ACRE Q3 2026 earnings call transcript, November 6, 2026

Good morning, everyone, and thank you for joining us. I'm here today with Jeff Gonzalez, our CFO, as well as other members of the Management and Investor Relations. Overall, the commercial real estate market remains moderately constructive as the recent rise in interest rates runs counter to the generally positive underlying property fundamentals. We believe at times like these it is valuable to be a part of the scale that ARIES platform which provides us with differentiated market insights and a deep pipeline of opportunities allowing us to remain patient and highly selective as the market continues to adjust to these macro drivers during the third quarter and so far in the fourth quarter, we sold one of our two REO properties, we were fully repaid on our only loan in default, and we made progress on our risk-graded four and five loans. Leading off of the REO property, we completed the sale of the charlotte north carolina office asset in the third quarter with net proceeds of approximately $7 million above our carrying value. When we acquired title in 2024, we believe that our own ownership would allow us to enhance the value of the property, benefit from a relatively attractive cash flow yield, and control the exit. in a more constructive environment. This successful exit underscores the merits of our view. The strength of our active management approach and the benefits of our balance sheet position.

Supported by this outcome, our office loan and office REO investments totaled $444 million at the end of the third quarter down 10% quarter over quarter and 19% year over year. There are seven remaining office loans of which five are risk rated one through three. And continue to exhibit stable to improving performance with sponsor support to further advance. Their respective business plans. Additionally, subsequent to quarter end, the $28 million Newark, New Jersey, industrial loan that had been in maturity default was fully repaid including all accrued default interest. Now let us discuss the advancement towards resolutions across four risk rated foreign five loans. As of 3Q2026, the Chicago office loan and the Brooklyn residential condo loan accounted for 95% of the outstanding principal balance of risk-rated four and five loans. Starting with the Chicago office loan. Our goal is to accelerate the resolution of this loan and have therefore recently begun the. Process of acquiring title to the property. We believe this action will provide us with greater concern. Control over the sales process while benefiting from the cash flow of the property. Importantly, fundamentals of the property. The property remains stable with occupancy above 90% and a weighted average lease term. Over seven years. The property's operating cash flow relative to our carrying value, net of CECL, as of September.

30th, 2026 represents a double digit debt yield. Taken together. With the balance sheet flexibility we have maintained, we believe we have the ability to better determine the optimal outcome for this asset. Turning to the Brooklyn residential condo. During the quarter, construction was completed supporting increased marketing and greater buyer interest. We continue to monitor the potential impact of higher interest rates on buyer behavior. We remain encouraged by activity at the property as traffic has continued to pick up since Labor Day, and early market signs remain positive. As we have increased visibility of timing and proceeds from condominium sales based on the progression of the project, we have greater clarity into the probability of our financial results, which was one of the primary factors that drove the adjustment of the risk rating from a 4 to a 5. with respect to timing of recognizing losses as a condominium project proportional losses will be recognized as individual unit sales are closed. The remaining two risk-rated forms of $25.5 loans total $20 million of carrying value at quarter end, or $6 million net of related CESIL reserves. Collectively, the four risk-graded four and five loans represent 10% of carrying value net of related CESIL reserves. While we continue to make progress on our risk-graded four and five loans, we selectively added to the- Portfolio. Supported by the depth and breadth of the ARIES platform, we continue to-

the compelling opportunities to invest. However, as we have long communicated, the- The pace of portfolio growth reflects our management of liquidity, the pace of resolutions, and our assessment- of market conditions. To that end, during the third quarter, we close one new senior co-investment loan on a- portfolio of industrial properties with a $35 million commitment, of which $28 million- is classified as held for investment and $7 million- was classified as held for sale and thereafter sold. Over the past 12 months, ACRE's portfolio has increased over 40 percent. We believe the ARIES platform provides us with a scale, deep market insights, and broad opportunity set. To selectively invest in loans that we believe offer attractive, risk-adjusted returns. By leveraging the ARIES real estate debt platform, which has completed nearly $10 billion of new loan commitments globally. over the past 12 months and co-investing alongside other ARIES managed vehicles. ACRE is able to access what we believe are high-quality investment opportunities. This scale enables ACRE. to drive greater portfolio diversification objectives while participating in larger institutional quality loans. Despite a backdrop of higher interest rates, we continue to see generally higher interest rates. Healthy fundamentals in our risk-rated one through three loans. These loans represent 90 percent. of our loan portfolio carrying value net of related CESL. Given the change in . . .

interest rates and the market's focus on multifamily assets, let me now provide a little bit more specificity. on the positioning of our multifamily portfolio. Following the full repayment of our largest multifamily loan in October, we now have six multifamily loans. Four of the loans were originated in 2020. five or 2026 and continue to make progress on their business plans the two 2025 vintage multifamily loans continue to benefit from strong sponsorship and structural protection. Subsequent to quarter end, the larger of these two loans, a 16-year-old loan is a 16-year-old loan. $67 million multifamily loan in San Antonio, Texas, was extended after the... The sponsor contributed new equity to reduce the principal amount of the loan. In addition, the loan... benefits from the partial principal guarantee as well as interest and carry guarantees for the remainder of the loan. loan term. The other pre-2025 loan, a $57 million multi-family loan in Cincinnati, Ohio, qualified for contractual extension, given property performance exceeded its required extension tests. Encouraged by the performance of our risk-rated one through three loans, including both our multifamily and the office. Portfolios. The stability of our risk-rated one through three risk ratings. And the level of our overall CESA reserve reinforce our view of the underlying health and quality. Of our portfolio. In conclusion, we're proud of our progress this year while recognizing there is more work.

To do. Our focus remains clear. Number one, resolving our remaining . . . IPO asset and risk-graded 4 and 5 loans, including loans that are on nonaccrual, which in the . . . you get total approximately $160 million of carrying value, net of CECL. of associated financing, and two, deploying our available capital in a disciplined manner. to drive additional portfolio growth utilizing cost-efficient leverage. As we execute in our business plan, we believe that the resolution of our non-accruing investments represents a more significant potential driver of our investment. Earnings growth as those resolutions can redeploy capital currently generating little or no income. into new earning assets. Combined with the diversification and repositioning of our portfolio, we expect our actions to drive EPS growth and support earnings that meet or exceed our dividend while delivering long-term value for shareholders. With that, I'll turn the call over to Jeff, who will walk through our third quarter financial results.

For the third quarter of 2026, we reported gap net income of approximately $10 million. Or $0.18 per diluted common share. Our distributable earnings for the third quarter of 2026, was approximately $6.7 million, or $0.12 per diluted common share. This includes the impact from the net realized gain of $300,000 or one cent per diluted common share related to the sale of the North Carolina office REO property, Brian. previously mentioned. For distributable earnings purposes, the $7.1 million cap gain is adjusted to exclude the impact of accumulated depreciation and amortization. charges were not previously recognized in distributable earnings since the acquisition of the REO property. Distributable earnings for the third quarter, excluding this realized net gain, was approximately $6.4 million. Or 11 cents per diluted common share. Additionally, during the third quarter, we collected $1.7 million, or 3 cents per diluted common share, of cash interest on loans. that were on non-accrual, and was accounted for as a reduction in our loan basis. Turning to liquidity and leverage, we've made meaningful progress towards strengthening and diversifying our funding model, with a focus on creating greater capacity, flexib- and efficiency as we reposition the portfolio. We continue to maintain moderate leverage, which supports- further resolutions of underperforming loans and future growth. We ended the quarter with-

a net debt to equity ratio excluding CECL of 1.9 times. In the third quarter of 2026, we collected $35 million of repayments, bringing year-to-date total repayments to $140 million.

Given the timing of repayments and resolutions during the quarter. We closed one new senior co-investment loan on a portfolio of industrial properties with. A $35 million commitment, of which $28 million is classified as health or investment, and $7 million was classified as health. Sale at origination and sold during the quarter. During the period between origination the completion of the sale, we earned interest and fee income on the portion of the loan classified as held for sale.

While the loan help for sale this quarter was small relative to the overall portfolio, we continue to believe this strategy of short-term origination provides an efficient way to deploy excess liquidity. preserving balance sheet flexibility for longer-term investment opportunities. As we continue to address our remaining risk-rated four and five loans, office loans, and REO properties. We remain focused on maintaining a flexible balance sheet. As of September 13th, 30th, 2026, available capital totaled $116 million, providing ample liquidity. to support asset resolution and selective deployment of capital into new investment opportunities. Our balance sheet also benefits- from a well-matched asset and liability profile with predominantly floating rate assets and liabilities. to that end subsequent to quarter end we fully repaid the secured term loan and its term was not extended. The repayment of the term loan was supported by our flexible balance sheet position and reflects our broader strategy to optimize and align our financing. with the evolving composition of the portfolio. As part of this strategy, we all also consider the interest rate structure of our portfolio. Importantly, we have intentionally structured both our assets and liabilities. With features designed to mitigate interest rate risk. Currently, ACRE's predominately floating rate portfolio is 100 percent. Finance with floating rate borrowing, providing a natural alignment between our assets and liabilities.

At the individual loan level, we also seek to employ structural protections that mitigate the impact of changes in interest rates while our borrowers execute their resources. We also seek to support our respective business plans. Across our risk-graded 1 to 3 loans, 100% are floating. And 94% have interest rate caps with an average 1-month SOFR strike rate of 4.5%. Importantly, the expiration of these caps generally aligns with the... ...of the underlying loans. More broadly, we underwrite and stress test our loans for potential rate fluctuations and continue... ...monitor the portfolio. Now turning to our CESOL reserve, the total CESOL reserve remained relatively stable... ...for the second consecutive quarter at $141 million as of September 30, 2020. ...an increase of approximately $2 million from the CECL Reserve as of June 30, 2026. This increase was large... ...attributed to certain asset level changes in our risk-rated 4 and 5 loans, as well as a relative... ...decline in the macroeconomic forecasts compared to the prior quarter. The total CISA reserve at the end of the third quarter of... $141 million represents approximately 8% of the total outstanding principal balance of our loans, health, or investments. 94% of our total CISO reserve or $133 million relates to risk-graded four and five loans and nearly half of the total CISO reserve is attributed to the risk-graded five.

Chicago office loan. Overall, the $133 million of reserves attributed to the U.S. to our risk-rated four and five loans represent approximately 34 percent of the outstanding principal balance. of those risk-rated four and five loans. Our book value represents $1.5 million. Remained relatively stable at $8.86 per share. This continued stability. Flex the progress we have made, repositioning the portfolio and paired with stable CESA reserve is increasingly evident of the strength and health of. the overall portfolio. To conclude, the board declared a regular cash dividend of $0.15 per common share for the fourth quarter of 2026.

will be payable on january 15th 2027 to common stockholders of record as of december 31st 2026. at our current stock price on november 3rd 2026 the annualized dividend yield on our third quarter dividend is approximately 18 percent. with that i will turn the call back over to brian for some closing remarks

thank you jeff as we look ahead we believe acre is increasingly well positioned to benefit from the progress we have made repositioning the portfolio we have greater diversification a growing mix of newer vintage loans and a flexible balance sheet while continuing to advance resolutions across our remaining risk-rated 4 and 5 loans. We believe executing against the strategy we outlined today can drive earnings growth over time while maintaining the discipline and flexibility that remains central to our strategy.

With J.P. Morgan, your line is open. Yeah, hey, this is Hong on for Rick. Yes, it relates to the Brooklyn condo loan. Could you provide some color on how you expect the case of units? So going forward and do you expect just given the fact that you recognize losses? Something where we should just expect, I guess, a short trip of losses of this quarter until the fifth.