Good day, ladies and gentlemen, welcome to the Fourth Quarter 2022 ACRES Commercial Realty Corp Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session with instructions to follow at that time. If anyone requires assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kyle Brengel, Vice President. You may begin.
Good afternoon. Thank you for joining our call. I would like to highlight that we have posted the fourth quarter earnings presentation to our website. This presentation contains summary and detailed information about the quarterly and year-end results of the company. Before we begin, I want to remind everyone that certain statements made during this call are not based on historical information and may constitute forward-looking statements. When used in this conference call, the words believes, anticipates, expects, and similar expressions are intended to identify forward-looking statements. Although the Company believes that these forward-looking statements are based on reasonable assumptions, such statements are based on management's current expectations and beliefs and are subject to several trends, risks, and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.
These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Forms 8-K, 10-Q, and 10-K, and in particular, the Risk Factors section of its Form 10-K. Listeners are cautioned not to place under reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures may be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles are contained in the earnings presentation for the past quarter.
With me on the call today are Mark Fogel, President and CEO, and Dave Bryant, ACRES CFO. Also available for Q&A is Andrew Fentress, Chairman of ACR. I will now turn the call over to Mark.
Good afternoon, everyone. Thank you for joining our call. Today, I will provide an overview of our loan originations, real estate investments, and the health of the investment portfolio, while Dave Bryant will discuss the financial statements, liquidity condition, book value, and operating results for the fourth quarter. Of course, we look forward to your questions at the end of our prepared remarks. The ACRES team continues to execute on our business plan by selectively originating high-quality investments, actively managing the portfolio, and continuing to focus on growing earnings and book value for our shareholders. We originated a $118 million new multi-family loan commitment in the fourth quarter. Loan payoffs during the period were $114.6 million, and net funded commitments during the quarter were $22 million, producing a net decrease to the portfolio of $74.6 million.
The newly originated loan pays coupon interest at one month SOFR plus a weighted average spread of 4.8%. The weighted average spread of the floating rate loans in our $2.1 billion commercial real estate loan portfolio increased to 3.78% over the one-month benchmark rates. We expect to maintain an investment portfolio of $2 billion-$2.3 billion through 2023. A few comments on balance sheet items, as we know this topic is top of mind for many investors, given the recent market volatility and base rate increases. During the quarter, the company finalized terms with MassMutual under its non-mark-to-market agreement to upsize the commitment to provide for individual loan series, which will each have five year term from the date of issuance.
The company has warehouse lines open with J.P. Morgan and Morgan Stanley with performing collateral on each. In addition, we have the reinvestment window available on our two ACR securitizations through May 2023 and December 2023. The bulk of the company's current portfolio was originated in 2021 and 2022, comprising 84% of the current par balance and have initial maturities of 2024 or later and extended maturities of 2026 or later. The portfolio generally continues to perform, demonstrating sound and consistent underwriting and proactive asset management. We ended the quarter with $2.1 billion of commercial real estate loans across 82 individual investments. As of December 31st, 2022, there were five watch list loans, including three delinquent loans, representing 5.4% of the portfolio.
This represents a decrease from December 31st, 2021, at which there were 11 watch list loans, representing 8.1% of the portfolio. In January 2023, one watch list loan on a hotel portfolio in the southwest region with a par value of $56.5 million was paid off in full, which reduced the value of our watch list loans in half as compared to year-end 2022. We had one specific credit event during the quarter. We reserved 100% against the remaining mezzanine loan from our acquisition of the company in 2020. The mezzanine loan has a par value of $4.7 million, the underlying collateral is an office property in the northeast region. As ACRES does not originate mezzanine loans, you should not expect to see investments in this part of the capital structure again.
We continue to hold four investments in real estate that we expect to monetize at gains in the future. These anticipated gains will be offset by the existing NOL carryforwards with equity retained and reinvested into the loan portfolio. In February 2023, we sold one hotel asset located in Plymouth Meeting, Pennsylvania, with a basis of approximately $14 million that we received through a deed in lieu of foreclosure in July 2022. We expect to record a modest gain on the sale in the first quarter of 2023. In summary, the ACRES team is pleased with the quality of the investment portfolio, including investments in real estate, along with the improved balance sheet profile and the prospects for new originations and capital appreciation going forward. We will now have ACR's CFO, Dave Bryant, discuss the financial statements and operating results during the fourth quarter of 2022.
Thank you, Mark. Good afternoon. GAAP net loss applicable to common shares in the fourth quarter was $7.4 million or $0.87 per share. Our guidance was for between $0.10 and $0.20 per share of GAAP net income for the year. We ended 2022 with a $1 net loss, which was largely a result of $1.28 per share of CECL reserves recorded in the fourth quarter. The company recorded a fourth quarter increase in CECL reserves of $11 million. The increase includes $6.5 million attributable primarily to a decline in the macroeconomic outlook and a specific provision to fully reserve the previously mentioned mezzanine loan with a par value of $4.7 million.
The total allowance for credit losses at December 31st was $18.8 million, which represents 0.91%, or 91 basis points, of the $2.1 billion loan portfolio at par. Earnings available for distribution or EAD for the fourth quarter were $0.60 per share. GAAP book value per share decreased to $24.54 on December 31st from $25.08 on September 30th. Available liquidity at December 31st, 2022 was approximately $118 million, which comprised approximately $66 million of unrestricted cash, $14 million of projected financing available on unlevered assets, and $38 million of reinvestable cash available in CRE securitizations. Our GAAP debt-to-equity leverage ratio decreased marginally to 4.2x on December 31st from 4.3x on September 30th. Our recourse debt leverage ratio also decreased marginally to 1.4x on December 31st from 1.5x on September 30th.
The decreases to the leverage and recourse debt leverage ratios were primarily due to decreased borrowings on our bank term facilities as a result of net loan payoffs during the period. Turning to results from the company's real estate investments. Net loss from real estate investments remained relatively flat at $369,000 in the fourth quarter. Included in the fourth quarter property operating loss was approximately $811,000 of non-cash depreciation and amortization. Focusing on G&A, the fourth quarter expense of $2.6 million versus third quarter of $2.1 million reflects the seasonality for quarterly G&A, primarily due to the incurrence of the year-end audit expense. Regarding share repurchases, during the fourth quarter, the company used $934,000 of the share repurchase program to redeem 98,000 shares at an approximate 61% discount to book value per share on December 31st.
There is approximately $7.2 million remaining on the board-approved program at year-end. With net loan growth of $190 million in calendar year 2022, we expect to have net income and for our earnings available for distribution to remain positive and steadily grow in 2023. Of note, we expect to see a reduction in EAD during the first quarter of 2023, driven primarily by the seasonality in G&A expenses and hotel operations, along with anticipated net loan payoff activity. We currently project that the company will produce GAAP income in a range of $1.25-$1.75 per share, and EAD in a range of $1.75-$2.25 per share for the calendar year 2023.
Our projection remains subject to benchmark rate volatility, loan payoff volume, CECL reserve adjustments, and other non-recurring or unexpected items that may arise during the year. I will turn the call to Andrew Fentress for closing remarks
Thank you, Dave. As we close the fourth quarter on a productive year at ACRES, we want to recognize the entire extended team and say thank you to everyone that works to deliver these results. We also want to recognize our shareholders for trusting us to execute on our strategy. We remain committed and available at any time for questions and requests for information. As I've said previously, we are mindful the changes in the rate market and corresponding volatility in asset prices has created a heightened sense of anxiety. As you've heard from our CEO, Mark, and CFO, Dave, the company is performing well, has a strong portfolio, ample liquidity, and is managed by a team of professionals who have been through several cycles during their careers. We remain vigilant on our mission to deliver shareholders value over the long term.
We do this by investing in and managing high-quality assets that will produce stable and growing book value for our shareholders. This concludes our opening remarks. I'll now turn the call back to the operator for questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question will be from Stephen Laws from Raymond James. Please go ahead.
Hi. Good afternoon. First off, congratulations on a nice quarter. You know, the GAAP was impacted by CECL, but net interest income looks really solid on what smaller portfolio than I was looking for and a solid distributable earnings number. Nice close to the year. Having said that, can you talk about Mark, a little bit about your near-term appetite, you know, investments versus repayments? You know, repayments outstripped new originations or outpaced it a little bit in Q4. You know, how are you thinking about that in the first half of the year? You know, should we expect, you know, the portfolio size, you know, kind of flat, net down, net up, as we look out over the next couple of quarters?
Hey, Steve. Thanks for the comments. Yeah, we expect through the at least the first half of this year, probably throughout the year, to remain relatively flat with respect to net production.
When you're looking at the turnover there, I know you talked about, you know, it's not a lot of turnover, but with the replenishment, you know, kind of where are you putting, you know, new assets spreads today versus things you're seeing paying off?
For the most part, you're seeing loans paying off that are probably spreads of 3.5%-4.5%. Today we're putting spreads on the books that are between 4.5% and 5.5%.
Okay. A little bit of pickup there on the, on the turnover.
A little bit.
I wanted to touch base, maybe clarification first. I think on the real estate page in the deck, a footnote mentions an asset that was sold subsequent to year-end. Is that the same one you referenced in your prepared remarks that's going to lead to a small, I guess, gain in Q1?
That's correct. It was a small limited service hotel in Pennsylvania.
Great. Just wanted to make sure they were the same asset. Great. Appreciate the comments this afternoon. Thank you.
Thanks, Steve.
Once again, if you would like to ask a question, please press star then one. The next question is from Steve Delaney from JMP Securities. Please go ahead.
Hello, Mark, Dave, and Andrew. Nice to be with you this evening. You mentioned the CECL reserve at $18.8 million at year-end. I jotted down a figure of $6.5 million. Was that intended to be the specific reserve within the $18.8?
No.
Steve.
That was... Go ahead, Dave.
Yeah. Sorry, Mark. Steve, the $11 million was the period expense-
Yes.
-and reserve. Six and a-
Got you.
6.5 of that was general reserve, primarily, caused by a worsened macroeconomic outlook.
65 was general. Right. Okay.
Right. The other 4.5 got the mezzanine loan to a full reserve of $4.7. It previously had a $200,000 done through the CECL model. Now that we are evaluating it, evaluating that loan specifically, we added $4.5 to it and got it to the full reserve of $4.7.
Got it. As of Now that that is gone, are there any more specific reserves on your books as we sit here today?
None as we sit here today.
Excellent. Okay. Your guidance-
Of course, that was the only mezzanine loan we had on our books.
Understood. Understood. You've got that. Everything is first deeds now. Got that. Thank you for the guidance for the full year. In the EAD, which is actually, you know, higher than your GAAP. GAAP, I guess, you know, is certainly going to reflect any additional, CECL reserves that you have to put up. Within your EAD, are you trying to build in any expectation for realized losses that might occur in the year, which would then, you know, reduce EAD?
There may be a small amount of that, Steve. It's not a particularly meaningful number. I would say that the biggest assumption in that guidance is that we expect we're keeping the CECL reserve at that 91 basis point level that we ended the year at.
Got it.
That could change during 2023, but we don't know enough now to, you know, meaningfully or accurately predict what that might be.
Understand. The consensus you've got is with the 91 basis points CECL reserve will be sort of a constant within that, is what I'm hearing you say, Dave.
Correct.
Okay, great. Just stepping back, one kind of big picture thing. We are in a different market today than we were maybe six months ago in terms of commercial real estate. Certainly 12 months ago. The capital loss carryforward you have, just speaking with several of you over the last year or so, it, you know, the thought is that it probably is hard real estate that is the asset class that will, you know, generate potential capital gains. I'm curious, in this less certain market, how proactive you may be and what you're seeing in the attractively valued commercial real estate properties that you might decide to invest in in order to hopefully utilize your capital loss carryforward. Thanks.
Yeah. Steve, thanks for the question. I wouldn't expect us to be too active in going after additional equity investments. I think what we have for now is what we'll stick with for the remainder of the year at least. Our business is making commercial mortgage loans and not really making equity investments. I would think that if there's distressed opportunities out there, it's probably not something that we're going to be going after.
Got it. Well, thank you for the comments.
Thank you.
Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Mark Fogel for any closing remarks.
Well, thank you, everybody, for joining us today. We appreciate everybody's support, and we look forward to speaking again in the first quarter of 2023 and, hopefully, having some robust earnings to discuss. Talk to you soon.
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.