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Good morning ladies and gentlemen and welcome to the second quarter 2026 Acres Commercial Realty Corp earnings call. Currently all participants are in a listen only mode Later, we will conduct a question and answer session with instructions to follow at that time. If anyone requires assistance during the conference today, please press star then zero on your telephone. And as a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brengel, Vice President in Operations. Please go ahead, sir.

Good morning, and thank you for joining our call. I would like to highlight that we have posted the second quarter 2026 earnings presentation to our website. This presentation contains summary and detailed information about the quarterly results of the company. Before we begin, I want to remind everyone that certain statements made during this call are not based on historical information and may constitute forward-looking statements. When used in this conference call, the word believes, anticipates, expects, and similar expressions are intended to identify forward-looking statements. Although the company believes these forward-looking statements are based on reasonable assumptions Such statements are based on management's current expectations and beliefs and are subject to several trends, risks, and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms 8K, 10Q, and 10K, and in particular, the risk factor section of its Form 10K. Listeners are cautioned not to place undue reliance on these forward-looking statements. which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures may be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles are contained in the earnings presentation for the quarter. With me on the call today are Mark Fogel, President and CEO, Andrew Fentress, Chairman of ACR, and Eldron Blackwell, ACR CFO. I will now turn the call over to Mark.

Good morning, everyone, and thank you for joining our call. Today, I will provide an overview of our loan operations, real estate investments, and the health of the investment portfolio, while Eldron Blackwell, our CFO, will discuss financial statements, liquidity condition, book value, and operating results for the second quarter of 2026. and, of course, we look forward to your questions at the end of our prepared remarks. The ACRES team continues to actively manage the portfolio and has seen operations improving on underperforming assets. We are selective on the opportunities we pursue and the loans we originate. We still anticipate meeting our target $500 million of net growth in the REIT for 2026. We saw our annual shareholders meeting last month, at which time we proposed a share issuance in accordance with a merger agreement we entered into with our external manager The results of which will be the internalization function of our manager. We are very pleased that approximately 99% of the votes cast on the proposal to issue shares as part of the internalization transaction were cast in favor of the proposal. The ACRES team has been working hard on the internalization and anticipates that closing will take place in short order. We look forward to providing more updates as we complete the transaction. Loan payoffs and paydowns during the period were $92.7 million Funded commitments during the quarter were $17.8 million, producing a net decrease to the loan portfolio of $74.9 million. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. At June 30th, our weighted average risk rating was 2.6, an increase from 2.5 at March 31st, and the number of loans rated 4 or 5 was 10, the same as the end of the first quarter. The portion of our CRE loan portfolio rated 405 based on the company's economic interest was 14% at both June 30th and March 31st. We will now have ACR's CFO, Eldron Blackwell, discuss the financial statements and operating results during the second quarter.

Thank you and good morning, everyone. Gap net loss allocable to common shares in the second quarter was $12.5 million, or $1.87 per share. Gap Net Loss for the quarter included $5.1 million of internalization transaction costs and $4 million of incremental compensation expense from the accelerated vesting in connection with the pending internalization transaction. Transaction costs for the pending internalization transaction are expensed as incurred in accordance with generally accepted accounting principles. As such, we expect additional transaction-related costs to be recognized in the third quarter as we diligently work to close the deals. Gap net loss for the quarter also included $10.5 million in net interest income, which was an increase of $1.3 million over the prior quarter. This increase in net interest income was primarily driven by the full quarter's impact of our new CRE securitization. Gap net loss for the quarter also included $1.1 million of net increase in the performance of our net real estate operation. We saw an increase in current expected credit losses, or CECL reserves, of $1.7 million, or 25 cents per share, as compared to a decrease in CECL reserves during the first quarter of $1 million, which was primarily driven by a decline in projected macroeconomic factors. The total allowance for credit losses at June 30th was $21.1 million and represented 0.99%, or 99 basis points, on our $2.1 billion loan portfolio at par and was composed entirely of general credit reserves. EAD for the second quarter of 2026 was a loss of 74 cents per share as compared to an EAD gain of 2 cents per share for the first quarter. EAD loss was primarily driven by $5.5 million in internalization transaction costs recognized during the quarter and the recognition of $984,000 of accelerated deferred debt costs on one of our debt facilities during the quarter.

Without these costs, EAD would have been 14 cents for the quarter.

Gap book value per share was $26.76 on June 30 versus $29.98 on March 31, driven by the vesting of restricted stock, transaction costs, and deferred debt costs this quarter. Available liquidity at June 30th was $83 million, which comprised $41 million of unrestricted cash and $42 million of projected financing available on unlevered assets. Our gap debt to equity and leverage ratio decreased to 3.2 times at June 30th from 3.4 times at March 31st, primarily net repayments on our CRE loan portfolio. At June 30th, 2026, the company had total growth Net Operating Loss Care Reports of $94.1 million or approximately $6.36 per share of book value that can be offset against the future net income generating activities of the company. With that, I will now turn the call to Andrew Fentress for closing remarks.

Thank you, Eldron and Mark. First, I want to thank all of our shareholders for voting in favor of the transaction this June. The entire team is highly motivated by your confidence and we are committed to working to deliver on our mission of growing value for our shareholders over the long term. Pro forma for the closing of the transaction, Acres employees will own 40 plus percent of ACR common stock. We are directly aligned with you. As you are aware, the combined company will have two primary sources of revenue that we will continue to focus on as we go forward and we intend to provide you with as much transparency around the key metrics as possible So that you know what we are focused on and that our efforts can be measured over time. We ask for your patience as we transition the reporting from simply a REIT balance sheet to one that also includes additional fee-related revenues. Nothing about our business is changing. We will continue to originate, underwrite, and asset manage A-quality assets in A-quality markets with A-quality sponsors. We do this by staying focused on serving our borrowers and delivering them the service and capital that they need. We chose this time for the transaction because we see ample opportunity to grow. Stay tuned as we expect to share more with you in the coming weeks about the progress of the transaction. Thank you for your continued support, and I look forward to speaking with all of you. This concludes our opening remarks. I'll now turn the call back over to the operator for questions.

Thank you, Mr. Fentress. Ladies and gentlemen, at this time, if you do have any questions or comments, please press star 1. If you find that your question has been addressed, you may remove yourself from the queue. by pressing star two. Once again, that's star one for questions. We'll go first this morning to Matthew Erdner of Jones Trading. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. I'd like to talk about the loan portfolio and kind of what you guys are seeing from the pipeline and kind of that path to that 500 million net growth that you talked about, where you guys kind of see that shaking out over the next couple of quarters.

Thanks, Matthew. This is Mark. The pipeline is actually stronger than ever. There's a lot of opportunity out there, and we're analyzing best opportunities to put into the portfolio. I think that what we're seeing in the market today is a lot of capitulation. People are starting to sell assets, realizing that potentially they might not recover all of their equity. We're starting to see a lot of sales happening, acquisitions. and we're getting the benefit of a good look at some really quality opportunities with good sponsors.

Awesome, that's good to know. And then, I guess looking into the internalization, are there any, I guess, one-time expenses that you guys are expecting that we should kind of think about as this process continues or as you guys begin to integrate?

Yes, there are going to be some one-time expenses. We encourage some of them in the quarter, as you probably are aware that Gap requires us to record expenses as they get created. So that's why some of them showed up in Q2. There will be some additional that show up in Q3.

Got it. And then I guess from a modeling perspective, should we kind of look at that as a similar to the second quarter? Sorry, say that one again? From a modeling perspective, should we think about it kind of those one-time expenses running similarly to what we saw this quarter?

No, they'll be lower in the third quarter. The one-time transaction related charges from an expense standpoint, yeah.

Okay. Perfect, that's helpful there. And then last one for me, could you talk a little bit about the bridge on slide 22 from kind of the externally managed to the 2.7 billion number? Is that largely from that warehouse financing that you guys are able to pull down right now and start issuing or originating on?

No, that is largely a function of existing equity dollars that are in the portfolio that are going to be sold and converted from equity into loan book. Got it. That's helpful. Thank you, guys.

Thank you. We'll go next now to Chris Muller of Citizens Capital Markets.

Hey, guys. Thanks for taking the questions. Maybe picking up on that last line of questioning. So just looking at the hypothetical EAD post-merger, it looks like the AUM fees are the key between those different case scenarios there. I guess, what is the main driver behind the AUM fees that you guys would have control over to push it between case one up to case three?

So this is AUM and fees related to a evergreen fund vehicle, separate accounts, and new fund products that are in our pipeline at acres. So we have pretty good visibility on these numbers.

And what would push it towards that $48 million versus up to the $73 million in those different case scenarios?

Additional AUM growth in those products. So separate account, open and closed end fund vehicles. Got it. So it's just growing the AUM base. That makes sense.

And I guess maybe changing gears a little bit. I think you have two REO properties left. I guess one, is there any updates on timing for potential sales you guys could share with us there? I guess the other one. So one of the hotels looked like it's been held for sale since 2022. Has that been listed for sale in the market since 2022? Or is that just the accounting treatment of the asset?

It has been listed for sale and for various reasons, including and many more.

Got it. Appreciate you guys taking the questions today and look forward to this internalization closing hopefully in the next couple weeks.

Thank you, Chris. Excellent. Thank you very much.

Thank you. And just a quick reminder, ladies and gentlemen, any further questions this morning, please press star 1 at this time, and we will pause for just one moment. and gentlemen, it appears we have no further questions coming in this morning. Mr. Fentress, I'd like to turn things back to you, sir, for any closing comments.

Thank you, everyone, for the time today. We look forward to being in touch as the transaction announcements continue to roll out over the next several weeks.

Thank you, gentlemen. Again, ladies and gentlemen, that will conclude today's second quarter 2026 Acres Commercial Realty Corp. earnings call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.