ACRE Ares Commercial Real Estate Corporation

First quarter GAAP net loss of $17.3 million or $0.54 per diluted common share and Core Earnings(1) of $10.3 million or $0.32 per diluted 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 loss of $17.3 million or $0.54 per diluted common share and Core Earnings(1) of $10.3 million or $0.32 per diluted common share for the first quarter of 2020.

“During this unprecedented economic disruption caused by the COVID-19 pandemic, we have relied on our seasoned team of professionals and rigorous, credit focused investment philosophy to manage our existing portfolio and liquidity position,” said Bryan Donohoe, Chief Executive Officer of ACRE. “We strategically structured our portfolio to be comprised of 95% senior loans with 62% collateralized by multifamily, office and industrial properties with limited exposure to hotel and retail properties. As of quarter end, our portfolio has performed relatively well with no impairments and we received all loan debt service payments for the April 2020 payment date.”

“Our funding structure is diversified across ten different sources of capital with relationship financial institutions that do not contain margin call provisions based on changes in market borrowing spreads,” said Tae-Sik Yoon, Chief Financial Officer of ACRE. “In addition, we have purposefully diversified the composition of senior loans that we finance with each of our lenders.”

_________________________________

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

COMMON STOCK DIVIDEND

On February 20, 2020, the Company declared a cash dividend of $0.33 per common share for the first quarter of 2020. The first quarter 2020 dividend was paid on April 15, 2020 to common stockholders of record as of March 31, 2020.

ADDITIONAL INFORMATION

The Company issued a presentation of its first quarter 2020 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 2020 Earnings Presentation.” The Company also filed its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 with the U.S. Securities and Exchange Commission on May 8, 2020.

CONFERENCE CALL AND WEBCAST INFORMATION

On Friday, May 8, 2020, the Company invites all interested persons to attend its webcast/conference call at 1:00 p.m. (Eastern Time) to discuss its first quarter 2020 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 +1 (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 6127925 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 21, 2020 at 5:00 p.m. (Eastern Time) to domestic callers by dialing +1 (877) 344-7529 and to international callers by dialing +1 (412) 317-0088. For all replays, please reference conference number 10141810. An archived replay will also be available through May 21, 2020 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, the level of lending and borrowing spreads and interest rates, commercial real estate loan volumes, the impact of the COVID-19 pandemic and the pandemic's impact on the U.S. and global economy, 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 20, 2020, and the risk factors described in Part II - Other Information, Item 1A. Risk Factors in the Company's Quarterly Report on Form 10-Q filed with the SEC on May 8, 2020. 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, 2020

 

December 31, 2019

 

(unaudited)

 

 

ASSETS

 

 

 

Cash and cash equivalents

$

74,498

 

 

$

5,256

 

Restricted cash

379

 

 

379

 

Loans held for investment ($425,817 and $515,896 related to consolidated VIEs, respectively)

1,870,639

 

 

1,682,498

 

Current expected credit loss reserve

(29,143

)

 

—

 

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

1,841,496

 

 

1,682,498

 

Real estate owned, net

37,907

 

 

37,901

 

Other assets ($1,010 and $1,309 of interest receivable related to consolidated VIEs, respectively; $131,183 and $41,104 of other receivables related to consolidated VIEs, respectively)

147,075

 

 

58,100

 

Total assets

$

2,101,355

 

 

$

1,784,134

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

LIABILITIES

 

 

 

Secured funding agreements

$

990,564

 

 

$

728,589

 

Notes payable and secured borrowings

65,047

 

 

54,708

 

Secured term loan

109,378

 

 

109,149

 

Collateralized loan obligation securitization debt (consolidated VIE)

443,558

 

 

443,177

 

Due to affiliate

2,836

 

 

2,761

 

Dividends payable

11,057

 

 

9,546

 

Other liabilities ($691 and $718 of interest payable related to consolidated VIEs, respectively)

12,850

 

 

9,865

 

Total liabilities

1,635,290

 

 

1,357,795

 

STOCKHOLDERS' EQUITY

 

 

 

Common stock, par value $0.01 per share, 450,000,000 shares authorized at March 31, 2020 and December 31, 2019 and 33,398,952 and 28,865,610 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

329

 

 

283

 

Additional paid-in capital

496,689

 

 

423,619

 

Accumulated earnings (deficit)

(30,953

)

 

2,437

 

Total stockholders' equity

466,065

 

 

426,339

 

Total liabilities and stockholders' equity

$

2,101,355

 

 

$

1,784,134

 

 

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,

 

2020

 

2019

 

(unaudited)

 

(unaudited)

Revenue:

 

 

 

Interest income from loans held for investment

$

31,448

 

 

$

27,986

 

Interest expense

(15,534

)

 

(15,740

)

Net interest margin

15,914

 

 

12,246

 

Revenue from real estate owned

5,220

 

 

1,911

 

Total revenue

21,134

 

 

14,157

 

Expenses:

 

 

 

Management and incentive fees to affiliate

1,773

 

 

1,574

 

Professional fees

903

 

 

478

 

General and administrative expenses

868

 

 

1,120

 

General and administrative expenses reimbursed to affiliate

1,051

 

 

659

 

Expenses from real estate owned

6,676

 

 

1,687

 

Total expenses

11,271

 

 

5,518

 

Provision for current expected credit losses

27,117

 

 

—

 

Income (loss) before income taxes

(17,254

)

 

8,639

 

Income tax expense, including excise tax

9

 

 

96

 

Net income (loss) attributable to common stockholders

$

(17,263

)

 

$

8,543

 

Earnings (loss) per common share:

 

 

 

Basic and diluted earnings (loss) per common share

$

(0.54

)

 

$

0.30

 

Weighted average number of common shares outstanding:

 

 

 

Basic weighted average shares of common stock outstanding

31,897,952

 

 

28,561,827

 

Diluted weighted average shares of common stock outstanding

31,897,952

 

 

28,780,980

 

Dividends declared per share of common stock (1)

$

0.33

 

 

$

0.33

 

 

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

 

SCHEDULE I

Reconciliation of Net Income (Loss) 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 (loss) 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, 2020 ($ in thousands):

 

For the three months ended March 31, 2020

For the twelve months ended March 31, 2020

Net income (loss) attributable to common stockholders

$

(17,263

)

 

$

11,186

 

Stock-based compensation

225

 

 

1,613

 

Incentive fees to affiliate

—

 

 

1,052

 

Depreciation of real estate owned

221

 

 

834

 

Provision for current expected credit losses

27,117

 

 

27,117

 

Core Earnings

$

10,300

 

 

$

41,802

 

 

 

 

 

Net income (loss) attributable to common stockholders

$

(0.54

)

 

$

0.38

 

Stock-based compensation

0.01

 

 

0.05

 

Incentive fees to affiliate

—

 

 

0.04

 

Depreciation of real estate owned

0.01

 

 

0.03

 

Provision for current expected credit losses

0.85

 

 

0.92

 

Basic Core Earnings per common share

$

0.32

 

 

$

1.42

 

 

 

 

 

Net income (loss) attributable to common stockholders

$

(0.54

)

 

$

0.38

 

Stock-based compensation

0.01

 

 

0.05

 

Incentive fees to affiliate

—

 

 

0.04

 

Depreciation of real estate owned

0.01

 

 

0.03

 

Provision for current expected credit losses

0.84

 

 

0.91

 

Diluted Core Earnings per common share

$

0.32

 

 

$

1.41

 

 

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INVESTOR RELATIONS Ares Commercial Real Estate Corporation Carl Drake or Veronica Mendiola Mayer (888) 818-5298 iracre@aresmgmt.com