Ares Commercial Real Estate Corporation Reports Third Quarter 2022 Results

Company Release - 11/2/2022

Third quarter GAAP net income of $0.6 million or $0.01 per diluted common share and Distributable Earnings(1) of $21.3 million or $0.39 per diluted common share

-Subsequent to end of third quarter-

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

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 $0.6 million or $0.01 per diluted common share and Distributable Earnings(1) of $21.3 million or $0.39 per diluted common share for the third quarter of 2022.

“We generated another quarter of strong earnings that were primarily driven by the benefits of higher interest rates on our floating rate loan portfolio,” said Bryan Donohoe, Chief Executive Officer of Ares Commercial Real Estate Corporation. “We are approaching the current market by continuing to directly originate senior loans backed by high quality commercial properties as well as opportunistically acquiring investment grade commercial real estate securities, in both cases at wider, attractive credit spreads.”

“We believe our strong position of $156 million of available liquidityand no credit spread based mark-to-market sources of financing positions us well to navigate today’s market,” said Tae-Sik Yoon, Chief Financial Officer of Ares Commercial Real Estate Corporation.

_________________________________

(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 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 were paid on October 17, 2022 to common stockholders of record as of September 30, 2022.

On November 2, 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 fourth quarter of 2022. The fourth quarter 2022 dividend and supplemental cash dividend will be payable on January 18, 2023 to common stockholders of record as of December 30, 2022.

ADDITIONAL INFORMATION

The Company issued a presentation of its third 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 “Third Quarter 2022 Earnings Presentation.” The Company also filed its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 with the U.S. Securities and Exchange Commission on November 2, 2022.

CONFERENCE CALL AND WEBCAST INFORMATION

On Wednesday, November 2, 2022, the Company invites all interested persons to attend its webcast/conference call at 12:00 p.m. (Eastern Time) to discuss its third 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 951268. 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 November 30, 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 933476. An archived replay will also be available through November 30, 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 (the “Company”) 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 subsequent Quarterly Reports on Form 10-Q. 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

 

September 30,
2022

 

December 31,
2021

 

(unaudited)

 

 

ASSETS

 

 

 

Cash and cash equivalents

$

77,297

 

 

$

50,615

 

Loans held for investment ($930,603 and $974,424 related to consolidated VIEs,
respectively)

 

2,508,609

 

 

 

2,414,383

 

Current expected credit loss reserve

 

(46,060

)

 

 

(23,939

)

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

 

2,462,549

 

 

 

2,390,444

 

Real estate owned held for sale, net

 

 

 

 

36,602

 

Investment in available-for-sale debt securities, at fair value

 

27,730

 

 

 

 

Other assets ($2,539 and $2,592 of interest receivable related to consolidated VIEs,
respectively; $131,662 and $128,589 of other receivables related to consolidated VIEs,
respectively)

 

159,610

 

 

 

154,177

 

Total assets

$

2,727,186

 

 

$

2,631,838

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

LIABILITIES

 

 

 

Secured funding agreements

$

847,697

 

 

$

840,047

 

Notes payable

 

104,411

 

 

 

50,358

 

Secured term loan

 

149,153

 

 

 

149,016

 

Collateralized loan obligation securitization debt (consolidated VIEs)

 

822,319

 

 

 

861,188

 

Secured borrowings

 

 

 

 

22,589

 

Due to affiliate

 

4,879

 

 

 

4,156

 

Dividends payable

 

19,196

 

 

 

16,674

 

Other liabilities ($1,387 and $570 of interest payable related to consolidated VIEs,
respectively)

 

12,454

 

 

 

9,182

 

Total liabilities

 

1,960,109

 

 

 

1,953,210

 

Commitments and contingencies

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

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

 

537

 

 

 

465

 

Additional paid-in capital

 

812,050

 

 

 

703,950

 

Accumulated other comprehensive income

 

11,379

 

 

 

2,844

 

Accumulated earnings (deficit)

 

(56,889

)

 

 

(28,631

)

Total stockholders' equity

 

767,077

 

 

 

678,628

 

Total liabilities and stockholders' equity

$

2,727,186

 

 

$

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 September 30,

 

For the nine months
ended September 30,

 

2022

 

2021

 

2022

 

2021

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

Revenue:

 

 

 

 

 

 

 

Interest income

$

45,633

 

 

$

34,023

 

 

$

117,619

 

 

$

95,587

 

Interest expense

 

(18,362

)

 

 

(12,669

)

 

 

(43,851

)

 

 

(35,900

)

Net interest margin

 

27,271

 

 

 

21,354

 

 

 

73,768

 

 

 

59,687

 

Revenue from real estate owned

 

 

 

 

5,850

 

 

 

2,672

 

 

 

12,271

 

Total revenue

 

27,271

 

 

 

27,204

 

 

 

76,440

 

 

 

71,958

 

Expenses:

 

 

 

 

 

 

 

Management and incentive fees to affiliate

 

3,868

 

 

 

3,175

 

 

 

10,608

 

 

 

8,693

 

Professional fees

 

842

 

 

 

480

 

 

 

2,720

 

 

 

1,880

 

General and administrative expenses

 

1,416

 

 

 

1,119

 

 

 

4,617

 

 

 

3,470

 

General and administrative expenses reimbursed to affiliate

 

1,011

 

 

 

773

 

 

 

2,641

 

 

 

2,313

 

Expenses from real estate owned

 

 

 

 

5,339

 

 

 

4,309

 

 

 

12,458

 

Total expenses

 

7,137

 

 

 

10,886

 

 

 

24,895

 

 

 

28,814

 

Provision for current expected credit losses

 

19,485

 

 

 

6,367

 

 

 

26,659

 

 

 

(756

)

Gain on sale of real estate owned

 

 

 

 

 

 

 

2,197

 

 

 

 

Income before income taxes

 

649

 

 

 

9,951

 

 

 

27,083

 

 

 

43,900

 

Income tax expense, including excise tax

 

5

 

 

 

 

 

 

208

 

 

 

593

 

Net income attributable to common stockholders

$

644

 

 

$

9,951

 

 

$

26,875

 

 

$

43,307

 

Earnings per common share:

 

 

 

 

 

 

 

Basic earnings per common share

$

0.01

 

 

$

0.21

 

 

$

0.53

 

 

$

1.06

 

Diluted earnings per common share

$

0.01

 

 

$

0.21

 

 

$

0.52

 

 

$

1.05

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic weighted average shares of common stock outstanding

 

54,415,545

 

 

 

46,957,339

 

 

 

50,753,915

 

 

 

40,840,453

 

Diluted weighted average shares of common stock outstanding

 

54,846,756

 

 

 

47,209,469

 

 

 

51,193,238

 

 

 

41,120,751

 

Dividends declared per share of common stock(1)

$

0.35

 

 

$

0.35

 

 

$

1.05

 

 

$

1.05

 

(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 September 30, 2022 ($ in thousands):

 

For the three months
ended September 30, 2022

 

For the twelve months
ended September 30, 2022

Net income attributable to common stockholders

$

644

 

 

$

44,030

 

Stock-based compensation

 

673

 

 

 

2,632

 

Incentive fees to affiliate

 

855

 

 

 

3,007

 

Depreciation of real estate owned

 

 

 

 

(2,234

)

Provision for current expected credit losses

 

19,485

 

 

 

27,425

 

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

 

(354

)

 

 

1,342

 

Distributable Earnings

$

21,303

 

 

$

76,202

 

 

 

 

 

Net income attributable to common stockholders

$

0.01

 

 

$

0.88

 

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

 

0.36

 

 

 

0.55

 

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

 

(0.01

)

 

 

0.03

 

Basic Distributable Earnings per common share

$

0.39

 

 

$

1.53

 

 

 

 

 

Net income attributable to common stockholders

$

0.01

 

 

$

0.88

 

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

 

0.36

 

 

 

0.55

 

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

 

(0.01

)

 

 

0.03

 

Diluted Distributable Earnings per common share

$

0.39

 

 

$

1.52

 

  1. For the three months and twelve months ended September 30, 2022, Distributable Earnings includes a $0.4 million and $0.6 million, respectively, adjustment to reverse the impact of the $2.0 million realized gain from the termination of the interest rate cap derivative that was amortized into GAAP net income.

 

INVESTOR RELATIONS

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

Source: Ares Commercial Real Estate Corporation
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