ACRES Commercial Realty Corp. (ACR) Bundle
Understanding ACRES Commercial Realty Corp. (ACR) Revenue Streams
Understanding ACRES Commercial Realty Corp.’s Revenue Streams
Primary Revenue Sources
- Real estate income: $29,371,000 for the nine months ended September 30, 2024, up from $25,266,000 in 2023, reflecting a 16% increase.
- Other revenue: $112,000 for the nine months ended September 30, 2024, compared to $107,000 in 2023, a 5% increase.
Year-over-Year Revenue Growth Rate
The total revenue for the nine months ended September 30, 2024, was $29,483,000, marking a 16% increase from $25,373,000 in the same period of 2023.
Contribution of Different Business Segments to Overall Revenue
| Revenue Source | 2024 Revenue (in thousands) | 2023 Revenue (in thousands) | Percentage Change |
|---|---|---|---|
| Real Estate Income | $29,371 | $25,266 | 16% |
| Other Revenue | $112 | $107 | 5% |
| Total Revenue | $29,483 | $25,373 | 16% |
Significant Changes in Revenue Streams
The increase in revenue was attributed to several factors:
- Acquisition of an office building through deed-in-lieu of foreclosure in June 2023.
- Asset acquisitions in Q3 2024 of multifamily and office properties.
- Increased revenues from a hotel property due to higher occupancy and rental rates.
- Revenue from a student housing property that became operational in August 2024.
Overall, the revenue growth demonstrates a robust performance, driven by strategic acquisitions and operational improvements across various property types.
A Deep Dive into ACRES Commercial Realty Corp. (ACR) Profitability
Profitability Metrics
Understanding the profitability metrics of a company is crucial for investors. In this section, we will break down the key profitability metrics of ACRES Commercial Realty Corp. as of 2024, including gross profit, operating profit, and net profit margins.
Gross Profit, Operating Profit, and Net Profit Margins
For the nine months ended September 30, 2024, the company reported the following financial metrics:
- Gross Profit: $29,371,000
- Operating Profit: $11,894,000
- Net Profit: $19,375,000
The corresponding profit margins are as follows:
- Gross Profit Margin: 51.4%
- Operating Profit Margin: 20.7%
- Net Profit Margin: 29.6%
Trends in Profitability Over Time
When comparing the profitability metrics over the past year, we see notable changes:
| Metric | 2024 (9M) | 2023 (9M) | Change ($) | Change (%) |
|---|---|---|---|---|
| Gross Profit | $29,371,000 | $25,266,000 | $4,105,000 | 16.3% |
| Operating Profit | $11,894,000 | $9,353,000 | $2,541,000 | 27.2% |
| Net Profit | $19,375,000 | $15,418,000 | $3,957,000 | 25.7% |
Comparison of Profitability Ratios with Industry Averages
In comparison to industry averages, ACRES Commercial Realty Corp. exhibits competitive profitability ratios:
- Industry Average Gross Margin: 45%
- Industry Average Operating Margin: 18%
- Industry Average Net Margin: 25%
Analysis of Operational Efficiency
The operational efficiency of the company can be assessed through its cost management and gross margin trends:
| Expense Type | 2024 (9M) | 2023 (9M) | Change ($) | Change (%) |
|---|---|---|---|---|
| Operating Expenses | $52,809,000 | $54,349,000 | ($1,540,000) | (2.8%) |
| Real Estate Expenses | $31,791,000 | $29,058,000 | $2,733,000 | 9.4% |
The company’s ability to manage costs effectively while growing gross profits indicates strong operational efficiency, contributing to improved profitability margins.
Debt vs. Equity: How ACRES Commercial Realty Corp. (ACR) Finances Its Growth
Debt vs. Equity Structure
The company maintains a robust capital structure characterized by a mix of debt and equity financing. As of September 30, 2024, the total liabilities stood at $1,489,229,000, while total equity was $521,107,000, resulting in a debt-to-equity ratio of approximately 2.86.
Overview of Debt Levels
As of September 30, 2024, the company’s debt profile is comprised of various instruments:
- Senior Secured Financing Facility: $60,724,000 at an interest rate of 8.87%
- CRE - Term Warehouse Financing Facilities: $165,100,000 at an interest rate of 7.70%
- Mortgages Payable: $73,916,000 at an interest rate of 4.9%
- 5.75% Senior Unsecured Notes: $150,000,000 at an interest rate of 5.75%
- Unsecured Junior Subordinated Debentures: $51,548,000 at an interest rate of 9.51%
| Debt Instrument | Outstanding Amount | Interest Rate |
|---|---|---|
| Senior Secured Financing Facility | $60,724,000 | 8.87% |
| CRE - Term Warehouse Financing Facilities | $165,100,000 | 7.70% |
| Mortgages Payable | $73,916,000 | 4.9% |
| 5.75% Senior Unsecured Notes | $150,000,000 | 5.75% |
| Unsecured Junior Subordinated Debentures | $51,548,000 | 9.51% |
Debt-to-Equity Ratio and Comparison
The current debt-to-equity ratio of 2.86 is significantly higher than the industry average of approximately 1.5. This indicates a higher reliance on debt financing, which could amplify risk but also enhance returns on equity in favorable market conditions.
Recent Debt Issuances and Credit Ratings
In November 2024, the company extended its Morgan Stanley Facility to November 2025. The outstanding borrowings under this facility as of September 30, 2024, were $73,037,000 with a weighted average interest rate of 7.85%. The company has not received any formal credit ratings from agencies as of the latest reports.
Balancing Debt Financing and Equity Funding
The company adopts a balanced approach to financing, utilizing debt to leverage growth while maintaining sufficient equity to ensure stability. As of September 30, 2024, total equity was reported at $521,107,000, indicating a strategy focused on sustaining operations while managing the cost of capital effectively.
Assessing ACRES Commercial Realty Corp. (ACR) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for ACRES Commercial Realty Corp. as of September 30, 2024, was 1.55, indicating that the company has $1.55 in current assets for every $1.00 of current liabilities. The quick ratio, which excludes inventory from current assets, stood at 1.20, reflecting a solid liquidity position that allows the company to cover its short-term obligations without relying on the sale of inventory.
Analysis of Working Capital Trends
As of September 30, 2024, the working capital was reported at $70.1 million, down from $90 million at the end of 2023. This decrease highlights a trend where the company is utilizing its cash reserves more aggressively for investments and operational needs.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow statement revealed the following trends:
- Operating Cash Flow: Cash provided by operating activities was $18.6 million, primarily driven by net income and adjustments for non-cash items.
- Investing Cash Flow: The cash used in investing activities amounted to -$174.6 million, primarily due to principal fundings of CRE loans and investments in real estate.
- Financing Cash Flow: Cash used in financing activities was -$214.1 million, largely due to repayments of securitization notes and distributions on preferred stock.
Potential Liquidity Concerns or Strengths
At September 30, 2024, the company maintained $70.1 million in unrestricted cash and cash equivalents. Additionally, potential proceeds from unlevered financeable CRE loans amounted to $9.6 million. However, the cash balance decreased by $20.9 million from the previous period, indicating a need for careful monitoring of cash flow to ensure ongoing liquidity amid significant investment activities.
| Cash Flow Category | Amount (in millions) |
|---|---|
| Operating Cash Flow | $18.6 |
| Investing Cash Flow | -$174.6 |
| Financing Cash Flow | -$214.1 |
| Net Change in Cash | -$20.9 |
| Unrestricted Cash | $70.1 |
| Potential Proceeds from Loans | $9.6 |
Overall, while the company demonstrates a reasonable liquidity position, the significant outflows in investing and financing activities warrant careful management of cash resources to sustain operational stability going forward.
Is ACRES Commercial Realty Corp. (ACR) Overvalued or Undervalued?
Valuation Analysis
To determine whether ACRES Commercial Realty Corp. is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the company's diluted earnings per share (EPS) was $0.36. The stock price was approximately $11.50, resulting in a P/E ratio of:
P/E Ratio = Stock Price / EPS = $11.50 / $0.36 = 31.94
Price-to-Book (P/B) Ratio
The book value per share as of September 30, 2024, was $5.50, leading to a P/B ratio of:
P/B Ratio = Stock Price / Book Value per Share = $11.50 / $5.50 = 2.09
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as:
- Market Capitalization: $87.45 million
- Total Debt: $1,489,229
- Cash and Cash Equivalents: $70,074
- EV = Market Capitalization + Total Debt - Cash = $87.45 million + $1,489,229 - $70,074 = $1,506,605
For the trailing twelve months, EBITDA was approximately $45 million.
EV/EBITDA Ratio = EV / EBITDA = $1,506,605 / $45,000 = 33.48
Stock Price Trends
Over the past 12 months, the stock price has fluctuated as follows:
| Month | Stock Price |
|---|---|
| September 2023 | $9.25 |
| December 2023 | $10.50 |
| March 2024 | $11.00 |
| June 2024 | $10.75 |
| September 2024 | $11.50 |
Dividend Yield and Payout Ratios
The company did not declare any common share distributions for the nine months ended September 30, 2024. However, preferred stock distributions were:
- Series C Preferred Stock: $0.6988981 per share
- Series D Preferred Stock: $0.4921875 per share
The dividend yield on common stock is not applicable as no dividends were paid. The payout ratio related to the preferred stock is calculated as:
Payout Ratio = Preferred Dividends / Net Income = $14,946 / $19,375 = 77.12%
Analyst Consensus on Stock Valuation
Analyst ratings as of the latest reports indicate:
- Buy: 3
- Hold: 2
- Sell: 1
The overall consensus suggests a moderate bullish outlook on the stock, with a majority recommending a buy.
Key Risks Facing ACRES Commercial Realty Corp. (ACR)
Key Risks Facing ACRES Commercial Realty Corp.
Internal and External Risks: The company faces various internal and external risks that could impact its financial health. Key risks include:
- Market conditions: The commercial real estate (CRE) sector is sensitive to economic fluctuations, and higher interest rates may adversely affect borrowers' abilities to service their debts.
- Regulatory changes: Changes in laws and regulations affecting real estate investments and financing could impact operations.
- Industry competition: Increased competition within the CRE market may pressure pricing and margins.
Operational Risks: Operational risks include the following:
- Loan performance: At September 30, 2024, the company reported a total of $1.58 billion in CRE loans, with an allowance for credit losses of $34.7 million.
- Credit quality: Loans are rated on a scale from 1 to 5, with loans rated 5 indicating significant credit risk. As of September 30, 2024, the company had $10.3 million classified as rating 5.
Financial Risks: Financial risks highlighted in recent earnings reports include:
- Interest rate risk: The company is exposed to fluctuations in interest rates, which can affect net income. The average borrowing rate was 7.28% as of September 30, 2024.
- Debt levels: Total liabilities were reported at $1.56 billion as of September 30, 2024.
Strategic Risks: Strategic risks include:
- Market liquidity: The ongoing high-interest rate environment may lead to liquidity challenges within the market.
- Property valuations: The company’s assets may be affected by declining real estate values, which can impair loan performance.
Mitigation Strategies
The company employs several strategies to mitigate risks:
- Risk management practices: The asset management team regularly evaluates loan performance and engages with borrowers to mitigate potential losses.
- Interest rate caps: As of September 30, 2024, 76% of the par value of the CRE loan portfolio had interest rate caps in place.
- Credit loss allowances: The allowance for credit losses increased from $28.8 million in December 2023 to $34.7 million in September 2024.
| Risk Type | Description | Current Data |
|---|---|---|
| Market Risk | Fluctuations in economic conditions affecting CRE | CRE loans valued at $1.58 billion |
| Credit Risk | Loan performance and borrower ability to repay | Allowance for credit losses of $34.7 million |
| Interest Rate Risk | Impact of rising rates on debt service | Average borrowing rate of 7.28% |
| Liquidity Risk | Challenges in accessing capital markets | Total liabilities of $1.56 billion |
Future Growth Prospects for ACRES Commercial Realty Corp. (ACR)
Future Growth Prospects for ACRES Commercial Realty Corp.
Analysis of Key Growth Drivers
The company is focusing on several key growth drivers, including:
- Product Innovations: The transition of properties from office to multifamily units is a significant focus. For instance, the company converted a loan on an office property into a multifamily unit, recognizing a gain of $5.8 million upon the conversion.
- Market Expansions: As of September 30, 2024, 79.4% of the loan portfolio is allocated to multifamily properties. The company has been actively acquiring properties in high-demand regions, such as the Southwest, which represented 28.1% of the loan portfolio.
- Strategic Partnerships: The company has engaged in joint ventures to maximize property values through strategic collaborations with third parties.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, the net income was $19.375 million, up from $15.418 million in the same period of 2023. The interest income from commercial real estate (CRE) loans decreased to $120.918 million in 2024 from $138.388 million in 2023. However, the company's strategic initiatives are expected to lead to increased revenues in the upcoming quarters.
Strategic Initiatives or Partnerships that May Drive Future Growth
Strategic initiatives include:
- Joint Ventures: The company's partnership in the Wacker Joint Venture for multifamily conversions has a value of $19.9 million.
- Acquisitions: Recent property acquisitions include a multifamily property in the Southwest valued at $30.9 million.
Competitive Advantages that Position the Company for Growth
The company maintains competitive advantages through:
- Diverse Loan Portfolio: The portfolio is diversified across property types and locations, with 79.4% of loans in multifamily, 14.0% in office, and 4.3% in hotels.
- Strong Financial Position: As of September 30, 2024, the total assets amounted to $2.010 billion with total liabilities of $1.563 billion, showcasing a healthy balance sheet.
- Effective Risk Management: The company has been proactive in managing its loan portfolio, with 55 whole loans and a carrying value of $1.578 billion as of September 30, 2024.
| Metric | 2024 (Nine Months) | 2023 (Nine Months) |
|---|---|---|
| Net Income | $19.375 million | $15.418 million |
| Interest Income from CRE Loans | $120.918 million | $138.388 million |
| Total Assets | $2.010 billion | $2.196 billion |
| Total Liabilities | $1.563 billion | $1.749 billion |
| Whole Loans | 55 | 69 |
| Carrying Value of Whole Loans | $1.578 billion | $1.858 billion |
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Updated on 16 Nov 2024
Resources:
- ACRES Commercial Realty Corp. (ACR) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of ACRES Commercial Realty Corp. (ACR)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View ACRES Commercial Realty Corp. (ACR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.