Financial Data and Key Metrics Changes - The company reported a GAAP net loss of approximately $11 million or $0.20 per diluted common share for Q2 2025 [16] - Distributable earnings for Q2 2025 were a net loss of approximately $28 million or $0.51 per diluted common share, including a realized loss of $33 million related to the exit of a loan [16] - The net debt to equity ratio, excluding CECL, was maintained at 1.2x at the end of Q2 2025, stable quarter over quarter but down from 1.9x year over year [18] - Outstanding borrowings were reduced to $889 million at the end of the quarter, a decrease of 6% quarter over quarter and 39% year over year [18] - The total CECL reserve declined to $119 million as of June 30, 2025, a decrease of approximately $20 million from the previous quarter [20] Business Line Data and Key Metrics Changes - Office loans were reduced to $524 million, a decrease of 10% quarter over quarter and 30% year over year, driven by repayments and active asset management [5] - The company exited a $51 million office life sciences loan, taking a $33 million realized loss, which contributed to a 50% decrease in future funding commitments [6][7] - The company upgraded a risk-rated $356 million loan collateralized by a hotel property to a risk-rated two loan based on improved occupancy and cash flow [11] Market Data and Key Metrics Changes - The company noted improved leasing fundamentals and more positive capital markets in the office sector, which may impact the rate of resolutions [5] - The risk-rated one to three loans, primarily collateralized by multifamily, industrial, and self-storage properties, continued to perform well [10] Company Strategy and Development Direction - The company aims to enhance earnings and dividend coverage by accelerating resolutions on higher-risk assets while maintaining balance sheet integrity [13] - The company plans to increase origination activity as it collects repayments and addresses risk-rated loans [5] - The company is optimistic about the stabilization and gradual improvement of the commercial real estate market, particularly due to valuation stability [23] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that quarter-to-quarter earnings results may vary but remains confident in the company's strategy and execution [22] - The company expects to see a gradual improvement in rent growth over the next three to five years, driven by supply-demand imbalances [45] - Management expressed that the current income profile of lending remains attractive despite market volatility [46] Other Important Information - The Board declared a regular cash dividend of $0.15 per common share for Q2 2025, with an annualized dividend yield above 13% [21] - The company emphasized the importance of liquidity to enable greater optionality for resolutions and opportunistic investments [19] Q&A Session Summary Question: Is the second quarter the trough for net revenue and net interest income? - Management indicated that they expect to originate additional loans moving forward, which should absorb any repayments and help rebuild net interest income [28][29] Question: Will new originations be smaller in size going forward? - Management acknowledged that the average ticket size for new originations may come down, but they will maintain a focus on institutional assets [64] Question: Can you explain the mechanics of the $33 million realized loss and the CECL release? - Management clarified that the $51 million loan had a $19 million reserve, resulting in a net difference affecting book value of $14 million [60][61] Question: What is the company's view on the competitiveness of the CRE lending markets? - Management noted relative stability in the market and highlighted attractive return on equity opportunities despite some consolidation in the sector [46]

Group 1 - The Conservative Income Portfolio targets value stocks with high margins of safety and aims to reduce volatility through well-priced options, offering a yield of 7-9% [1][2] - Trapping Value provides Covered Calls and focuses on capital preservation while generating income, with a portfolio designed for lower volatility [2][3] - The team behind Trapping Value has over 40 years of combined experience in generating options income and capital preservation [3] Group 2 - The Enhanced Equity Income Solutions Portfolio is specifically designed to reduce volatility while achieving targeted yields [1] - The Fixed Income Portfolio emphasizes purchasing undervalued securities with high income potential [2] - The investment group features two income-generating portfolios along with a bond ladder for diversified income strategies [3]

Financial Performance - The company reported a GAAP net loss of $11 million, equivalent to a loss of $0.20 per diluted common share[12] - Distributable Earnings (Loss) amounted to $(28) million, or $(0.51) per diluted common share[12] - Excluding realized losses of $33 million from the exit of an office (life sciences) loan, Distributable Earnings were $5 million, or $0.09 per diluted common share[12] - The book value stood at $524 million, or $9.52 per common share ($11.69 excluding CECL reserve)[12] Portfolio & CECL Reserve - The CECL reserve was $119 million, representing 9% of the outstanding principal balance for loans held for investment[12] - The CECL reserve decreased by $20 million in 2Q 2025 due to the exit of an office (life sciences) loan, loan repayments, and other loan-specific attributes[12] - 94% of CECL reserves relates to risk rated 4 and 5 loans[45] - 89% of CECL reserves relates to office and residential / condo loans[45] Strategic Initiatives & Balance Sheet - Office loans were reduced by $61 million QoQ to $524 million, a decrease of 10% QoQ and 30% YoY[12] - Available capital as of June 30, 2025, was $178 million, including $94 million of cash[12] - The company amended and extended a $150 million Morgan Stanley secured funding facility, which includes a $100 million accordion option[12] Dividend - A cash dividend of $0.15 per common share was declared for shareholders for 3Q 2025, equating to an annualized implied dividend yield of 13% to the stock price as of July 31, 2025[12]

Core Viewpoint - Ares Commercial Real Estate (ACRE) reported a significant quarterly loss of $0.51 per share, which was much worse than the Zacks Consensus Estimate of a loss of $0.02, indicating a substantial earnings surprise of -2,450.00% [1] Financial Performance - The company posted revenues of $23.12 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 16.06% and down from $40.85 million in the same quarter last year [2] - Over the last four quarters, ACRE has only surpassed consensus EPS estimates once [2] Stock Performance - ACRE shares have declined approximately 23.3% since the beginning of the year, contrasting with the S&P 500's gain of 7.6% [3] Future Outlook - The company's earnings outlook will be crucial for determining the stock's immediate price movement, with current consensus EPS estimates indicating breakeven on $27.11 million in revenues for the upcoming quarter and $0.06 on $107.43 million in revenues for the current fiscal year [4][7] - The estimate revisions trend for ACRE was favorable prior to the earnings release, resulting in a Zacks Rank 1 (Strong Buy) for the stock, suggesting it is expected to outperform the market in the near future [6] Industry Context - The REIT and Equity Trust industry, to which ACRE belongs, is currently ranked in the top 38% of over 250 Zacks industries, indicating a favorable environment for stocks in this sector [8]

FORM 10-Q Part I. Financial Information [Item 1. Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements and accompanying detailed notes for the period [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This statement shows the company's financial position, reflecting a decrease in total assets and stockholders' equity Consolidated Balance Sheets Summary | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | **ASSETS** | | | | Cash and cash equivalents | $89,985 | $63,799 | | Loans held for investment, net of CECL reserve | $1,182,975 | $1,520,464 | | Total assets | $1,438,638 | $1,751,206 | | **LIABILITIES** | | | | Total liabilities | $914,939 | $1,211,074 | | **STOCKHOLDERS' EQUITY** | | | | Total stockholders' equity | $523,699 | $540,132 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) This statement details the company's financial performance, indicating a net loss for the reported periods Consolidated Statements of Operations Summary | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Interest income | $23,117 | $40,847 | $50,597 | $84,880 | | Interest expense | $(16,101) | $(27,483) | $(34,290) | $(56,302) | | Net interest margin | $7,016 | $13,364 | $16,307 | $28,578 | | Total revenue | $12,565 | $16,797 | $27,513 | $35,488 | | Total expenses | $10,750 | $8,909 | $21,412 | $17,459 | | (Provision for) reversal of current expected credit losses, net | $20,150 | $2,374 | $25,490 | $24,643 | | Realized losses on loans | $(33,000) | $(16,387) | $(33,000) | $(62,113) | | Net income (loss) attributable to common stockholders | $(11,035) | $(6,125) | $(1,690) | $(18,448) | | Basic earnings (loss) per common share | $(0.20) | $(0.11) | $(0.03) | $(0.34) | | Diluted earnings (loss) per common share | $(0.20) | $(0.11) | $(0.03) | $(0.34) | | Dividends declared per share of common stock | $0.15 | $0.25 | $0.30 | $0.50 | [Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This statement details the net income (loss) and other comprehensive income components, showing a comprehensive loss Consolidated Statements of Comprehensive Income (Loss) Summary | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders | $(11,035) | $(6,125) | $(1,690) | $(18,448) | | Unrealized gains (losses) on available-for-sale debt securities | $21 | $(41) | $(9) | $40 | | Comprehensive income (loss) | $(11,014) | $(6,166) | $(1,699) | $(18,408) | [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement tracks changes in equity components, reflecting impacts from compensation, income, and dividends Consolidated Statements of Stockholders' Equity Summary | Metric | Balance at December 31, 2024 (in thousands) | Balance at June 30, 2025 (in thousands) | | :--- | :--- | :--- | | Common Stock (Shares) | 54,542,178 | 55,005,353 | | Common Stock (Amount) | $532 | $532 | | Additional Paid-in Capital | $816,923 | $818,910 | | Accumulated Other Comprehensive Income (Loss) | $37 | $28 | | Accumulated Earnings (Deficit) | $(277,360) | $(295,771) | | Total Stockholders' Equity | $540,132 | $523,699 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement presents cash flows from all activities, showing a positive change in cash for 2025 Consolidated Statements of Cash Flows Summary | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $12,890 | $20,045 | | Net cash provided by (used in) investing activities | $324,998 | $133,721 | | Net cash provided by (used in) financing activities | $(310,047) | $(193,576) | | Change in cash, cash equivalents and restricted cash | $27,841 | $(39,810) | | Cash, cash equivalents and restricted cash, end of period | $94,135 | $70,649 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures supporting the consolidated financial statements [1. ORGANIZATION](index=10&type=section&id=1.%20ORGANIZATION) ACRE is a specialty finance REIT focused on CRE loans, externally managed by a subsidiary of Ares Management - ACRE is a specialty finance company primarily engaged in directly originating and investing in commercial real estate loans and related investments[22](index=22&type=chunk) - The company is externally managed by **Ares Commercial Real Estate Management LLC (ACREM)**, a subsidiary of Ares Management Corporation[22](index=22&type=chunk) - ACRE has elected and qualified to be taxed as a **real estate investment trust (REIT)** for United States federal income tax purposes since December 31, 2012[24](index=24&type=chunk) [2. SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=2.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines key accounting policies, including the basis of presentation, use of estimates, and VIE consolidation - The financial statements are prepared in conformity with **United States generally accepted accounting principles (GAAP)** and include the accounts of the Company, consolidated VIEs, and wholly-owned subsidiaries[28](index=28&type=chunk) - Management makes estimates and assumptions, particularly regarding global macroeconomic conditions (e.g., inflation, interest rates), which could **negatively impact** the Company and its borrowers[30](index=30&type=chunk)[31](index=31&type=chunk) - The Company consolidates VIEs where it is the **primary beneficiary**, having both the power to direct significant activities and the obligation to absorb losses or right to receive significant benefits[32](index=32&type=chunk)[35](index=35&type=chunk) [3. LOANS HELD FOR INVESTMENT](index=15&type=section&id=3.%20LOANS%20HELD%20FOR%20INVESTMENT) The company's loan portfolio decreased in principal balance, with four loans on non-accrual status as of June 30, 2025 - During the six months ended June 30, 2025, the Company funded approximately **$19.3 million** of outstanding principal and received repayments of **$336.9 million**[52](index=52&type=chunk) - **70.8%** of the Company's loans have SOFR floors, with a weighted average floor of **0.93%**[52](index=52&type=chunk) Loan Portfolio Summary | Metric | As of June 30, 2025 (in thousands) | As of December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total loans held for investment portfolio (Carrying Amount) | $1,300,670 | $1,656,688 | | Total loans held for investment portfolio (Outstanding Principal) | $1,355,936 | $1,698,506 | | Weighted Average Unleveraged Effective Yield (all loans) | 6.3% | 6.9% | | Weighted Average Unleveraged Effective Yield (interest accruing loans) | 8.4% | 8.7% | | Weighted Average Remaining Life (Years) | 0.8 | 1.0 | | Number of loans on non-accrual status | 4 | 5 | [4. CURRENT EXPECTED CREDIT LOSSES](index=18&type=section&id=4.%20CURRENT%20EXPECTED%20CREDIT%20LOSSES) The CECL Reserve decreased to $119.5 million, primarily due to a realized loss and shorter average loan terms - The CECL Reserve for loans held for investment portfolio is **$119.5 million** as of June 30, 2025, representing **858 basis points** of the total loan commitment balance[68](index=68&type=chunk) - The decrease in CECL Reserve as of June 30, 2025, compared to March 31, 2025, is primarily due to a **realized loss** on an office (life sciences) loan, shorter average remaining loan term, and loan repayments[64](index=64&type=chunk) CECL Reserve Summary | Metric | Balance at December 31, 2024 (in thousands) | Balance at June 30, 2025 (in thousands) | | :--- | :--- | :--- | | CECL Reserve for Funded Loan Commitments | $136,224 | $117,695 | | CECL Reserve for Unfunded Loan Commitments | $8,757 | $1,796 | [5. REAL ESTATE OWNED](index=20&type=section&id=5.%20REAL%20ESTATE%20OWNED) The company holds two REO properties classified as held for investment, with no impairment charges recognized - On September 19, 2024, the Company acquired legal title to a multi-building office property in North Carolina through a deed in lieu of foreclosure, recognizing a **realized loss of $5.8 million**[77](index=77&type=chunk) - On September 8, 2023, the Company acquired legal title to a mixed-use property in Florida through a consensual foreclosure, with **no gain or loss recognized** at acquisition[79](index=79&type=chunk) Real Estate Owned Summary | Metric | As of June 30, 2025 (in thousands) | As of December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total real estate owned held for investment | $145,744 | $144,808 | | Less: Accumulated depreciation and amortization | $(10,276) | $(5,776) | | Real estate owned held for investment, net | $135,468 | $139,032 | | Net depreciation and amortization expense (Six Months Ended June 30, 2025) | $4,500 | $1,600 | [6. DEBT](index=23&type=section&id=6.%20DEBT) The company's total outstanding debt was $751.8 million as of June 30, 2025, with several facilities extended - The Wells Fargo Facility's initial maturity date and funding period were extended to **February 10, 2028**, with options for two 12-month extensions[88](index=88&type=chunk) - The Morgan Stanley Facility's commitment was reduced from **$250.0 million to $150.0 million**, and its initial maturity date was extended to **July 16, 2026**, with one 12-month extension option[91](index=91&type=chunk) - The Secured Term Loan's outstanding principal was reduced by **$20.0 million** through repayments in January and April 2025[93](index=93&type=chunk) Summary of Debt Facilities | Financing Agreement | Total Commitment (June 30, 2025, in thousands) | Outstanding Balance (June 30, 2025, in thousands) | Total Commitment (December 31, 2024, in thousands) | Outstanding Balance (December 31, 2024, in thousands) | | :--- | :--- | :--- | :--- | :--- | | Wells Fargo Facility | $450,000 | $197,822 | $450,000 | $210,216 | | Citibank Facility | $325,000 | $294,495 | $325,000 | $228,727 | | CNB Facility | $75,000 | $0 | $75,000 | $0 | | Morgan Stanley Facility | $150,000 | $149,525 | $250,000 | $149,525 | | Secured Term Loan | $110,000 | $110,000 | $130,000 | $130,000 | | **Total** | **$1,110,000** | **$751,842** | **$1,230,000** | **$718,468** | [7. COMMITMENTS AND CONTINGENCIES](index=25&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES) Unfunded commitments decreased to $36.5 million, and the company is not aware of any material legal claims - The impact of current macroeconomic conditions on the Company's business is uncertain, but **no contingencies were recorded** on the consolidated balance sheets as of June 30, 2025[95](index=95&type=chunk) Unfunded Commitments Summary | Metric | As of June 30, 2025 (in thousands) | As of December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total unfunded commitments | $36,514 | $74,577 | [8. STOCKHOLDERS' EQUITY](index=26&type=section&id=8.%20STOCKHOLDERS'%20EQUITY) The stock repurchase program was extended to 2026, and authorized shares under the equity incentive plan increased - The stock repurchase program of up to **$50.0 million** was extended to **July 31, 2026**[98](index=98&type=chunk) - **No shares were repurchased** under the program during the three and six months ended June 30, 2025 and 2024[98](index=98&type=chunk) - The total number of shares of common stock authorized for grant under the Amended and Restated 2012 Equity Incentive Plan was increased to **5,015,000 shares**[100](index=100&type=chunk) [9. EARNINGS PER SHARE](index=27&type=section&id=9.%20EARNINGS%20PER%20SHARE) This section provides the computation of basic and diluted earnings (loss) per common share for the reported periods Earnings Per Share Calculation | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders (in thousands) | $(11,035) | $(6,125) | $(1,690) | $(18,448) | | Basic weighted average shares of common stock outstanding | 54,856,949 | 54,426,112 | 54,842,959 | 54,411,255 | | Basic earnings (loss) per common share | $(0.20) | $(0.11) | $(0.03) | $(0.34) | | Diluted earnings (loss) per common share | $(0.20) | $(0.11) | $(0.03) | $(0.34) | [10. INCOME TAX](index=27&type=section&id=10.%20INCOME%20TAX) The company's income tax provision relates to its taxable REIT subsidiaries, as it generally avoids federal tax as a REIT - The Company generally will not be subject to United States federal income taxes on its REIT taxable income as long as it **annually distributes all of its REIT taxable income** and complies with other REIT requirements[24](index=24&type=chunk) Income Tax Expense Summary | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Current | $0 | $0 | $282 | $0 | | Deferred | $0 | $0 | $(1) | $2 | | Excise tax | $0 | $0 | $0 | $0 | | Total income tax expense (benefit), including excise tax | $0 | $0 | $281 | $2 | [11. FAIR VALUE](index=28&type=section&id=11.%20FAIR%20VALUE) This section details fair value measurements, categorizing assets and liabilities based on input observability - Fair value measurements are categorized into three levels: **Level 1** (quoted prices in active markets), **Level 2** (significant observable inputs), and **Level 3** (significant unobservable inputs)[110](index=110&type=chunk) - Real estate owned is recorded at fair value at acquisition using **Level 3 inputs** and is evaluated for impairment quarterly[114](index=114&type=chunk) Fair Value of Financial Instruments | Financial Assets | As of June 30, 2025 (in thousands) | As of December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Available-for-sale debt securities (Fair Value) | $7,808 (Level 2) | $8,684 (Level 2) | | Loans held for investment (Carrying Value) | $1,300,670 | $1,656,688 | | Loans held for investment (Fair Value) | $1,180,527 (Level 3) | $1,510,670 (Level 3) | | Secured funding agreements (Carrying Value & Fair Value) | $641,842 (Level 2) | $588,468 (Level 2) | | Secured term loan (Carrying Value) | $108,780 | $128,062 | | Secured term loan (Fair Value) | $107,020 (Level 3) | $125,260 (Level 3) | | Collateralized loan obligation securitization debt (Carrying Value) | $137,587 | $455,839 | | Collateralized loan obligation securitization debt (Fair Value) | $132,393 (Level 2) | $447,356 (Level 2) | [12. RELATED PARTY TRANSACTIONS](index=31&type=section&id=12.%20RELATED%20PARTY%20TRANSACTIONS) The company has significant transactions with its Manager, ACREM, including management fees and expense reimbursements - The Management Agreement with ACREM outlines base management fees (**1.5% of stockholders' equity per annum**), incentive fees, and expense reimbursements[121](index=121&type=chunk)[122](index=122&type=chunk)[124](index=124&type=chunk) - **No incentive fees** were incurred for the three and six months ended June 30, 2025, and 2024[123](index=123&type=chunk) Related Party Costs Summary | Related Party Costs | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Management fees | $2,430 | $2,692 | $4,997 | $5,460 | | General and administrative expenses reimbursed to affiliate | $1,024 | $1,277 | $2,027 | $2,409 | | Total payable to Manager (June 30, 2025) | $4,145 | | | | | Total payable to Manager (December 31, 2024) | | | | $3,790 | [13. DIVIDENDS AND DISTRIBUTIONS](index=34&type=section&id=13.%20DIVIDENDS%20AND%20DISTRIBUTIONS) The company declared cash dividends of $0.15 per common share for Q1 and Q2 2025, a decrease from 2024 Dividends Declared Summary | Date Declared | Per Share Amount (2025) | Total Amount (2025, in thousands) | Per Share Amount (2024) | Total Amount (2024, in thousands) | | :--- | :--- | :--- | :--- | :--- | | May 7, 2025 / May 9, 2024 | $0.15 | $8,368 | $0.25 | $13,812 | | February 12, 2025 / February 22, 2024 | $0.15 | $8,353 | $0.25 | $13,802 | | Total cash dividends declared for the six months ended June 30 | $0.30 | $16,721 | $0.50 | $27,614 | [14. VARIABLE INTEREST ENTITIES](index=35&type=section&id=14.%20VARIABLE%20INTEREST%20ENTITIES) The company consolidates its CLO Securitizations as the primary beneficiary, with one CLO terminated in March 2025 - The **FL3 CLO Securitization was terminated** on March 17, 2025, with all FL3 Notes held by third parties repaid in full[136](index=136&type=chunk) - The FL4 CLO Securitization's notes were collateralized by interests in a pool of four mortgage assets (**$172.2 million principal balance**) and **$56.8 million** of real estate owned as of June 30, 2025[138](index=138&type=chunk) - The Company is the primary beneficiary of the CLO Securitizations, and its maximum risk of loss is limited to its **$96.0 million investment** in these entities[141](index=141&type=chunk)[143](index=143&type=chunk) [15. SEGMENT INFORMATION](index=37&type=section&id=15.%20SEGMENT%20INFORMATION) The company operates as a single reportable segment focused on originating and managing CRE debt investments - The Company operates as a **single reportable segment**, deriving revenue from originating and managing CRE debt-related investments[146](index=146&type=chunk) Segment Performance Summary | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $12,565 | $16,797 | $27,513 | $35,488 | | Expenses from real estate owned | $(4,628) | $(2,226) | $(9,123) | $(4,262) | | (Provision for) reversal of current expected credit losses, net | $20,150 | $2,374 | $25,490 | $24,643 | | Realized losses on loans | $(33,000) | $(16,387) | $(33,000) | $(62,113) | | Segment net income (loss) | $(11,035) | $(6,125) | $(1,690) | $(18,448) | [16. SUBSEQUENT EVENTS](index=37&type=section&id=16.%20SUBSEQUENT%20EVENTS) Post-quarter end, the company closed four senior mortgage loans and declared a Q3 2025 dividend - On July 23, 2025, the Company closed four senior mortgage loans on self-storage properties in Florida, Arizona, and Pennsylvania, with total commitments of **$42.5 million**[149](index=149&type=chunk)[150](index=150&type=chunk) - The board of directors declared a regular cash dividend of **$0.15 per common share** for the third quarter of 2025, payable on October 15, 2025[152](index=152&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition, operating results, and market trends [Overview](index=39&type=section&id=Overview) ACRE is a specialty finance REIT that originates and invests in CRE loans, externally managed by ACREM - ACRE is a specialty finance company primarily engaged in directly originating and investing in **commercial real estate (CRE) loans** and related investments[153](index=153&type=chunk) - The company is externally managed by ACREM, a subsidiary of Ares Management Corporation, and has qualified as a **REIT** since December 31, 2012[153](index=153&type=chunk)[154](index=154&type=chunk) [Developments During the Second Quarter of 2025](index=39&type=section&id=Developments%20During%20the%20Second%20Quarter%20of%202025) Key Q2 developments include an amended financing facility and a significant realized loss on a loan payoff - The Morgan Stanley Facility commitment was reduced from **$250.0 million to $150.0 million**, and its initial maturity date was extended to **July 16, 2026**[159](index=159&type=chunk) - A **$33.0 million realized loss** was recognized from a discounted payoff of a $51.5 million senior mortgage loan on an office (life sciences) property[159](index=159&type=chunk) [Trends Affecting Our Business](index=39&type=section&id=Trends%20Affecting%20Our%20Business) The CRE market faces uncertainty from trade policies and rising costs, though declining development may benefit existing properties - The U.S. economy expanded in Q2 2025, supported by steady unemployment and consumer spending, despite increased uncertainty from **trade policies and tariffs**[156](index=156&type=chunk) - **Rising operating costs** and challenges in the office sector continue to pressure cash flow performance across real estate property types[157](index=157&type=chunk) - A significant decline in new commercial real estate development since 2023 could lead to a **shortage of contemporary, in-demand properties**, potentially supporting values and transaction activities[157](index=157&type=chunk) [Factors Impacting Our Operating Results](index=40&type=section&id=Factors%20Impacting%20Our%20Operating%20Results) Operating results are primarily influenced by net interest income, asset market values, and credit losses - Operating results are primarily affected by **net interest income**, market value of assets, and the supply/demand for commercial mortgage loans and other financial assets[160](index=160&type=chunk) - **Credit losses** in excess of initial anticipations or unanticipated credit events experienced by borrowers also impact operating results[160](index=160&type=chunk) [Stock Repurchase Program](index=40&type=section&id=Stock%20Repurchase%20Program) The company's $50.0 million stock repurchase program was extended until July 31, 2026, with no shares repurchased - The stock repurchase program of up to **$50.0 million** was extended until **July 31, 2026**[161](index=161&type=chunk) - **No shares were repurchased** under the program during the three and six months ended June 30, 2025[161](index=161&type=chunk) [Loans Held for Investment Portfolio](index=40&type=section&id=Loans%20Held%20for%20Investment%20Portfolio) The portfolio comprised 26 loans with an outstanding principal of $1.4 billion and a weighted average yield of 6.3% - The portfolio includes **26 loans** held for investment, with **70.8%** having SOFR floors (weighted average floor of 0.93%)[162](index=162&type=chunk) - During the six months ended June 30, 2025, the company funded **$19.3 million** and received **$336.9 million** in principal repayments[162](index=162&type=chunk) Loan Portfolio Summary (June 30, 2025) | Metric | As of June 30, 2025 (in thousands) | | :--- | :--- | | Total loans held for investment portfolio (Carrying Amount) | $1,300,670 | | Total loans held for investment portfolio (Outstanding Principal) | $1,355,936 | | Weighted Average Unleveraged Effective Yield (all loans) | 6.3% | | Weighted Average Unleveraged Effective Yield (interest accruing loans) | 8.4% | | Weighted Average Remaining Life (Years) | 0.8 | [Critical Accounting Estimates](index=41&type=section&id=Critical%20Accounting%20Estimates) Financial statements rely on management's estimates and assumptions, with actual results subject to macroeconomic uncertainty - Consolidated financial statements are prepared in accordance with GAAP, requiring management to make **estimates and assumptions**[166](index=166&type=chunk) - These estimates are based on historical experience and other reasonable factors, but **actual results may differ** due to macroeconomic conditions[166](index=166&type=chunk) [Recent Developments](index=41&type=section&id=Recent%20Developments) Subsequent to the quarter, the company closed four loans totaling $42.5 million and declared a Q3 dividend - On July 23, 2025, the company closed four senior mortgage loans on self-storage properties in Florida, Arizona, and Pennsylvania, with total commitments of **$42.5 million**[167](index=167&type=chunk)[168](index=168&type=chunk) - A regular cash dividend of **$0.15 per common share** was declared for the third quarter of 2025, payable on October 15, 2025[169](index=169&type=chunk) [Results of Operations](index=42&type=section&id=Results%20of%20Operations) The company reported a net loss, driven by lower net interest margin, higher expenses, and significant realized loan losses Results of Operations Summary | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $12,565 | $16,797 | $27,513 | $35,488 | | Total expenses | $10,750 | $8,909 | $21,412 | $17,459 | | (Provision for) reversal of current expected credit losses, net | $20,150 | $2,374 | $25,490 | $24,643 | | Realized losses on loans | $(33,000) | $(16,387) | $(33,000) | $(62,113) | | Net income (loss) attributable to common stockholders | $(11,035) | $(6,125) | $(1,690) | $(18,448) | [Net Interest Margin](index=42&type=section&id=Net%20Interest%20Margin) Net interest margin decreased significantly due to lower average earning assets and borrowings - The decrease in net interest margin is attributed to **lower weighted average earning assets**, reduced weighted average borrowings, and a decrease in SOFR rates on loans held for investment[172](index=172&type=chunk)[173](index=173&type=chunk) Net Interest Margin Analysis | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net interest margin | $7,016 | $13,364 | $16,307 | $28,578 | | Weighted average earning assets | $1.4 billion | $2.1 billion | $1.5 billion | $2.1 billion | | Weighted average borrowings | $0.9 billion | $1.5 billion | $1.0 billion | $1.5 billion | [Revenue From Real Estate Owned](index=43&type=section&id=Revenue%20From%20Real%20Estate%20Owned) Revenue from real estate owned increased due to the acquisition of an office property in September 2024 - Revenue from real estate owned for the three and six months ended June 30, 2025, was **$5.5 million** and **$11.2 million**, respectively, up from $3.4 million and $6.9 million in 2024[15](index=15&type=chunk) - The increase is largely due to rental revenue from an office property acquired in September 2024 (**$2.3 million for Q2 2025**, **$4.7 million for H1 2025**)[174](index=174&type=chunk) - Mixed-use property revenue contributed **$3.3 million** for Q2 2025 and **$6.5 million** for H1 2025[176](index=176&type=chunk) [Operating Expenses](index=43&type=section&id=Operating%20Expenses) Total operating expenses increased, driven mainly by higher expenses from real estate owned Operating Expenses Summary | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Management and incentive fees to affiliate | $2,430 | $2,692 | $4,997 | $5,460 | | Professional fees | $673 | $757 | $1,550 | $1,290 | | General and administrative expenses | $1,995 | $1,957 | $3,715 | $4,038 | | General and administrative expenses reimbursed to affiliate | $1,024 | $1,277 | $2,027 | $2,409 | | Expenses from real estate owned | $4,628 | $2,226 | $9,123 | $4,262 | | Total expenses | $10,750 | $8,909 | $21,412 | $17,459 | [Related Party Expenses](index=43&type=section&id=Related%20Party%20Expenses) Related party expenses decreased due to lower weighted average stockholders' equity and changes in employee allocation - Management fees decreased due to a **reduction in weighted average stockholders' equity**[178](index=178&type=chunk)[179](index=179&type=chunk) - Allocable general and administrative expenses reimbursed to the Manager decreased due to **changes in the mix of employees** allocating time to the company[178](index=178&type=chunk)[179](index=179&type=chunk) - **No incentive fees** were incurred for the three and six months ended June 30, 2025, and 2024[178](index=178&type=chunk)[179](index=179&type=chunk) [Other Expenses](index=44&type=section&id=Other%20Expenses) Professional fees varied with transaction activity, while G&A expenses decreased due to lower stock-based compensation - Professional fees decreased by **$0.1 million** for the three months ended June 30, 2025, but increased by **$0.3 million** for the six months ended June 30, 2025, due to changes in transaction activity[180](index=180&type=chunk)[181](index=181&type=chunk) - General and administrative expenses decreased by **$0.3 million** for the six months ended June 30, 2025, primarily due to a reduction in weighted average grant date fair value for stock-based compensation[181](index=181&type=chunk) [Expenses From Real Estate Owned](index=44&type=section&id=Expenses%20From%20Real%20Estate%20Owned) Expenses from real estate owned increased significantly due to the acquisition of an office property in September 2024 - The increase in office property operating expenses and depreciation/amortization is mainly due to the acquisition of a **multi-building office property** in September 2024[183](index=183&type=chunk)[184](index=184&type=chunk) Expenses From Real Estate Owned Breakdown | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Mixed-use property operating expenses | $1,069 | $1,119 | $2,296 | $2,140 | | Office property operating expenses | $1,322 | $108 | $2,417 | $108 | | Depreciation and amortization expense | $2,237 | $999 | $4,410 | $2,014 | | Total expenses from real estate owned | $4,628 | $2,226 | $9,123 | $4,262 | [(Provision for) Reversal of Current Expected Credit Losses, Net](index=45&type=section&id=(Provision%20for)%20Reversal%20of%20Current%20Expected%20Credit%20Losses%2C%20Net) The company recorded a net reversal of CECL, driven by a realized loss, shorter loan terms, and repayments - Net reversal of current expected credit losses was **$20.2 million** for Q2 2025 and **$25.5 million** for H1 2025[185](index=185&type=chunk)[186](index=186&type=chunk) - The reversal was primarily due to a **realized loss** on an office (life sciences) loan, shorter average remaining loan term, and loan repayments[185](index=185&type=chunk)[186](index=186&type=chunk) - These factors were partially offset by a relative decline in **near-term macroeconomic forecasts**, including higher tariffs, inflation, and interest rates[185](index=185&type=chunk)[186](index=186&type=chunk) [Realized Losses on Loans](index=45&type=section&id=Realized%20Losses%20on%20Loans) A realized loss of $33.0 million was recognized from a discounted payoff of a senior mortgage loan - A realized loss of **$33.0 million** was recognized for the three and six months ended June 30, 2025, from a discounted payoff of a **$51.5 million** senior mortgage loan on an office (life sciences) property[192](index=192&type=chunk) - In 2024, the company recognized realized losses of **$1.7 million** from a multifamily loan payoff, **$43.1 million** from an office loan payoff, and **$16.4 million** from an office property foreclosure[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) [Change in Unrealized Losses on Loans Held for Sale](index=46&type=section&id=Change%20in%20Unrealized%20Losses%20on%20Loans%20Held%20for%20Sale) A previously recognized unrealized loss of $1.0 million was realized upon the sale of the loan in H1 2024 - An unrealized loss of **$1.0 million** on a senior mortgage loan reclassified as held for sale in 2023 was realized during the six months ended June 30, 2024, upon its sale[193](index=193&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) The company expects sufficient liquidity for operations, with total liquidity at $129 million as of July 31, 2025 - Primary sources of cash include unused borrowing capacity under Secured Funding Agreements, principal and interest payments on assets, cash from operating activities, and future equity offerings[195](index=195&type=chunk) - As of July 31, 2025, the company had approximately **$129 million in liquidity**, comprising **$45 million in cash** and **$84 million in availability** under Secured Funding Agreements[200](index=200&type=chunk) - Financing agreements contain **margin call provisions and various covenants** that, if breached, could lead to default and accelerated repayment[196](index=196&type=chunk) [Cash Flows](index=48&type=section&id=Cash%20Flows) Cash, cash equivalents, and restricted cash increased by $27.8 million in H1 2025, a significant improvement from 2024 Cash Flow Summary | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $12,890 | $20,045 | | Net cash provided by (used in) investing activities | $324,998 | $133,721 | | Net cash provided by (used in) financing activities | $(310,047) | $(193,576) | | Change in cash, cash equivalents and restricted cash | $27,841 | $(39,810) | [Operating Activities](index=48&type=section&id=Operating%20Activities) Net cash from operating activities decreased to $12.9 million, influenced by a net reversal of CECL and realized losses - Net cash provided by operating activities was **$12.9 million** for the six months ended June 30, 2025, compared to **$20.0 million** in 2024[202](index=202&type=chunk) - Adjustments to net income included a **$25.5 million net reversal** of current expected credit losses and **$33.0 million in realized losses** on loans for H1 2025[202](index=202&type=chunk) [Investing Activities](index=48&type=section&id=Investing%20Activities) Net cash from investing activities increased to $325.0 million, driven by higher principal collections on loans - Net cash provided by investing activities totaled **$325.0 million** for the six months ended June 30, 2025, up from **$133.7 million** in 2024[203](index=203&type=chunk) - This increase was primarily due to cash received from **principal collections and cost-recovery proceeds** on loans held for investment exceeding cash used for origination and funding[203](index=203&type=chunk) [Financing Activities](index=49&type=section&id=Financing%20Activities) Net cash used in financing activities increased to $310.0 million due to substantial debt repayments - Net cash used in financing activities was **$310.0 million** for the six months ended June 30, 2025, compared to **$193.6 million** in 2024[204](index=204&type=chunk) - Key outflows included repayments of debt of consolidated VIEs (**$318.4 million**), Secured Funding Agreements (**$61.4 million**), and Secured Term Loan (**$20.0 million**)[204](index=204&type=chunk) - Proceeds from Secured Funding Agreements partially offset these outflows, totaling **$114.8 million**[204](index=204&type=chunk) [Summary of Financing Agreements](index=49&type=section&id=Summary%20of%20Financing%20Agreements) The company's financing agreements total $751.8 million outstanding, with several facilities recently amended - The Wells Fargo Facility was amended to extend its maturity to **February 10, 2028**, with two 12-month extension options[205](index=205&type=chunk) - The Morgan Stanley Facility's commitment was reduced to **$150.0 million**, and its maturity extended to **July 16, 2026**, with one 12-month extension option[205](index=205&type=chunk) Financing Agreements Summary (June 30, 2025) | Financing Agreement | Total Commitment (June 30, 2025, in thousands) | Outstanding Balance (June 30, 2025, in thousands) | Maturity Date (June 30, 2025) | | :--- | :--- | :--- | :--- | | Wells Fargo Facility | $450,000 | $197,822 | February 10, 2028 | | Citibank Facility | $325,000 | $294,495 | January 13, 2027 | | CNB Facility | $75,000 | $0 | March 10, 2026 | | Morgan Stanley Facility | $150,000 | $149,525 | July 16, 2026 | | Secured Term Loan | $110,000 | $110,000 | November 12, 2026 | | **Total** | **$1,110,000** | **$751,842** | | [Securitizations](index=50&type=section&id=Securitizations) The FL4 CLO Securitization had an outstanding principal of $137.6 million, while the FL3 CLO was terminated - As of June 30, 2025, the FL4 CLO Securitization had a carrying amount and outstanding principal of **$137.6 million**[207](index=207&type=chunk) - The FL3 CLO Securitization was **terminated on March 17, 2025**[136](index=136&type=chunk) [Leverage Policies](index=50&type=section&id=Leverage%20Policies) The company intends to use prudent leverage, not exceeding a 4.5-to-1 debt-to-equity ratio, to enhance returns - The company intends to use leverage, not exceeding a **4.5-to-1 debt-to-equity ratio**, to increase potential returns to stockholders[208](index=208&type=chunk) - Leverage deployment considers liquidity, asset volatility, potential losses, duration gap, financing costs, creditworthiness of counterparties, and macroeconomic environment[208](index=208&type=chunk) [Dividends](index=51&type=section&id=Dividends) As a REIT, the company anticipates distributing at least 90% of its taxable income annually to maintain its status - As a REIT, the company anticipates annually distributing **at least 90%** of its REIT taxable income to stockholders[209](index=209&type=chunk) - Failure to meet distribution requirements could result in **corporate income tax** or a **4% non-deductible excise tax**[209](index=209&type=chunk) - If cash available for distribution is less than REIT taxable income, the company may need to **sell assets, borrow funds, or make taxable stock distributions**[210](index=210&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to and management of various market risks, including credit and interest rate risk [Credit Risk](index=51&type=section&id=Credit%20Risk) The company faces credit risk on its CRE loans, which is exacerbated by current macroeconomic conditions - The company is subject to credit risk on its **CRE loans held for investment** and **available-for-sale debt securities**[212](index=212&type=chunk) - Credit risk is managed through **due diligence**, non-recourse financing, and ongoing review of the loan portfolio by the Manager[212](index=212&type=chunk) - Current macroeconomic conditions, leading to **borrower defaults** and inability to qualify for loan extensions, increase credit risk[213](index=213&type=chunk) [Interest Rate Risk](index=52&type=section&id=Interest%20Rate%20Risk) The company is exposed to interest rate risk from its floating-rate assets and liabilities, managed through matching and hedging - The company is subject to interest rate risk due to its **floating-rate mortgage assets** and related financing obligations[214](index=214&type=chunk) - Interest rate risk is managed by **matching interest indices** of assets and liabilities and using hedging transactions, such as interest rate floors[214](index=214&type=chunk)[215](index=215&type=chunk) - Significant increases in interest rates could strain borrower operating cash flows, potentially leading to **non-performance or default**[216](index=216&type=chunk) [Interest Rate Effect on Net Income](index=52&type=section&id=Interest%20Rate%20Effect%20on%20Net%20Income) Net income is sensitive to SOFR changes, with a 100 basis point increase projected to raise net income by $2.6 million Interest Rate Sensitivity Analysis | Change in 30-Day SOFR | Increase/(Decrease) in Net Income (in millions) | | :--- | :--- | | Up 100 basis points | $2.6 | | Up 50 basis points | $1.3 | | Down 50 basis points | $(1.3) | | Down 100 basis points | $(2.6) | | SOFR at 0 basis points | $(4.6) | [Interest Rate Floor Risk](index=52&type=section&id=Interest%20Rate%20Floor%20Risk) In a decreasing rate environment, asset yields may decline while borrowing costs remain fixed at higher floors, reducing net income - In a period of decreasing interest rates, yields on floating-rate mortgage assets could decrease, while borrowing costs on certain liabilities might be **fixed at higher floors**[218](index=218&type=chunk) - A decrease in interest rates or tightening credit spreads increases the likelihood of investments being **refinanced at lower rates**[218](index=218&type=chunk) - These factors could **lower net interest income** or cause a net loss during periods of decreasing interest rates[218](index=218&type=chunk) [Market Risk](index=53&type=section&id=Market%20Risk) Investment fair values fluctuate with changes in index rates, credit spreads, and market volatility - Estimated fair values of investments fluctuate due to changes in **index rates, credit spreads**, and other factors[219](index=219&type=chunk) - Rising interest rates or widening credit spreads generally **decrease the fair value** of fixed-rate and floating-rate investments, respectively[219](index=219&type=chunk) - Increased market volatility or decreased liquidity can **adversely impact the fair value** of investments and liabilities[219](index=219&type=chunk) [Prepayment and Securitizations Repayment Risk](index=53&type=section&id=Prepayment%20and%20Securitizations%20Repayment%20Risk) Prepayment rates on CRE loans can affect net income, while CLO repayments are applied sequentially to senior notes - **Faster-than-expected prepayments** on CRE loans may prevent replacement with new loans generating comparable yields[220](index=220&type=chunk) - **Decreased prepayment rates** or loan extensions can extend loan lives beyond financing agreement terms, potentially requiring additional cash collateral or asset sales[220](index=220&type=chunk) - In CLO securitizations, principal repayments are applied **sequentially to senior notes**, meaning the company receives no proceeds until all senior notes are fully repaid[220](index=220&type=chunk) [Financing Risk](index=53&type=section&id=Financing%20Risk) The company relies on financing agreements with covenants and margin call provisions that pose default risk - Secured Funding Agreements contain **margin call provisions and covenants**; failure to meet these could result in default, accelerated debt, or termination of commitments[222](index=222&type=chunk) - Covenants include maintaining tangible net worth, asset coverage ratio, total net leverage ratio, and loan concentration limits[222](index=222&type=chunk) - Weakness or volatility in financial markets could adversely affect lenders' willingness or ability to **provide financing or increase its cost**[223](index=223&type=chunk) [Real Estate Risk](index=54&type=section&id=Real%20Estate%20Risk) Real estate investment values are subject to volatility from economic conditions and industry-specific challenges - Real estate investments are subject to volatility from **national, regional, and local economic conditions**, local real estate conditions, and industry slowdowns[225](index=225&type=chunk) - Increased demand for **remote work** and elevated operating costs have impacted office properties and pressured cash flow performance[225](index=225&type=chunk) - Decreases in property values **reduce collateral value** and potential loan repayment proceeds, which could cause losses[225](index=225&type=chunk) [Inflation Risk](index=54&type=section&id=Inflation%20Risk) The company's assets and liabilities are more sensitive to interest rates than inflation, but high inflation can lower returns - The company's assets and liabilities are sensitive to **interest rates**, which influence performance more than inflation[226](index=226&type=chunk) - Adverse changes in inflation or inflation expectations can lead to **lower returns on investments**, a risk exacerbated by current inflation levels[226](index=226&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal controls - The company's disclosure controls and procedures were evaluated as **effective** as of June 30, 2025[227](index=227&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter ended June 30, 2025[228](index=228&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any legal claims that could materially impact its business as of June 30, 2025 - The company and its affiliates are subject to legal proceedings and regulatory investigations, incurring significant costs[229](index=229&type=chunk) - As of June 30, 2025, **no legal claims are known** that could materially impact the business, financial condition, or results of operations[97](index=97&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) Investors should consider the risk factors detailed in the company's 2024 Annual Report on Form 10-K - Investors should carefully consider risk factors discussed in Part I, Item 1A of the **2024 Annual Report on Form 10-K**[230](index=230&type=chunk) - Additional **unknown or currently immaterial risks** may also materially and adversely affect the company's business, financial condition, and operating results[230](index=230&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased during the quarter, with $50.0 million remaining available under the repurchase program - **No shares were purchased** by the issuer or affiliated purchasers during the quarter ended June 30, 2025[234](index=234&type=chunk) - As of June 30, 2025, **$50.0 million remained available** for future common stock repurchases under the program, which was extended to July 31, 2026[234](index=234&type=chunk) [Item 3. Defaults Upon Senior Securities](index=55&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - **No defaults** upon senior securities occurred[232](index=232&type=chunk) [Item 4. Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are **not applicable**[233](index=233&type=chunk) [Item 5. Other Information](index=55&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the quarter - **No directors or executive officers** adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[234](index=234&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents and certifications - Exhibits include Articles of Amendment and Restatement, Second Amended and Restated Bylaws, and the Sixth Amendment to Master Repurchase and Securities Contract with Morgan Stanley Bank, N.A.[235](index=235&type=chunk) - **Certifications** from the Chief Executive Officer and Chief Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) are filed herewith[235](index=235&type=chunk) - **XBRL Instance Document** and Taxonomy Extension Documents are included for interactive data filing[235](index=235&type=chunk) [Signatures](index=57&type=section&id=Signatures) The report is duly signed by the Chief Executive Officer and Chief Financial Officer on August 5, 2025 - The report was signed on **August 5, 2025**, by Bryan P. Donohoe, Chief Executive Officer and Director, and Jeffrey M. Gonzales, Chief Financial Officer and Treasurer[241](index=241&type=chunk)

[Ares Commercial Real Estate Corporation Q2 2025 Earnings Release](index=1&type=section&id=ARES%20COMMERCIAL%20REAL%20ESTATE%20CORPORATION%20REPORTS%20SECOND%20QUARTER%202025%20RESULTS) [Financial & Operational Highlights](index=1&type=section&id=Financial%20%26%20Operational%20Highlights) Ares Commercial Real Estate Corporation reported a GAAP net loss of $11.0 million and a Distributable Earnings loss of $27.9 million for Q2 2025, while strategically strengthening its portfolio and liquidity Q2 2025 Key Financial Results | Metric | Value (in millions) | Per Diluted Share | | :--- | :--- | :--- | | GAAP Net Income (Loss) | $(11.0) | $(0.20) | | Distributable Earnings (Loss) | $(27.9) | $(0.51) | - Management's strategic focus in Q2 was on **strengthening the balance sheet** by **accelerating resolutions of risk-rated 4 and 5 loans** and **reducing exposure to office properties**[2](index=2&type=chunk) - Subsequent to quarter-end, the company closed **$43 million** of new senior loan commitments, signaling a return to investing in what it views as a more active real estate market[1](index=1&type=chunk)[2](index=2&type=chunk) - The company bolstered its liquidity, collecting **$337 million** in repayments during the first half of 2025. As of June 30, 2025, it held approximately **$178 million** in available capital, including **$94 million** in cash[2](index=2&type=chunk) [Common Stock Dividend](index=2&type=section&id=COMMON%20STOCK%20DIVIDEND) The Board of Directors declared a cash dividend of $0.15 per common share for both Q2 and Q3 2025 Dividend Declarations | Quarter | Dividend per Share | Record Date | Payment Date | | :--- | :--- | :--- | :--- | | Q2 2025 | $0.15 | June 30, 2025 | July 15, 2025 | | Q3 2025 | $0.15 | September 30, 2025 | October 15, 2025 | [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements detail the company's financial position and performance, showing decreased assets and liabilities, and a net loss for the quarter [Consolidated Balance Sheets](index=4&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) As of June 30, 2025, total assets decreased to $1.44 billion from $1.75 billion, driven by reduced loans, with total liabilities also decreasing to $914.9 million Selected Balance Sheet Data (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $89,985 | $63,799 | | Loans held for investment, net | $1,182,975 | $1,520,464 | | Total assets | $1,438,638 | $1,751,206 | | Collateralized loan obligation debt | $137,587 | $455,839 | | Total liabilities | $914,939 | $1,211,074 | | Total stockholders' equity | $523,699 | $540,132 | [Consolidated Statements of Operations](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) For Q2 2025, the company reported a net loss of $11.0 million, or $(0.20) per share, primarily due to decreased interest income and realized loan losses, partially offset by a reversal of credit loss provisions Q2 Statement of Operations Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net interest margin | $7,016 | $13,364 | | Total revenue | $12,565 | $16,797 | | (Provision for) reversal of CECL, net | $20,150 | $2,374 | | Realized losses on loans | $(33,000) | $(16,387) | | Net income (loss) | $(11,035) | $(6,125) | | Diluted EPS | $(0.20) | $(0.11) | [Non-GAAP Financial Measures](index=6&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles GAAP net loss to Distributable Earnings (Loss), a non-GAAP measure used by management to evaluate financial performance and dividend capacity - **Distributable Earnings (Loss)** is a **non-GAAP measure** defined as **GAAP net income excluding non-cash items** such as stock-based compensation, depreciation, unrealized gains/losses, and the provision for credit losses. It is intended to provide investors with a clearer view of the **company's capacity to pay dividends**[17](index=17&type=chunk) [Reconciliation of Net Income (Loss) to Distributable Earnings (Loss)](index=6&type=section&id=Reconciliation%20of%20Net%20Income%20%28Loss%29%20to%20Non-GAAP%20Distributable%20Earnings%20%28Loss%29) For Q2 2025, the GAAP net loss of $11.0 million was adjusted to a Distributable Earnings loss of $27.9 million, mainly by excluding the $20.2 million net reversal of credit loss provisions Q2 2025 Reconciliation to Distributable Earnings (Loss) (in thousands) | Line Item | Amount | | :--- | :--- | | **Net income (loss) attributable to common stockholders** | **$(11,035)** | | Stock-based compensation | $937 | | Depreciation and amortization of real estate owned | $2,318 | | Provision for (reversal of) current expected credit losses, net | $(20,150) | | **Distributable Earnings (Loss)** | **$(27,930)** | Q2 2025 Per Share Reconciliation | Line Item | Per Share Amount | | :--- | :--- | | **Net income (loss) per common share** | **$(0.20)** | | Adjustments (net) | $(0.31) | | **Basic Distributable Earnings (Loss) per common share** | **$(0.51)** |

Group 1 - Ares Commercial Real Estate Corporation (NYSE: ACRE) is rated a Hold for income investors interested in commercial mortgage real estate investment trusts (REITs) [1] - The company has a market capitalization of $244 million, which is considered small compared to other peer REITs [1] Group 2 - The founder and principal of Endurance Capital Management, David A. Johnson, has over 30 years of investment experience and holds multiple advanced degrees in finance and business [1]

Core Insights - Ares Commercial Real Estate Corporation (NYSE: ACRE) faced significant declines in dividend coverage and loan performance last year, leading to two dividend cuts, with the most recent reduction being 40% to $0.15 per share [1] Financial Performance - The company experienced a substantial deterioration in its financial metrics, particularly in dividend coverage and loan performance [1]

Group 1 - Ares Commercial Real Estate Corporation (ACRE) is experiencing significant activity in the options market, particularly with the Aug 15, 2025 $10.00 Call showing high implied volatility, indicating potential for a major price movement [1] - Implied volatility reflects market expectations for future stock movement, suggesting that investors anticipate a significant event that could lead to a substantial price change [2] - Ares Commercial Real Estate currently holds a Zacks Rank 3 (Hold) in the REIT and Equity Trust industry, which is in the bottom 21% of the Zacks Industry Rank, with recent analyst estimates indicating a shift from a loss of one cent per share to a loss of two cents per share for the current quarter [3] Group 2 - The high implied volatility surrounding Ares Commercial Real Estate may indicate a developing trading opportunity, as options traders often seek to sell premium on options with elevated implied volatility to capitalize on time decay [4]

Group 1 - The article promotes a portfolio strategy that generates income without the need for selling assets, aiming to simplify retirement investing [1] - It emphasizes a community-oriented approach to investing, encouraging collaboration and education among investors [2] - The service offers features such as model portfolios, buy/sell alerts, and regular market updates to support investors [2] Group 2 - The article mentions that the service includes preferred and baby bond portfolios for conservative investors [2] - It highlights the importance of monitoring investment positions and providing exclusive buy/sell alerts to members [4] - The content indicates that past performance does not guarantee future results, underscoring the need for careful investment consideration [5]