funding. The loan agreement contains events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement.
Mortgages payable: We have entered into a loan agreement to finance the acquisition of a student housing complex. This loan is interest only and has a maximum principal balance, most of which was advanced in the initial funding. The loan agreement contains events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement.
These loans are subordinated CRE loans, usually secured by a pledge of the borrower’s equity ownership in the entity that owns the property or by a second lien mortgage on the property. At both December 31, 2023 and 2022, we had one mezzanine loan included in CRE loans held for investment that had no carrying value.
These loans are subordinated CRE loans, usually secured by a pledge of the borrower’s equity ownership in the entity that owns the property or by a second lien mortgage on the property. At both December 31, 2024 and 2023, we had one mezzanine loan included in CRE loans held for investment that had no carrying value.
Overview We are a Maryland corporation and an externally managed REIT that is primarily focused on originating, holding and managing commercial real estate (“CRE”) mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. Our manager is ACRES Capital, LLC (our “Manager”), a subsidiary of ACRES Capital Corp.
Overview We are a Maryland corporation and an externally managed REIT that is primarily focused on originating, holding and managing commercial real estate ("CRE") mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. Our manager is ACRES Capital, LLC (our “Manager”), a subsidiary of ACRES Capital Corp.
Dividends are payable quarterly in arrears. • 4.6 million shares of fixed 7.875% Series D cumulative redeemable preferred stock with a $25.00 per share liquidation preference (Series D Preferred Stock"). The Series D Preferred Stock has no maturity and we are not required to redeem them at any time.
Dividends are payable quarterly in arrears. • 4.5 million shares of fixed 7.875% Series D cumulative redeemable preferred stock with a $25.00 per share liquidation preference (Series D Preferred Stock"). The Series D Preferred Stock has no maturity and we are not required to redeem them at any time.
Restricted Cash At December 31, 2023, we had restricted cash of $8.4 million, which consisted of $7.6 million held in reserve for a construction loan and $800,000 held in escrow for deposits or tax payments at our real estate properties or pledged with minimum reserve balance requirements.
At December 31, 2023, we had restricted cash of $8.4 million, which consisted of $7.6 million held in reserve for a construction loan, and $800,000 held in escrow for deposits or tax payments at our real estate properties or minimum reserve balance requirements.
If our variable interest possesses both of these characteristics, we are deemed to be the primary beneficiary and would be required to consolidate the VIE. This assessment must be done on an ongoing basis. At December 31, 2023, we determined that we are the primary beneficiary of two VIEs that are consolidated.
If our variable interest possesses both of these characteristics, we are deemed to be the primary beneficiary and would be required to consolidate the VIE. This assessment must be done on an ongoing basis. At December 31, 2024, we determined that we are the primary beneficiary of two VIEs that are consolidated.
EAD excludes income (loss) from all non-core assets such as commercial finance, middle market lending, residential mortgage lending, certain legacy CRE loans and other non-CRE assets designated as assets held for sale at the initial measurement date of December 31, 2016.
EAD excludes income (loss) from all non-core assets such as commercial finance, residential mortgage lending, certain legacy CRE loans and other non-CRE assets designated as assets held for sale at the initial measurement date of December 31, 2016.
This mezzanine loan was not current on contractual payments at December 31, 2023. We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt.
This mezzanine loan was not current on contractual payments at December 31, 2024. We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt.
The following charts shows our portfolio allocation by property type at December 31, 2023 and 2022: From time to time, we may acquire real estate property through direct equity investments or as a result of our lending activities.
The following charts shows our portfolio allocation by property type at December 31, 2024 and 2023: From time to time, we may acquire real estate property through direct equity investments or as a result of our lending activities.
In October 2022, the Barclays Facility matured. In October 2018, an indirect wholly-owned subsidiary of ours entered into a Master Repurchase and Securities Contract Agreement (the “JPMorgan Chase Facility”) with JPMorgan Chase to finance the origination of CRE loans.
In October 2022, the Barclays Facility matured. In October 2018, an indirect wholly-owned subsidiary of ours entered into a Master Repurchase and Securities Contract Agreement (the “JPMorgan Chase Facility”) with JPMorgan Chase Bank, N.A. ("JPMorgan Chase") to finance the origination of CRE loans.
The Indenture contains restrictive covenants that, among other things, require us to maintain certain financial ratios. The foregoing limitations are subject to exceptions as set forth in the Supplemental Indenture. At December 31, 2023, we were in compliance with these covenants.
The Indenture contains restrictive covenants that, among other things, require us to maintain certain financial ratios. The foregoing limitations are subject to exceptions as set forth in the Supplemental Indenture. At December 31, 2024, we were in compliance with these covenants.
(Back to Index) 77 (Back to Index) While a loan exhibiting credit quality deterioration may remain on accrual status, the loan is placed on nonaccrual status at such time as (i) management believes that scheduled debt service payments will not be met within the coming 12 months; (ii) the loan becomes 90 days past due; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the credit deterioration; or (iv) the net realizable value of the loan’s underlying collateral approximates our carrying value for such loan.
While a loan exhibiting credit quality deterioration may remain on accrual status, the loan is placed on nonaccrual status at such time as (i) management believes that scheduled debt service payments will not be met within the coming 12 months; (ii) the loan becomes 90 days past due; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the credit deterioration; or (iv) the net realizable value of the loan’s underlying collateral approximates our carrying value for such loan.
The increase in the cost of capital is expected to cause short-term dislocations in various investment and financing markets in which we participate as we and other market participants adjust to the new financing environment. The U.S. Federal Reserve has raised the Federal Funds rate by 5.25% in 11 rate hikes between March 2022 and July 2023 to combat inflation.
The increase in the cost of capital is expected to cause dislocations in various investment and financing markets in which we participate as we and other market participants adjust to the new financing environment. The U.S. Federal Reserve raised the Federal Funds rate by 5.25% in 11 rate hikes between March 2022 and July 2023 to combat inflation.
(Back to Index) 75 (Back to Index) U.S. federal income tax law generally requires that a REIT distribute at least 90% of its REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income.
U.S. federal income tax law generally requires that a REIT distribute at least 90% of its REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income.
The facility has a maximum portfolio LTV of 85% and contains customary events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement. (Back to Index) 72 (Back to Index) 2. Term Warehouse Financing Facilities (CRE loans): Term warehouse financing facilities effectively allow us to borrow against loans that we own.
The facility has a maximum portfolio LTV of 85% and contains customary events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement. 2. Term Warehouse Financing Facilities (CRE loans): Term warehouse financing facilities effectively allow us to borrow against loans that we own.
As we continue to take steps necessary to stabilize our earnings available for distribution, our Board will establish a plan for the prudent resumption of the payment of common share distributions.
As we continue to take steps necessary to stabilize our earnings available for distribution, our Board expects to establish a plan for the prudent resumption of the payment of common share distributions.
During the year ended December 31, 2023, the loan entered into payment default and has been placed on nonaccrual status. The loan had an as-is appraised value in excess of its principal and interest balances, and, as such, had no allowance for CECL at December 31, 2023.
During the year ended December 31, 2023, the loan entered into payment default and was placed on nonaccrual status. The loan had an "as-is" appraised value in excess of its principal and interest balances, and, as such, had no allowance for CECL at December 31, 2023.
(Back to Index) 67 (Back to Index) Senior Unsecured Notes 5.75% Senior Unsecured Notes Due 2026 On August 16, 2021, we issued $150.0 million of our 5.75% Senior Unsecured Notes pursuant to our Indenture, dated August 16, 2021 (the “Base Indenture”), between Wells Fargo, now Computershare Trust Company, N.A.
Senior Unsecured Notes 5.75% Senior Unsecured Notes Due 2026 On August 16, 2021, we issued $150.0 million of our 5.75% Senior Unsecured Notes pursuant to our Indenture, dated August 16, 2021 (the “Base Indenture”), between Wells Fargo, now Computershare Trust Company, N.A.
(2) Calculated as book value equity at December 31, 2023 multiplied by 1.75% (7% per annum). The amount by which EAD (as defined in the Management Agreement) exceeds the Incentive Compensation Hurdle is multiplied by 20% to arrive at incentive compensation for the quarter.
(2) Calculated as book value equity at December 31, 2024 multiplied by 1.75% (7% per annum). (3) The amount by which EAD (as defined in the Management Agreement) exceeds the Incentive Compensation Hurdle is multiplied by 20% to arrive at incentive compensation for the quarter.
During the year ended December 31, 2023, we recorded a provision for credit losses primarily attributable to the modeled increases in general portfolio credit risk compounded by ongoing uncertainty around the commercial real estate market’s current macroeconomic outlook, which has affected our borrowers’ business plan execution and general market liquidity.
During the year ended December 31, 2023, we recorded a provision for credit losses primarily attributable to the modeled (Back to Index) 48 (Back to Index) increases in general portfolio credit risk compounded by ongoing uncertainty around the commercial real estate market’s current macroeconomic outlook, which affected our borrowers’ business plan execution and general market liquidity.
The following charts show our portfolio allocation by property type at December 31, 2023 and 2022: (Back to Index) 46 (Back to Index) Our properties are located throughout the U.S., with two National Council of Real Estate Investment Fiduciaries (“NCREIF”) regions, the Southwest and Southeast, in excess of 20% of the total portfolio carrying value at both December 31, 2023 and 2022.
The following charts show our portfolio allocation by property type at December 31, 2024 and 2023: (Back to Index) 46 (Back to Index) Our properties are located throughout the U.S., with one and two National Council of Real Estate Investment Fiduciaries (“NCREIF”) regions, the Southwest at December 31, 2024 and Southwest and Southeast at December 31, 2023, in excess of 20% of the total portfolio carrying value.
In November 2021, an indirect wholly-owned subsidiary of ours entered into a Master Repurchase and Securities Contract Agreement (the "Morgan Stanley Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley") to finance the origination of CRE loans.
(Back to Index) 63 (Back to Index) In November 2021, an indirect, wholly-owned subsidiary of ours entered into a Master Repurchase and Securities Contract Agreement (the "Morgan Stanley Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley") to finance the origination of CRE loans.
Mortgages Payable In April 2022, Chapel Drive West, LLC, a wholly owned subsidiary of Charles Street – ACRES FSU Student Venture, LLC (the "FSU Student Venture") entered into a loan agreement (the “Mortgage”) with ReadyCap Commercial, LLC (“ReadyCap”) to finance the acquisition of a student housing complex.
Mortgages Payable In April 2022, Chapel Drive West, LLC, a wholly owned subsidiary of Charles Street – ACRES FSU Student Venture, LLC (the "FSU Student Venture") entered into a loan agreement (the "Mortgage") with ReadyCap Commercial, LLC ("ReadyCap") to finance the acquisition of a student housing complex.
We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report as that disclosure is included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 7, 2023.
We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report as that disclosure is included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission ("SEC") on March 7, 2024.
(Back to Index) 76 (Back to Index) Guarantees and Indemnifications In the ordinary course of business, we may provide guarantees and indemnifications that contingently obligate us to make payments to the guaranteed or indemnified party based on changes in the value of an asset, liability or equity security of the guaranteed or indemnified party.
Guarantees and Indemnifications In the ordinary course of business, we may provide guarantees and indemnifications that contingently obligate us to make payments to the guaranteed or indemnified party based on changes in the value of an asset, liability or equity security of the guaranteed or indemnified party.
Once a property is classified as held for sale, depreciation expense is no longer recorded. Investments in real estate are carried net of accumulated depreciation. We depreciate real property, building and tenant improvements and furniture, fixtures, and equipment using the straight-line method over the estimated useful lives of the assets.
Once a property is classified as held for sale, depreciation expense is no longer recorded. (Back to Index) 76 (Back to Index) Investments in real estate are carried net of accumulated depreciation. We depreciate real property, building and tenant improvements and furniture, fixtures, and equipment using the straight-line method over the estimated useful lives of the assets.
At December 31, 2023, we had unfunded commitments on 53 CRE whole loans. (8) Base management fees presented are based on an estimate of base management fees payable to our Manager over the next 12 months. Our Management Agreement also provides for an incentive compensation arrangement that is based on operating performance.
At December 31, 2024, we had unfunded commitments on 26 CRE whole loans. (8) Base management fees presented are based on an estimate of base management fees payable to our Manager over the next 12 months. Our Management Agreement also provides for an incentive compensation arrangement that is based on operating performance.
EAD is a non-GAAP financial measure intended to supplement our financial results computed in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and we believe EAD will serve as a useful indicator for investors in evaluating our performance and ability to pay dividends.
EAD is a non-GAAP financial measure intended to supplement our financial results computed in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and we believe EAD serves as a useful indicator for investors in evaluating our performance and ability to pay dividends.
Also includes $44.9 million of construction in progress, which is also not depreciable until placed in service. (2) Primarily comprises a $19.2 million right of use asset, associated with an acquired ground lease of $43.2 million (see below) accounted for as an operating lease. Amortization is booked to real estate expenses on the consolidated statements of operations.
Also includes $3.2 million of construction in progress, which is also not depreciable until placed in service. (2) Primarily comprises a $18.6 million right of use asset, associated with an acquired ground lease of $43.9 million (see below) accounted for as an operating lease. Amortization is booked to real estate expenses on the consolidated statements of operations.
Net Operating Losses and Loss Carryforwards The following table sets forth the net operating losses and loss carryforwards for the periods presented (in millions): Tax Year Recognized REIT (QRS) Tax Loss Carryforwards TRS Tax Loss Carryforwards Tax Asset Item Operating Capital Operating Capital Net Operating Loss Carryforwards: Cumulative as of 2022 2022 Return $ 46.6 $ — $ 60.2 $ — Net Capital Loss Carryforwards: Cumulative as of 2022 2022 Return — 121.9 — 1.0 Total tax asset estimates $ 46.6 $ 121.9 $ 60.2 $ 1.0 Useful life Unlimited 5 years Various 5 years At December 31, 2023, we had $46.6 million of cumulative net operating losses ("NOL") to carry forward to future years.
Net Operating Losses and Loss Carryforwards The following table sets forth the net operating losses and loss carryforwards for the periods presented (in millions): Tax Year Recognized REIT (QRS) Tax Loss Carryforwards TRS Tax Loss Carryforwards Tax Asset Item Operating Capital Operating Capital Net Operating Loss Carryforwards: Cumulative as of 2023 2023 Return $ 32.1 $ — $ 60.9 $ — Net Capital Loss Carryforwards: Cumulative as of 2023 2023 Return — 121.9 — 1.0 Total tax asset estimates $ 32.1 $ 121.9 $ 60.9 $ 1.0 Useful life Unlimited 5 years Various 5 years At December 31, 2024, we had $32.1 million of cumulative net operating losses ("NOL") to carry forward to future years.
While the CRE whole loans included in the CRE loan portfolio are substantially composed of floating-rate loans benchmarked to the Secured Overnight Financing Rate (“SOFR”), asset yields are protected through the use of benchmark floors and minimum interest periods that typically range from 12 to 18 months at the time of a loan’s origination.
While the CRE whole loans included in the CRE loan portfolio are substantially composed of floating-rate loans benchmarked to the one-month Term Secured Overnight Financing Rate ("SOFR"), asset yields are protected through the use of benchmark floors and minimum interest periods that typically range from 12 to 18 months at the time of a loan’s origination.
Deferred Tax Assets At both December 31, 2023 and 2022, our net deferred tax asset was zero, resulting from a full valuation allowance of $21.1 million and $21.2 million, respectively, on our gross deferred tax asset as we believed it was more likely than not that some or all of the deferred tax assets would not be realized.
Deferred Tax Assets At both December 31, 2024 and 2023, our net deferred tax asset was zero, resulting from a full valuation allowance of $20.6 million and $21.1 million, respectively, on our gross deferred tax asset as we believed it was more likely than not that some or all of the deferred tax assets would not be realized.
On August 18, 2021, we entered into an agreement with Oaktree and MassMutual that provided for the redemption in full of the 12.00% Senior Unsecured Notes, including a waiver of certain sections of the Note and Warrant Purchase Agreement.
(Back to Index) 66 (Back to Index) On August 18, 2021, we entered into an agreement with Oaktree and MassMutual that provided for the redemption in full of the 12.00% Senior Unsecured Notes, including a waiver of certain sections of the Note and Warrant Purchase Agreement.
At December 31, 2023, we retain equity in the following securitizations (in thousands, except amounts in footnotes): Closing Date Maturity Date Reinvestment Period End (1) Total Note Paydowns from Closing Date through December 31, 2023 ACR 2021-FL1 May 2021 June 2036 May 2023 $ 32,183 ACR 2021-FL2 December 2021 January 2037 December 2023 $ — (1) The reinvestment period is the period in which principal proceeds received may be used to acquire new CRE loans or the funded commitments of existing collateral for reinvestment into the securitization.
At December 31, 2024, we retain equity in the following securitizations (in thousands, except amounts in footnotes): Closing Date Maturity Date Reinvestment Period End (1) Total Note Paydowns from Closing Date through December 31, 2024 ACR 2021-FL1 May 2021 June 2036 May 2023 $ 202,716 ACR 2021-FL2 December 2021 January 2037 December 2023 $ 174,429 (1) The reinvestment period is the period in which principal proceeds received may be used to acquire new CRE loans or the funded commitments of existing collateral for reinvestment into the securitization.
The asset-based revolving loan facility (the “MassMutual Facility”) provided under the MassMutual Loan Agreement has been used to finance our core CRE lending business. The MassMutual Facility initially had an interest rate of 5.75% per annum payable monthly and matured on July 31, 2027. We paid a commitment fee as well as other reasonable closing costs.
The asset-based revolving loan facility (the "MassMutual Facility") provided under the MassMutual Loan Agreement has been used to finance our core CRE lending business. The MassMutual Facility initially had an interest rate of 5.75% per annum payable monthly and was set to mature on July 31, 2027. We paid a commitment fee as well as other reasonable closing costs.
(Back to Index) 62 (Back to Index) The following table presents the effect of derivative instruments on our consolidated statements of operations for the years presented (in thousands): Realized and Unrealized Loss (1) Consolidated Statements of Operations Location Year Ended December 31, 2023 Year Ended December 31, 2022 Interest rate swap contracts, hedging Interest expense $ (1,593 ) $ (1,733 ) (1) Negative values indicate a decrease to the associated consolidated statements of operations line items.
The following table presents the effect of derivative instruments on our consolidated statements of operations for the years presented (in thousands): Realized and Unrealized Gain (Loss) (1) Consolidated Statements of Operations Location Year Ended December 31, 2024 Year Ended December 31, 2023 Year Ended December 31, 2022 Interest rate swap contracts, hedging Interest expense $ (1,598 ) $ (1,593 ) $ (1,733 ) (1) Negative values indicate a decrease to the associated consolidated statements of operations line items.
At December 31, 2023 and 2022, we had losses of $5.0 million and $6.6 million, respectively, recorded in accumulated other comprehensive loss, which will be amortized into earnings over the remaining life of the debt.
At December 31, 2024 and 2023, we had losses of $3.3 million and $5.0 million, respectively, recorded in accumulated other comprehensive loss, which will be amortized into earnings over the remaining life of the debt.
We calculated net income per common share-diluted of $0.20 and $0.35 using the weighted average diluted shares outstanding during the three and twelve months ended December 31, 2023, respectively. (3) In November 2021, our Board authorized and approved the continued use of our existing share repurchase program to repurchase up to $20.0 million of our outstanding common stock.
We calculated net income per common share-diluted of $0.52 and $1.15 using the weighted average diluted shares outstanding during the three and twelve months ended December 31, 2024, respectively. (3) In November 2021, our Board authorized and approved the continued use of our existing share repurchase program to repurchase up to $20.0 million of our outstanding common stock.
In the past, we have derived substantial operating cash from our equity investments in our CDOs and securitizations, which would cease if the CDOs and securitizations fail to meet certain tests. Through December 31, 2023, we did not experience difficulty in maintaining our existing securitization financing and passed all of the critical tests required by these financings.
In the past, we have derived substantial operating cash from our equity investments in our CLOs and securitizations, which will cease if the CLOs and securitizations fail to meet certain tests. Through December 31, 2024, we did not experience difficulty in maintaining our existing securitization financing and passed all of the critical tests required by these financings.
We believe that certain of our policies are critical because they require us to make difficult, subjective and complex judgments about matters that are inherently uncertain. The critical policies summarized below relate to valuation of investment securities, accounting for derivative financial instruments and hedging activities, income taxes, allowance for credit losses and variable interest entities (“VIEs”).
We believe that certain of our policies are critical because they require us to make difficult, subjective and complex judgments about matters that are inherently uncertain. The critical policies summarized below relate to valuation of investment securities, income taxes, allowance for credit losses and variable interest entities (“VIEs”).
Payment is due at the time that goods or services are rendered or billed. Variable Interest Entities We consolidate entities that are VIEs where we have determined that we are the primary beneficiary of such entities.
Payment is due at the time that goods or services are rendered or billed. (Back to Index) 77 (Back to Index) Variable Interest Entities We consolidate entities that are VIEs where we have determined that we are the primary beneficiary of such entities.
Our ability to meet our on-going liquidity needs is subject to our ability to generate cash from operating activities, which was $45.6 million for the year ended December 31, 2023, and our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to below.
Our ability to meet our on-going liquidity needs is subject to our ability to generate cash from operating activities, which was $19.4 million for the year ended December 31, 2024, and our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to below.
Off-Balance Sheet Arrangements General At December 31, 2023, we did not maintain any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements or contractually narrow or limited purposes, although we do have interests in unconsolidated entities not established for those purposes.
(Back to Index) 74 (Back to Index) Off-Balance Sheet Arrangements General At December 31, 2024, we did not maintain any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements or contractually narrow or limited purposes, although we do have interests in unconsolidated entities not established for those purposes.
We reevaluate our current expected credit losses ("CECL") allowance quarterly, incorporating our current expectations of macroeconomic factors considered in the determination of our CECL reserves. At December 31, 2023, the CECL allowance on our CRE loan portfolio was $28.8 million or 1.5% of our $1.9 billion loan portfolio.
We reevaluate our current expected credit losses ("CECL") allowance quarterly, incorporating our current expectations of macroeconomic factors considered in the determination of our CECL reserves. At December 31, 2024, the CECL allowance on our CRE loan portfolio was $32.8 million or 2.2% of our $1.5 billion loan portfolio.
Effective July 30, 2024, the Series C Preferred Stock will convert from its fixed rate of 8.625% to a floating rate equal to three-month LIBOR plus a spread of 5.927%, but at no time shall the floating rate be less than 8.625%.
Effective July 30, 2024, the Series C Preferred Stock converted from its fixed rate of 8.625% to a floating rate equal to three-month Term SOFR plus a spread of 5.927%, but at no time shall the floating rate be less than 8.625%.
(Back to Index) 78 (Back to Index) We depreciate investments in real estate and amortize intangible assets over the estimated useful lives of the assets as follows: Category Term Building 35 to 40 years Building improvements 5 to 39 years Site improvements 10 years Tenant improvements Shorter of lease term or expected useful life Furniture, fixtures and equipment 1 to 12 years Right of use assets 7 to 94 years Intangible assets 90 days to 18 years Lease liabilities 7 to 94 years Revenue Recognition Interest income from our loan portfolio is recognized over the life of each loan using the effective interest method and is recorded on the accrual basis.
We depreciate investments in real estate and amortize intangible assets over the estimated useful lives of the assets as follows: Category Term Building 35 to 40 years Building improvements 1 to 39 years Site improvements 10 years Tenant improvements Shorter of lease term or expected useful life Furniture, fixtures and equipment 1 to 12 years Right of use assets 3 to 99 years Intangible assets 3 months to 18 years Lease liabilities Shorter of lease term or expected useful life Revenue Recognition Interest income from our loan portfolio is recognized over the life of each loan using the effective interest method and is recorded on the accrual basis.
You are encouraged to reference the discussion and analysis of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2022 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” within that report.
You are encouraged to reference the discussion and analysis of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2023 in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" within that report.
At December 31, 2023 and 2022, we had unrealized gains of $164,000 and $256,000, respectively, attributable to two terminated interest rate swaps, in accumulated other comprehensive loss on the consolidated balance sheets, to be accreted into earnings over the remaining life of the debt.
(Back to Index) 60 (Back to Index) At December 31, 2024 and 2023, we had unrealized gains of $73,000 and $164,000, respectively, attributable to two terminated interest rate swaps, in accumulated other comprehensive loss on the consolidated balance sheets, to be accreted into earnings over the remaining life of the debt.
(6) Outstanding borrowings are collateralized by a student housing construction project. Value of collateral and number of positions as collateral related to Oceanview Life and Annuity Company also applies to Florida Pace Funding Agency. (7) Includes $1.3 million of deferred debt issuance costs at December 31, 2023. There were no deferred debt issuance costs at December 31, 2022.
(6) Outstanding borrowings are collateralized by a student housing construction project. Value of collateral and number of positions as collateral related to Oceanview Life and Annuity Company also applies to Florida Pace Funding Agency. (7) Includes $101,000 and $1.3 million of deferred debt issuance costs at December 31, 2024 and 2023, respectively.
These sources of liquidity were offset by our paydowns on our senior secured and term warehouse facilities, deployments in CRE whole loans and real estate investments, repurchases of common stock, distributions on our preferred stock and ongoing operating expenses and substantially resulted in the $83.4 million of unrestricted cash we held at December 31, 2023.
These sources of liquidity were offset by our paydowns on term warehouse facilities, deployments in CRE whole loans and real estate investments, repurchases of common and preferred stock, distributions on our preferred stock and ongoing operating expenses and substantially resulted in the $56.7 million of unrestricted cash we held at December 31, 2024.
(6) Lease liabilities includes a ground rent lease for a hotel property with a remaining term of 93 years and an annual growth rate of 3%.
(6) Lease liabilities include a ground rent lease for a hotel property with a remaining term of 92 years and an annual growth rate of 3%.
At December 31, 2023, our par-value $1.9 billion floating-rate CRE loan portfolio had a weighted average benchmark floor of 0.70%. At December 31, 2022, our par-value $2.1 billion floating rate CRE loan portfolio, which included one whole loan without a benchmark floor, had a weighted average benchmark floor of 0.68%.
At December 31, 2024, our par-value $1.5 billion CRE loan portfolio had a weighted average benchmark floor of 0.97%. At December 31, 2023, our par-value $1.9 billion floating rate CRE loan portfolio, which included one whole loan without a benchmark floor, had a weighted average benchmark floor of 0.70%.
At December 31, 2023, we had financing arrangements as summarized below (in thousands, except amounts in footnotes): Execution Date Maturity Date Maximum Capacity Facility Principal Outstanding Availability Senior Secured Financing Facility (1) Massachusetts Mutual Life Insurance Company July 2020 June 2028 $ 500,000 $ 64,495 $ 435,505 CRE - Term Warehouse Financing Facilities (2) JPMorgan Chase Bank, N.A.
At December 31, 2024, we had financing arrangements as summarized below (in thousands, except amounts in footnotes): Execution Date Maturity Date Maximum Capacity Facility Principal Outstanding Availability Senior Secured Financing Facility (1) Massachusetts Mutual Life Insurance Company July 2020 June 2028 $ 500,000 $ 63,099 $ 436,901 CRE - Term Warehouse Financing Facilities (2) JPMorgan Chase Bank, N.A.
While the U.S Federal Reserve has signaled they may lower rates in 2024, there is no certainty with respect to the timing and pace of potential decreases or if such decreases will occur. Interest rates may remain at or near recent highs, which creates further uncertainty for the economy and our borrowers.
While the U.S Federal Reserve has lowered rates in September, November and December 2024, there is no certainty with respect to the timing and pace of potential future decreases or if such decreases will continue to occur. Interest rates may remain at or near recent highs, which creates further uncertainty for the economy and our borrowers.
(Back to Index) 63 (Back to Index) Senior Secured Financing Facility On July 31, 2020, our indirect, wholly owned subsidiary (“Holdings”), along with its direct wholly owned subsidiary (the “Borrower”), entered into a $250.0 million Loan and Servicing Agreement (the “MassMutual Loan Agreement”) with Massachusetts Mutual Life Insurance Company (“MassMutual”) and the other lenders party thereto (the “Lenders”).
(Back to Index) 61 (Back to Index) Senior Secured Financing Facility On July 31, 2020, our indirect, wholly owned subsidiary ("Holdings"), along with its direct wholly owned subsidiary (the "Borrower"), entered into a $250.0 million Loan and Servicing Agreement (the “MassMutual Loan Agreement”) with Massachusetts Mutual Life Insurance Company ("MassMutual") and the other lenders party thereto (the "Lenders").
The following table sets forth certain information with respect to our borrowings (dollars in thousands, except amounts in footnotes): December 31, 2023 December 31, 2022 Outstanding Borrowings Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate Outstanding Borrowings Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate Senior Secured Financing Facility Massachusetts Mutual Life Insurance Company (1) $ 61,568 $ 157,722 7 9.14% $ 87,890 $ 196,837 8 7.94% CRE - Term Warehouse Financing Facilities (2) JPMorgan Chase Bank, N.A.
The following table sets forth certain information with respect to our borrowings (dollars in thousands, except amounts in footnotes): December 31, 2024 December 31, 2023 Outstanding Borrowings Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate Outstanding Borrowings Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate Senior Secured Financing Facility Massachusetts Mutual Life Insurance Company (1) $ 60,910 $ 162,578 6 8.22% $ 61,568 $ 157,722 7 9.14% CRE - Term Warehouse Financing Facilities (2) JPMorgan Chase Bank, N.A.
See “Interest Rate Risk” in “Item 7A: Quantitative and Qualitative Disclosures About Market Risk.” (Back to Index) 45 (Back to Index) Our portfolio comprises loans with a diverse array of collateral types and locations.
See "Interest Rate Risk" in "Item 7A: Quantitative and Qualitative Disclosures About Market Risk." (Back to Index) 45 (Back to Index) Our portfolio comprises loans with a diverse array of collateral types and locations.
(2) Outstanding borrowings includes accrued interest payable. (3) Includes $1.6 million and $1.1 million of deferred debt issuance costs at December 31, 2023 and 2022, respectively. (4) Includes $647,000 and $1.4 million of deferred debt issuance costs at December 31, 2023 and 2022, respectively. (5) Includes $259,000 and $466,000 of deferred debt issuance costs at December 31, 2023 and 2022.
(2) Outstanding borrowings includes accrued interest payable. (3) Includes $988,000 and $1.6 million of deferred debt issuance costs at December 31, 2024 and 2023, respectively. (4) Includes $539,000 and $647,000 of deferred debt issuance costs at December 31, 2024 and 2023, respectively. (5) Includes $52,000 and $259,000 of deferred debt issuance costs at December 31, 2024 and 2023, respectively.
(8) Includes net amortization expense of $1.6 million and $1.7 million for the years ended December 31, 2023 and 2022, respectively, on 20 and 22 terminated interest rate swap agreements, respectively, that were in net loss positions at the time of termination.
(6) Includes net amortization expense of $1.6 million for each of the years ended December 31, 2024 and 2023 on 20 terminated interest rate swap agreements that were in net loss positions at the time of termination.
The outstanding balance of our loan to ACRES Capital Corp., the parent of our Manager, was $11.0 million and $11.3 million at December 31, 2023 and 2022, respectively.
The outstanding balance of our loan to ACRES Capital Corp., the parent of our Manager, was $10.7 million and $11.0 million at December 31, 2024 and 2023, respectively.
(4) We calculated common stock book value as total stockholders’ equity of $435.8 million less preferred stock equity of $226.5 million at December 31, 2023. Management Agreement Equity Our monthly base management fee, as defined in our Management Agreement, is equal to 1/12th of the amount of our equity multiplied by 1.50% and is calculated and paid monthly in arrears.
(4) We calculated common stock book value as total stockholders’ equity of $439.1 million less preferred stock equity of $224.0 million at December 31, 2024. Management Agreement Equity Our monthly base management fee, as defined in our Management Agreement, is equal to 1/12th of the amount of our equity multiplied by 1.50% and is calculated and paid monthly in arrears.
Whole loans had $109.4 million and $158.2 million in unfunded loan commitments at December 31, 2023 and 2022, respectively. Unfunded commitments are not considered in the CECL reserve if they are unconditionally cancellable.
Whole loans had $94.0 million and $109.4 million in unfunded loan commitments at December 31, 2024 and 2023, respectively. Unfunded commitments are not considered in the CECL reserve if they are unconditionally cancellable.
Accounting Standards to be Adopted in Future Periods In November 2023, the FASB issued guidance to improve reportable segment disclosure requirements, enhance interim disclosure requirements and provide new segment disclosure requirements for entities with a single reportable segment.
Recent Accounting Pronouncements Accounting Standards Adopted in 2024 In November 2023, the FASB issued guidance to improve reportable segment disclosure requirements, enhance interim disclosure requirements and provide new segment disclosure requirements for entities with a single reportable segment.
(8) Includes $419,000 of deferred debt issuance costs at December 31, 2023. There were no deferred debt issuance costs at December 31, 2022. We were in compliance with all covenants in the respective agreements at December 31, 2023 and 2022.
(8) Includes $405,000 and $419,000 of deferred debt issuance costs at December 31, 2024 and 2023, respectively. We were in compliance with all covenants in the respective agreements at December 31, 2024 and 2023.
Our investments in unconsolidated entities at December 31, 2023 and 2022 comprised a 100% interest in the common shares of Resource Capital Trust I (“RCT I”) and RCC Trust II (“RCT II”), respectively, with a value of $1.5 million in the aggregate, or 3.0% of each trust.
Our investments in unconsolidated entities at December 31, 2024 and 2023 comprised a 100% interest in the common shares of Resource Capital Trust I ("RCT I") and RCC Trust II ("RCT II"), respectively, with a value of $1.5 million in the aggregate, or 3.0% of each trust, our investment in 65 E.
During the years ended December 31, 2023 and 2022, we recorded amortization expense, reported in interest expense on the consolidated statements of operations, of $1.7 million and $1.8 million, respectively.
During the years ended December 31, 2024 and 2023, we recorded amortization expense, reported in interest expense on the consolidated statements of operations, of $1.7 million in each year.
During the years ended December 31, 2023 and 2022, we recorded accretion income, reported in interest expense on the consolidated statements of operations, of $91,000 in each year.
During the years ended December 31, 2024 and 2023, we recorded accretion income, reported in interest expense on the consolidated statements of operations, of $92,000 and $91,000, respectively.
These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial investments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.
Disbursement of funds pursuant to these commitments is subject to the borrower meeting pre-specified criteria. These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial investments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+0 added−0 removed14 unchanged
Biggest changeThe following table estimates the hypothetical impact on our net interest income assuming an immediate increase or decrease of 100 basis points in the applicable interest rate benchmark (in thousands, except per share data): Year Ended December 31, 2023 100 Basis Point Decrease (4) 100 Basis Point Increase Net Assets Subject to Interest Rate Sensitivity (1)(2)(3) Increase (Decrease) to Net Interest Income Increase (Decrease) to Net Interest Income Per Share Increase (Decrease) to Net Interest Income Increase (Decrease) to Net Interest Income Per Share $ 361,860 $ (3,644 ) $ (0.43 ) $ 3,669 $ 0.43 (1) Includes our floating-rate CRE loans at December 31, 2023.
Biggest changeThe following table estimates the hypothetical impact on our net interest income assuming an immediate increase or decrease of 100 basis points in the applicable interest rate benchmark (in thousands, except per share data): Year Ended December 31, 2024 100 Basis Point Decrease (4) 100 Basis Point Increase Net Assets Subject to Interest Rate Sensitivity (1)(2)(3) Increase (Decrease) to Net Interest Income Increase (Decrease) to Net Interest Income Per Share Increase (Decrease) to Net Interest Income Increase (Decrease) to Net Interest Income Per Share $ 343,963 $ (3,195 ) $ (0.41 ) $ 3,487 $ 0.44 (1) Includes our floating-rate CRE loans at December 31, 2024.
Counterparty Risk The nature of our business requires us to hold our cash and cash equivalents and obtain financing from with various financial institutions. This exposes us to the risk that these financial institutions may not fulfill their obligations to us under these various contractual arrangements.
Counterparty Risk The nature of our business requires us to hold our cash and cash equivalents and obtain financing with various financial institutions. This exposes us to the risk that these financial institutions may not fulfill their obligations to us under these various contractual arrangements.
At December 31, 2023, 99.7% of our CRE loan portfolio by par value earned a floating rate of interest and may be financed with liabilities that both pay interest at floating rates and that are fixed. Floating-rate loans financed with fixed rate liabilities have a negative correlation with declining interest rates to the extent of our financing.
At December 31, 2024, 99.7% of our CRE loan portfolio by par value earned a floating rate of interest and may be financed with liabilities that both pay interest at floating rates and that are fixed. Floating-rate loans financed with fixed rate liabilities have a negative correlation with declining interest rates to the extent of our financing.
(Back to Index) 80 (Back to Index) In a business environment where benchmark interest rates are increasing significantly, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default.
(Back to Index) 78 (Back to Index) In a business environment where benchmark interest rates are increasing significantly, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default.
We mitigate this exposure by depositing our cash and cash equivalents and entering into financing agreements with high credit-quality institutions. Financing Risk We finance our target assets using our CRE debt securitizations, a senior secured financing facility, warehouse financing facilities, mortgage payable and construction loans.
We mitigate this exposure by depositing our cash and cash equivalents and entering into financing agreements with high credit-quality institutions. Financing Risk We finance our target assets using our CRE debt securitizations, a senior secured financing facility, warehouse financing facilities, mortgages payable and construction loans.
ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK At December 31, 2023, the primary components of our market risk were credit risk, counterparty risk, financing risk and interest rate risk, as described below.
ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK At December 31, 2024, the primary components of our market risk were credit risk, counterparty risk, financing risk and interest rate risk, as described below.
We generally seek to manage our interest rate risk by monitoring and adjusting, if necessary, the reset index and interest rate related to our borrowings. (Back to Index) 81 (Back to Index)
We generally seek to manage our interest rate risk by monitoring and adjusting, if necessary, the reset index and interest rate related to our borrowings. (Back to Index) 79 (Back to Index)
In most cases the sponsors will need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. At December 31, 2023, 85.4% of the par value of our CRE loan portfolio had interest rate caps in place with a weighted-average maturity of six months.
In most cases the sponsors will need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. At December 31, 2024, 74.7% of the par value of our CRE loan portfolio had interest rate caps in place with a weighted-average maturity of six months.
Our floating-rate loan portfolio of $1.9 billion has a weighted-average benchmark floor of 0.70% at December 31, 2023.
Our floating-rate loan portfolio of $1.5 billion has a weighted-average benchmark floor of 0.97% at December 31, 2024.

Other ACR 10-K year-over-year comparisons