ACRES Commercial Realty Corp.

Current report

Except as set forth below, there have been no material changes to the risk factors previously disclosed in Part I, Item 1A. "Risk Factors" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and Part II, Item 1A. "Risk Factors" of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2026.

Current report

On August 6, 2026, we completed the merger of ACRES Capital Corp. ("ACC") with and into ACRES Holdings Sub LLC ("Merger Sub"), our subsidiary, with Merger Sub continuing as the surviving company and our wholly-owned subsidiary (the "Merger"), pursuant to the Agreement and Plan of Merger, dated April 29, 2026 (the "Merger Agreement"). As a result of the Merger, among other things, (i) we acquired ACRES Capital LLC, our former external manager (the "Manager"), (ii) the Manager ceased to perform any outside management services for us, (iii) we and the Manager terminated the Fourth Amended and Restated Management Agreement, dated as of July 31, 2020, as amended, by and among us, the Manager and ACC (the "Management Agreement"), for no additional consideration, and (iv) we became internally managed (the "Internalization").

Current report

The issuance of shares of our common stock in the Merger and Internalization substantially increased the number of shares outstanding and may dilute existing stockholders or adversely affect the market price of our common stock.

Current report

Pursuant to the Merger Agreement, as of August 6, 2026, each outstanding share of common stock of ACC was converted into the right to receive 2.61882 shares of our common stock, and we issued 7,478,462 shares of our common stock as Merger consideration, resulting in 13,452,489 shares of our common stock outstanding as of August 6, 2026. The issuance of these shares significantly increased our outstanding common stock and diluted the ownership and voting interests of our pre-Merger stockholders.

Current report

The additional shares may adversely affect the market price of our common stock, particularly if former ACC stockholders sell a significant number of shares, if investors expect such sales to occur, or if the market perceives that the Merger and Internalization will not produce the expected benefits. If the market price of our common stock declines, our ability to raise capital on favorable terms, maintain investor confidence or pursue strategic transactions may be adversely affected. The increased number of shares outstanding also may reduce earnings per share, book value per share or other per-share metrics, depending on our post-Closing results, transaction costs, integration costs and the value of the acquired business. In addition, the issuance of shares to former owners of ACC may affect voting dynamics and governance matters.

Current report

We may not realize the anticipated benefits of the Merger and Internalization and may not improve our operating results, cost structure or stockholder value to the extent anticipated.

Current report

We completed the Merger and Internalization with the expectation that becoming internally managed would provide operational and strategic benefits, including the alignment of management with stockholders, greater control over personnel, investment processes and operating infrastructure, and potential cost savings over time. We may not realize these anticipated benefits in the expected amounts or within the expected time periods, or at all. The extent of any benefits will depend on a number of factors, including our ability to integrate ACRES Capital LLC’s operations, personnel, systems, investment processes, accounting functions, compliance programs and internal controls into our business, as well as our ability to manage our expenses as an internally managed REIT.

Current report

Our actual costs of operating as an internally managed REIT may exceed the fees and expenses previously paid or reimbursed under the former Management Agreement. We may incur higher-than-expected compensation and benefits costs, insurance costs, technology costs, professional fees, corporate overhead, compliance costs and other recurring expenses. In addition, we have incurred, and expect to continue to incur, transaction, integration and transition expenses in connection with the Merger and Internalization, including legal, accounting, advisory, tax, valuation, consulting, compensation, information technology, insurance and governance-related costs. These expenses may be material, may be higher than currently anticipated and may reduce or delay any expected cost savings.

Current report

If we do not realize the anticipated benefits of the Merger and Internalization, if those benefits are offset by increased costs, or if integration activities detract from management’s ability to focus on investment and asset management activities, our business, financial condition, results of operations, cash flows, ability to make distributions to stockholders and market price of our common stock could be materially adversely affected.

Current report

Assumption of Facility pursuant to Merger and Internalization

Current report

In connection with the Merger and Internalization, on August 6, 2026 we entered into a First Amendment and Joinder to Loan and Servicing Agreement (the "First Amendment") with the Administrative Agent, as administrative agent and facility servicer (the "Administrative Agent") and Massachusetts Mutual Life Insurance Company ("MassMutual") and the other lenders party thereto (the "Lenders"). The First Amendment amends and restates the existing loan and servicing agreement (as amended by the First Amendment, the "Loan Agreement") entered into on July 23, 2025 and provides for term loan advances in an aggregate principal amount of $185,000,000.

Current report

There is no assurance we will generate sufficient cash flow to pay principal and interest when due on our indebtedness. Our indebtedness could have important consequences, including:

Current report

vulnerability to general adverse economic and industry conditions;

Current report

limits on our ability to obtain additional financing for uses such as to fund future working capital, capital expenditures, acquisitions, and other general corporate requirements;

Current report

requiring the use of a substantial portion of our cash flow to pay principal and interest;

Current report

reducing cash flow available to pay distributions, fund working capital, acquisitions, capital expenditures, and general corporate requirements;

Current report

requiring us to maintain certain financial covenants at specified levels, thereby reducing our financial flexibility; and

Current report

putting us at a disadvantage compared to our competitors with less indebtedness.

Current report

The transition from an externally managed REIT to an internally managed REIT exposes us to enhanced operational, personnel, compliance and execution risks, and we may experience difficulties integrating ACRES Capital LLC, including its personnel, systems, controls, books and records, investment processes and compliance framework.

Current report

Our ability to operate successfully as an internally managed REIT will depend in part on the continuity and effectiveness of the personnel, systems and processes acquired or assumed in the Merger and Internalization. Prior to the Merger and Internalization, we relied on our external manager to provide personnel, infrastructure, investment sourcing, underwriting, asset management, administrative services and other management functions. Following the completion of the Merger and Internalization, we are responsible for these functions and costs. As an internally managed company, we must maintain appropriate staffing, compensation arrangements, policies, procedures, systems, controls, insurance coverage, internal control over financial reporting, vendor relationships and governance processes to support our business.

Current report

This transition may place significant demands on management, employees and our operational infrastructure. We may experience disruptions or inefficiencies and incur additional expenses as we integrate employees, systems and processes previously used by ACRES Capital LLC. We also may need to develop, modify or expand policies and procedures relating to investment approvals, asset management, accounting, treasury, tax, financial reporting, cybersecurity, human resources, compensation, compliance and internal audit. If these functions are not effectively implemented or maintained, we may experience errors, control deficiencies, reporting delays, increased expenses, regulatory or compliance issues, employee retention challenges or other adverse consequences.

Current report

There can be no assurance that our internalized management platform will perform as expected or that the transition will not adversely affect our business, financial condition, results of operations or ability to execute investment strategy.

Current report

The termination of the prior Management Agreement may result in the loss of rights, services, indemnities, relationships or operational arrangements on which we previously relied.

Current report

In connection with the Merger and Internalization, we terminated the prior Management Agreement for no additional consideration, which could result in disputes or uncertainties regarding surviving obligations, indemnification rights, expense reimbursement matters, confidentiality obligations, books and records, intellectual property, insurance coverage, allocation of liabilities, or other contractual matters.

Current report

We also may lose, or may be required to renegotiate or replace, arrangements that were entered into by or through the former manager or its affiliates, including vendor relationships, advisory relationships, licensing arrangements, software subscriptions, data services, office leases, insurance policies, employee benefit arrangements or other operational support services. We may not be able to replace those services or arrangements on terms as favorable as those previously available, or at all. Any disruption, dispute or increased cost arising from the termination of the prior Management Agreement could adversely affect our operations and results.

Current report

We may be unable to retain key employees or preserve investment, advisory, borrower, lender and other business relationships following the Merger and Internalization.

Current report

Our success following the Merger and Internalization depends in significant part on our ability to retain and motivate key employees and investment professionals, including personnel of ACRES Capital LLC who have historically supported our investment sourcing, underwriting, asset management, financing, accounting, tax, legal, compliance and administrative functions. The transition to internal management may create uncertainty for employees regarding roles, compensation, benefits, reporting lines, incentives, culture and future business plans. We may incur increased compensation, retention, severance or recruiting costs, and we may not be able to retain or replace key personnel on acceptable terms.

Current report

We also depend on the continuity of relationships with borrowers, loan sellers, financing counterparties, co-investors, consultants, service providers, rating agencies, trustees, custodians, administrators, legal and accounting advisors and other business partners. Some relationships may have been maintained historically by the former external manager or its affiliates, and counterparties may seek to modify, re-underwrite, terminate or decline to renew arrangements following the Merger and Internalization. If we lose key employees or important business relationships, or if employee departures or relationship disruptions impair investment sourcing, asset management, financing or reporting activities, our business, financial condition, results of operations and ability to execute our investment strategy could be adversely affected.

Current report

The Merger and Internalization may create or fail to eliminate conflicts of interest, and our governance structure may be subject to new or different risks following the Merger and Internalization.

Current report

Former owners, officers, employees or affiliates of ACRES Capital Corp. or ACRES Capital LLC may receive benefits from the Merger and Internalization or post-closing arrangements that differ from, or are in addition to, the interests of our other stockholders. These benefits may include equity ownership, employment arrangements, compensation plans, incentive awards, indemnification rights, registration rights, governance rights, transition arrangements, tax arrangements or other contractual rights.

Current report

Our board of directors and management may also need to oversee new or expanded functions, including compensation practices, employee benefit plans, human capital management, internal audit, regulatory compliance, conflicts policies, affiliate transaction controls and risk management activities. If our governance policies, committee oversight, related-party transaction procedures or conflicts management practices are not effective, we may be exposed to regulatory scrutiny, litigation, reputational harm or decisions that do not align with the interests of all stockholders. Any actual or perceived conflicts of interest could adversely affect investor confidence and the market price of our common stock.

Current report

The Merger and Internalization may affect our ability to maintain our qualification as a REIT and our exclusion or exemption from regulation under the Investment Company Act of 1940.

Current report

We intend to continue to qualify as a REIT for U.S. federal income tax purposes and to operate in a manner that permits us to maintain our exclusion or exemption from regulation under the Investment Company Act of 1940. The Merger and Internalization may introduce new assets, liabilities, income streams, employee compensation arrangements, intercompany arrangements, service activities, taxable REIT subsidiary considerations, related-party transactions and other structural or operational matters that must be monitored for REIT compliance and Investment Company Act purposes. Failure to properly structure, operate or monitor these matters could adversely affect our ability to satisfy applicable income, asset, distribution, ownership and other REIT requirements or to maintain our Investment Company Act exemption.

Current report

See "Risks Related to Our REIT Status and Certain Other Tax Items" and "Risks Related to Our Organization and Structure—Loss of our exclusion from regulation under the Investment Company Act would require significant changes in our operations and could reduce the market price of our common stock and our ability to make distributions" in our Annual Report on Form 10-K for the year ended December 31, 2025 for the general consequences of a failure to maintain REIT qualification or Investment Company Act exemption.

Current report

We may incur liabilities, claims, litigation or contractual obligations arising from the Merger Agreement and the completed Merger and Internalization.

Current report

Although the Merger and Internalization have been completed, we may be subject to liabilities, claims, litigation, demands, indemnification obligations, purchase price or share issuance disputes, appraisal or dissenters’ rights claims, tax claims, employee claims, intellectual property claims, third-party consent issues, breaches of representations, warranties or covenants, or other obligations arising from or relating to the Merger Agreement, the completed Merger and Internalization, the termination of the Management Agreement or related transactions. Any such matters may be costly to defend or resolve, may divert management’s attention and may result in monetary damages, equitable remedies, settlement costs, indemnification payments, additional disclosures, governance changes or other adverse consequences.

Current report

We may also be required to satisfy surviving covenants, indemnities, confidentiality obligations, registration rights, tax matters, employee benefit obligations, insurance obligations, expense reimbursement obligations or other post-closing commitments under the Merger Agreement or related agreements. The amounts and timing of any such obligations may be uncertain and may exceed our expectations.

Current report

If any liabilities, claims, litigation or contractual obligations arising from the Merger and Internalization and related transactions are material, they could adversely affect our business, financial condition, results of operations, liquidity, cash flows and market price of our common stock.

Current report

The unaudited pro forma financial information related to the Merger and Internalization may not be indicative of our actual financial condition or results after the Merger and Internalization.

Current report

The unaudited pro forma condensed combined consolidated financial information filed after the closing of the Merger and Internalization was prepared for illustrative purposes and was based on assumptions and adjustments that may not reflect our actual financial condition or results of operations following the Merger and Internalization. The pro forma information does not necessarily reflect all costs, synergies, dis-synergies, integration expenses, financing effects, compensation arrangements, tax consequences, accounting adjustments, control remediation costs, changes in business strategy or other effects of the completed Merger and Internalization. Our actual results may differ materially from the pro forma information due to changes in interest rates, market conditions, asset performance, credit losses, financing costs, operating expenses, integration costs, accounting estimates, valuation assumptions or other factors.

Previous report

Our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission includes detailed discussion of our risk factors under the heading "Risk Factors." Set forth below are certain additional factors related to the proposed Merger and Internalization.

Previous report

Completion of the Merger remains subject to conditions that we cannot control.

Previous report

The Merger is subject to the satisfaction or waiver of a number of conditions as set forth in the Merger Agreement. There are no assurances that all of the conditions necessary to consummate the Merger will be satisfied or that the conditions will be satisfied in the time frame expected. If the Merger is not completed within the expected timeframe or at all, such delay or failure to complete the Merger may materially and adversely affect the synergies and other benefits that we may expect to achieve as a result of the Merger and Internalization and could result in additional transaction costs, loss of revenue or other effects associated with uncertainty about the Merger and Internalization, and the trading price of our common stock may decline significantly.

Previous report

We may fail to realize all of the expected benefits of the Merger or those benefits may take longer to realize than expected.

Previous report

We will be required to devote management attention and resources to the integration of ACC’s business in order to realize the anticipated benefits and synergies of the Merger and Internalization. We may encounter potential difficulties in combining the companies, including, but not limited to, the inability to achieve the expense efficiencies expected to result from the Merger, potential unknown liabilities and unforeseen increased expenses associated with the Merger and ACC’s operations, and possible inconsistencies in standards, control procedures and policies.

Previous report

It is possible that the integration process could take longer than anticipated or that the management of the combined organizations and achievement of anticipated benefits and synergies could be more difficult than expected. The integration of ACC into the Company could also result in the disruption of ongoing businesses, processes, systems and business relationships or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the Merger. The integration process is subject to a number of risks and uncertainties, and no assurance can be given that the anticipated benefits of the Merger will be realized or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could adversely affect our business, financial condition and results of operations.

Previous report

We have incurred, and may continue to incur, direct and indirect costs as a result of the Merger.

Previous report

We have incurred substantial legal, accounting, financial advisory and other expenses in connection with and as a result of completing the Merger and Internalization and we may incur additional expenses in connection with the completion of the Merger and Internalization. There are a number of factors beyond our control that could affect the total amount or the timing of the transaction and integration expenses. Many of the expenses that will be incurred are, by their nature, difficult to estimate accurately at the present time.

Previous report

None.