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Ares Commercial Real Estate Corporation Reports Second Quarter 2022 Results

Second quarter GAAP net income of $10.0 million or $0.20 per diluted common share and Distributable Earnings(1) of $19.2 million or $0.38 per diluted common share

-Subsequent to end of second quarter-

Declared third quarter 2022 dividend of $0.33 per common share and a supplemental dividend of $0.02 per common share

NEW YORK, July 29, 2022--(BUSINESS WIRE)--Ares Commercial Real Estate Corporation (the "Company") (NYSE:ACRE), a specialty finance company engaged in originating and investing in commercial real estate assets, reported generally accepted accounting principles ("GAAP") net income of $10.0 million or $0.20 per diluted common share and Distributable Earnings(1) of $19.2 million or $0.38 per diluted common share for the second quarter of 2022.

"We generated another strong quarter of earnings that were driven by incremental investment activity and positive sensitivity of our floating rate loans to rising interest rates," said Bryan Donohoe, Chief Executive Officer of Ares Commercial Real Estate Corporation. "We continue to expect to fully cover our regular and supplemental dividends from our Distributable Earnings for the full year."

"With a 2.4x debt-to-equity leverage ratio as of the second quarter of 2022 combined with a strong liquidity position, we believe we are well positioned to navigate the current capital market environment," said Tae-Sik Yoon, Chief Financial Officer of Ares Commercial Real Estate Corporation. "Our net interest income should continue to benefit from rising interest rates as 98% of our loans are floating rate while 36% of our liabilities are fixed rate or hedged."

_________________________________
(1) Distributable Earnings is a non-GAAP financial measure. Refer to Schedule I for the definition and reconciliation of Distributable Earnings.

COMMON STOCK DIVIDEND

On May 3, 2022, the Board of Directors of the Company declared a regular cash dividend of $0.33 per common share and a supplemental cash dividend of $0.02 per common share for the second quarter of 2022. The second quarter 2022 dividend and supplemental cash dividend were paid on July 15, 2022 to common stockholders of record as of June 30, 2022.

On July 29, 2022, the Board of Directors of the Company declared a regular cash dividend of $0.33 per common share and a supplemental cash dividend of $0.02 per common share for the third quarter of 2022. The third quarter 2022 dividend and supplemental cash dividend will be payable on October 17, 2022 to common stockholders of record as of September 30, 2022.

ADDITIONAL INFORMATION

The Company issued a presentation of its second quarter 2022 results, which can be viewed at www.arescre.com on the Investor Resources section of our home page under Events and Presentations. The presentation is titled "Second Quarter 2022 Earnings Presentation." The Company also filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 with the U.S. Securities and Exchange Commission on July 29, 2022.

CONFERENCE CALL AND WEBCAST INFORMATION

On Friday, July 29, 2022, the Company invites all interested persons to attend its webcast/conference call at 12:00 p.m. (Eastern Time) to discuss its second quarter 2022 financial results.

All interested parties are invited to participate via telephone or the live webcast, which will be hosted on a webcast link located on the Home page of the Investor Resources section of the Company’s website at www.arescre.com. Please visit the website to test your connection before the webcast. Domestic callers can access the conference call by dialing +1 (844) 200-6205. International callers can access the conference call by dialing +1 (929) 526-1599. All callers will need to enter access code 326916. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected. For interested parties, an archived replay of the call will be available through August 26, 2022 at 5:00 p.m. (Eastern Time) to domestic callers by dialing +1 (866) 813-9403 and to international callers by dialing +44 204 525 0658. For all replays, please reference access code 984066. An archived replay will also be available through August 26, 2022 on a webcast link located on the Home page of the Investor Resources section of the Company’s website.

ABOUT ARES COMMERCIAL REAL ESTATE CORPORATION

Ares Commercial Real Estate Corporation is a specialty finance company primarily engaged in originating and investing in commercial real estate loans and related investments. Through its national direct origination platform, the Company provides a broad offering of flexible and reliable financing solutions for commercial real estate owners and operators. The Company originates senior mortgage loans, as well as subordinate financings, mezzanine debt and preferred equity, with an emphasis on providing value added financing on a variety of properties located in liquid markets across the United States. Ares Commercial Real Estate Corporation elected and qualified to be taxed as a real estate investment trust and is externally managed by a subsidiary of Ares Management Corporation. For more information, please visit www.arescre.com. The contents of such website are not, and should not be deemed to be, incorporated by reference herein.

FORWARD-LOOKING STATEMENTS

Statements included herein or on the webcast / conference call may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which relate to future events or the Company’s future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including the returns on current and future investments, rates of repayments and prepayments on the Company’s mortgage loans, availability of investment opportunities, the Company’s ability to originate additional investments and completion of pending investments, the availability of capital, the availability and cost of financing, market trends and conditions in the Company’s industry and the general economy, including heightened inflation, slower growth or recession, changes to fiscal and monetary policy, currency fluctuations and challenges in the supply chain; the level of lending and borrowing spreads and interest rates, commercial real estate loan volumes, the ongoing impact of the COVID-19 pandemic and the pandemic's impact on the U.S. and global economy, the impact of Russia's invasion of Ukraine and the international community's response, which created, and may continue to create, substantial political and economic disruption, uncertainty and risk; the Company’s ability to pay future dividends at historical levels or at all, and the risks described from time to time in the Company’s filings with the Securities and Exchange Commission (the "SEC"), including, but not limited to, the risk factors described in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K, filed with the SEC on February 15, 2022 and the risk factors described in Part II, Item 1A. Risk Factors in the Company's Quarterly Report on Form 10-Q, filed with the SEC on July 29, 2022. Any forward-looking statement, including any contained herein, speaks only as of the time of this press release and Ares Commercial Real Estate Corporation undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call. Projections and forward-looking statements are based on management’s good faith and reasonable assumptions, including the assumptions described herein.

ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

As of

June 30,
2022

December 31,
2021

(unaudited)

ASSETS

Cash and cash equivalents

$

25,625

$

50,615

Loans held for investment ($1,026,784 and $974,424 related to consolidated VIEs, respectively)

2,605,893

2,414,383

Current expected credit loss reserve

(27,613

)

(23,939

)

Loans held for investment, net of current expected credit loss reserve

2,578,280

2,390,444

Real estate owned held for sale, net

36,602

Other assets ($2,428 and $2,592 of interest receivable related to consolidated VIEs, respectively; $65,229 and $128,589 of other receivables related to consolidated VIEs, respectively)

92,429

154,177

Total assets

$

2,696,334

$

2,631,838

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Secured funding agreements

$

853,059

$

840,047

Notes payable

50,358

Secured term loan

149,107

149,016

Collateralized loan obligation securitization debt (consolidated VIEs)

851,337

861,188

Secured borrowings

22,635

22,589

Due to affiliate

4,562

4,156

Dividends payable

19,198

16,674

Other liabilities ($875 and $570 of interest payable related to consolidated VIEs, respectively)

10,436

9,182

Total liabilities

1,910,334

1,953,210

Commitments and contingencies

STOCKHOLDERS' EQUITY

Common stock, par value $0.01 per share, 450,000,000 shares authorized at June 30, 2022 and December 31, 2021 and 54,438,363 and 47,144,058 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

537

465

Additional paid-in capital

811,411

703,950

Accumulated other comprehensive income

12,389

2,844

Accumulated earnings (deficit)

(38,337

)

(28,631

)

Total stockholders' equity

786,000

678,628

Total liabilities and stockholders' equity

$

2,696,334

$

2,631,838

ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

For the three months
ended June 30,

For the six months
ended June 30,

2022

2021

2022

2021

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue:

Interest income

$

38,621

$

30,859

$

71,986

$

61,564

Interest expense

(13,475

)

(11,092

)

(25,488

)

(23,231

)

Net interest margin

25,146

19,767

46,498

38,333

Revenue from real estate owned

3,764

2,672

6,421

Total revenue

25,146

23,531

49,170

44,754

Expenses:

Management and incentive fees to affiliate

3,766

2,951

6,740

5,518

Professional fees

1,100

615

1,878

1,400

General and administrative expenses

1,587

1,195

3,200

2,351

General and administrative expenses reimbursed to affiliate

796

788

1,631

1,540

Expenses from real estate owned

3,842

4,309

7,120

Total expenses

7,249

9,391

17,758

17,929

Provision for current expected credit losses

7,768

(3,883

)

7,174

(7,123

)

Gain on sale of real estate owned

2,197

Income before income taxes

10,129

18,023

26,435

33,948

Income tax expense, including excise tax

98

408

204

593

Net income attributable to common stockholders

$

10,031

$

17,615

$

26,231

$

33,355

Earnings per common share:

Basic earnings per common share

$

0.20

$

0.43

$

0.54

$

0.88

Diluted earnings per common share

$

0.20

$

0.43

$

0.53

$

0.88

Weighted average number of common shares outstanding:

Basic weighted average shares of common stock outstanding

50,562,559

41,009,175

48,892,754

37,731,317

Diluted weighted average shares of common stock outstanding

50,999,505

41,294,597

49,336,267

38,025,933

Dividends declared per share of common stock(1)

$

0.35

$

0.35

$

0.70

$

0.70

(1) There is no assurance dividends will continue at these levels or at all.

SCHEDULE I

Reconciliation of Net Income to Non-GAAP Distributable Earnings

Distributable Earnings is a non-GAAP financial measure that helps the Company evaluate its financial performance excluding the effects of certain transactions and GAAP adjustments that it believes are not necessarily indicative of its current loan origination portfolio and operations. To maintain the Company’s REIT status, the Company is generally required to annually distribute to its stockholders substantially all of its taxable income. The Company believes the disclosure of Distributable Earnings provides useful information to investors regarding the Company's ability to pay dividends, which is one of the principal reasons the Company believes investors invest in the Company. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Distributable Earnings is defined as net income (loss) computed in accordance with GAAP, excluding non-cash equity compensation expense, the incentive fees the Company pays to its Manager (Ares Commercial Real Estate Management LLC), depreciation and amortization (to the extent that any of the Company’s target investments are structured as debt and the Company forecloses on any properties underlying such debt), any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss), one-time events pursuant to changes in GAAP and certain non-cash charges after discussions between the Company’s Manager and the Company’s independent directors and after approval by a majority of the Company’s independent directors. Loan balances that are deemed to be uncollectible are written off as a realized loss and are included in Distributable Earnings. Distributable Earnings is aligned with the calculation of "Core Earnings," which is defined in the Management Agreement and is used to calculate the incentive fees the Company pays to its Manager.

Reconciliation of net income attributable to common stockholders, the most directly comparable GAAP financial measure, to Distributable Earnings is set forth in the table below for the three months and twelve months ended June 30, 2022 ($ in thousands):

For the three months
ended June 30, 2022

For the twelve months
ended June 30, 2022

Net income attributable to common stockholders

$

10,031

$

53,336

Stock-based compensation

699

2,386

Incentive fees to affiliate

965

2,724

Depreciation of real estate owned

(2,009

)

Provision for current expected credit losses

7,768

14,307

Realized gain on termination of interest rate cap derivative(1)

(264

)

1,697

Distributable Earnings

$

19,199

$

72,441

Net income attributable to common stockholders

$

0.20

$

1.11

Stock-based compensation

0.01

0.05

Incentive fees to affiliate

0.02

0.06

Depreciation of real estate owned

(0.04

)

Provision for current expected credit losses

0.15

0.30

Realized gain on termination of interest rate cap derivative(1)

(0.01

)

0.04

Basic Distributable Earnings per common share

$

0.38

$

1.51

Net income attributable to common stockholders

$

0.20

$

1.10

Stock-based compensation

0.01

0.05

Incentive fees to affiliate

0.02

0.06

Depreciation of real estate owned

(0.04

)

Provision for current expected credit losses

0.15

0.30

Realized gain on termination of interest rate cap derivative(1)

(0.01

)

0.04

Diluted Distributable Earnings per common share

$

0.38

$

1.50

(1)

For the three months ended June 30, 2022, Distributable Earnings includes a $0.3 million adjustment to reverse the impact of the realized gain from the termination of the interest rate cap derivative that was amortized into GAAP net income.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220728006094/en/

Contacts

INVESTOR RELATIONS CONTACTS
Ares Commercial Real Estate Corporation
Carl Drake or John Stilmar
(888) 818-5298
iracre@aresmgmt.com