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Ares Commercial Real Estate Corporation Reports First Quarter 2019 Results

NEW YORK--(BUSINESS WIRE)--

First quarter GAAP net income of $8.5 million or $0.30 per diluted common share and Core Earnings(1) of $9.1 million or $0.32 per diluted common share

- Subsequent to end of first quarter -

Declared second quarter 2019 dividend of $0.33 per common share

Ares Commercial Real Estate Corporation (the “Company”) (ACRE), a specialty finance company engaged in originating and investing in commercial real estate assets, reported generally accepted accounting principles (“GAAP”) net income of $8.5 million or $0.30 per diluted common share and Core Earnings(1) of $9.1 million or $0.32 per diluted common share for the first quarter of 2019. In addition, the Company announced that its Board of Directors declared a second quarter 2019 dividend of $0.33 per common share payable on July 16, 2019 to common stockholders of record as of June 28, 2019.

“Our strong first quarter earnings and originations along with our attractive investment pipeline reflect the progress that we have made to generate higher and more predictable earnings and the foundation we have laid to continue to improve our earnings throughout the year,” said Jamie Henderson, President and Chief Executive Officer of ACRE.

“We remain focused on enhancing our earnings by improving our capital deployment along with additional reductions in our operating expenses and cost of borrowings,” said Tae-Sik Yoon, Chief Financial Officer of ACRE.

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(1) Core Earnings is a non-GAAP financial measure. Refer to Schedule I for further details.

FIRST QUARTER 2019 DIVIDEND

On February 21, 2019, the Company declared a cash dividend of $0.33 per common share for the first quarter of 2019. The first quarter 2019 dividend was paid on April 16, 2019 to common stockholders of record as of March 29, 2019.

ADDITIONAL INFORMATION

The Company issued a presentation of its first quarter 2019 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 “First Quarter 2019 Earnings Presentation.” The Company also filed its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 with the U.S. Securities and Exchange Commission on May 1, 2019.

CONFERENCE CALL AND WEBCAST INFORMATION

On Wednesday, May 1, 2019, the Company invites all interested persons to attend its webcast/conference call at 11:00 a.m. (Eastern Time) to discuss its first quarter 2019 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 http://www.arescre.com. Please visit the website to test your connection before the webcast. Domestic callers can access the conference call by dialing (888)-317-6003. International callers can access the conference call by dialing +1(412)-317-6061. All callers will need to enter the Participant Elite Entry Number 0162082 followed by the # sign and reference “Ares Commercial Real Estate Corporation” once connected with the operator. 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 May 15, 2019 at 5:00 p.m. (Eastern Time) to domestic callers by dialing (877)-344-7529 and to international callers by dialing +1(412)-317-0088. For all replays, please reference conference number 10129708. An archived replay will also be available through May 15, 2019 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 (ARES), a publicly traded, leading global alternative asset manager with approximately $130.7 billion of assets under management as of December 31, 2018. 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, the level of lending and borrowing spreads and interest rates, commercial real estate loan volumes and the risks described from time to time in the Company’s filings with the Securities and Exchange Commission. 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
March 31, 2019      

December 31, 2018

(unaudited)
ASSETS
Cash and cash equivalents $ 12,814 $ 11,089
Restricted cash 379 379
Loans held for investment ($557,000 and $289,576 related to consolidated VIEs, respectively) 1,548,158 1,524,873
Real estate owned, net 36,814
Other assets ($1,708 and $843 of interest receivable related to consolidated VIEs, respectively; $51,582 of other receivables related to consolidated VIEs as of December 31, 2018) 20,275   66,983
Total assets $ 1,618,440   $ 1,603,324
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Secured funding agreements $ 621,549 $ 777,974
Secured term loan 108,537 108,345
Collateralized loan obligation securitization debt (consolidated VIE) 442,202 270,737
Due to affiliate 2,259 3,163
Dividends payable 9,520 8,914
Other liabilities ($882 and $541 of interest payable related to consolidated VIEs, respectively) 9,271   8,604
Total liabilities 1,193,338   1,177,737
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share, 450,000,000 shares authorized at March 31, 2019 and December 31, 2018 and 28,849,070 and 28,755,665 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively 283 283
Additional paid-in capital 422,231 421,739
Accumulated earnings 2,588   3,565
Total stockholders' equity 425,102   425,587
Total liabilities and stockholders' equity $ 1,618,440   $ 1,603,324
 
     

ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 
For the three months ended March 31,
2019       2018
(unaudited) (unaudited)
Revenue:
Interest income from loans held for investment $ 27,986 $ 27,436
Interest expense (15,740 ) (14,299 )
Net interest margin 12,246 13,137
Operating revenue from real estate owned 1,911    
Total revenue 14,157   13,137  
Expenses:
Management and incentive fees to affiliate 1,574 1,558
Professional fees 478 482
General and administrative expenses 1,120 774
General and administrative expenses reimbursed to affiliate 659 924
Operating expenses from real estate owned 1,633
Depreciation of real estate owned 54    
Total expenses 5,518   3,738  
Income before income taxes 8,639 9,399
Income tax expense, including excise tax 96   81  
Net income attributable to common stockholders $ 8,543   $ 9,318  
Earnings per common share:
Basic and diluted earnings per common share $ 0.30   $ 0.33  
Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding 28,561,827 28,495,833
Diluted weighted average shares of common stock outstanding 28,780,980 28,598,916
Dividends declared per share of common stock $ 0.33 $ 0.28
 

SCHEDULE I

Reconciliation of Net Income to Non-GAAP Core Earnings

The Company believes the disclosure of Core Earnings provides useful information to investors regarding the calculation of incentive fees the Company pays to its manager, Ares Commercial Real Estate Management LLC, and the Company’s financial performance. Core Earnings is an adjusted non-GAAP 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. 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. Core Earnings is a non-GAAP measure and is defined as net income (loss) computed in accordance with GAAP, excluding non-cash equity compensation expense, the incentive fee, 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 external manager and the Company’s independent directors and after approval by a majority of the Company’s independent directors.

Reconciliation of net income attributable to common stockholders, the most directly comparable GAAP financial measure, to Core Earnings is set forth in the table below for the three and twelve months ended March 31, 2019 ($ in thousands):

       

For the three months
ended March 31, 2019

For the twelve months
ended March 31, 2019

Net income attributable to common stockholders $ 8,543   $ 37,821
Stock-based compensation 492 1,360
Incentive fees to affiliate 1,150
Depreciation of real estate owned 54   54
Core Earnings $ 9,089   $ 40,385
 
Basic & diluted Core Earnings per common share $ 0.32   $ 1.41
 

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