Core Viewpoint - The macroeconomic environment is challenging for commercial real estate, particularly for Ares Commercial Real Estate Corporation (ACRE), due to high exposure to struggling sectors like offices and multifamily properties, leading to credit quality concerns and a recent dividend cut [28]. Macroeconomic Factors - The expectation is for both interest rates and inflation to remain elevated, which could pressure credit quality and force the Federal Reserve to prioritize financial stability over combating inflation [2]. - Economic growth forecasts are in the 2-3% range, but credit quality is declining, indicating stress in the economy [4]. Commercial Real Estate Market - As of December, distressed US properties totaled nearly $86 billion, with offices making up 41% of this value. Potential distress across all property types is approximately $235 billion, with apartments accounting for over $67 billion [5][7]. - ACRE's portfolio is heavily weighted towards struggling sectors, with 39% in office debt and 26% in multifamily, totaling 65% exposure to these vulnerable areas [14]. Financial Performance - ACRE reported a net loss of $39.4 million in Q4 2023, translating to a loss of $0.73 per share, primarily due to a significant increase in the Current Expected Credit Loss (CECL) provision of $47.5 million [16][18]. - The total CECL reserves reached $163 million by the end of 2023, representing 7.6% of the outstanding principal balance of loans held for investments, with 71% of this reserve allocated to office loans [18][21]. Dividend and Shareholder Value - ACRE cut its dividend by 24% to $0.25 per share per quarter, reflecting a shift towards preserving book value and liquidity amid economic challenges [24][25]. - The company generated $1.06 in distributable earnings per share in 2023, which is only slightly above the new annualized dividend, indicating a high payout ratio and potential for further cuts [25][26]. Valuation and Market Sentiment - ACRE trades at 62% of its book value, down from nearly 90% before recent debt issues, with a current consensus price target of $7.70, representing an 8% upside from the current price [26][27]. - The overall sentiment is cautious, with expectations of worsening credit quality in the coming quarters, leading to a Sell rating for ACRE [27][28].

JasonOndreicka/iStock via Getty ImagesWe recently wrote about our purchase of a 9% yield from MFAN (MFAN). Another one of those opportunities popped up recently, so we went for it again. Today’s 9% yield (about 8.95% at our purchase prices) comes from RCB (RCB). This is one of the baby bonds from Ready Capital (RC). We purchased shares twice this week. I see this as an attractive choice for risk/reward. We’re feeling a bit cautious about the overall economy. I wanted to take a defensive position, but st ...

filo/iStock via Getty Images As part of my portfolio review process last year, I sold Ares Commercial Real Estate Corporation (NYSE:ACRE) due to growing dividend risks. Ares Commercial Real Estate's payout ratio had risen substantially above 100% in the third quarter, which made a dividend cut that much more probable. The commercial trust indeed slashed its first quarter dividend by 24.2% to $0.25 per share, but this new payout is better covered by the trust's distributable earnings. I think that the safest ...

walik/E+ via Getty ImagesThe mortgage REITs have finished reporting. Well, ARMOUR Residential REIT (ARR) is in a strange spot. They haven’t filed a 10-K. They did file a form indicating that they won’t be able to file their 10-K in a timely manner. However, we have the preliminary results and those should be good enough for the assessment. Today we finally got the update from Cherry Hill Mortgage (CHMI). CHMI’s book value per share was garbage. Book value per share fell over 9%. That compares negatively ...

Richard Drury Ares Commercial Real Estate (NYSE:ACRE) announced a 24% dividend cut last week as the company suffers from the fallout in the commercial real estate market. Like other commercial mortgage lenders, the REIT has seen an increase in its reserve for expected credit losses, which impacted Ares Commercial's P&L negatively in the fourth quarter. The earnings report and associated dividend cut caused shares to drop to a new 1-year low. However, since the REIT is now going to have better dividend cover ...

Ares Commercial Real Estate Corporation (NYSE:ACRE) Q4 2023 Earnings Conference Call February 22, 2024 9:00 AM ET Company Participants John Stilmar - Managing Director, Investor Relations Bryan Donohoe - Chief Executive Officer Tae-Sik Yoon - Chief Financial Officer Conference Call Participants Sarah Barcomb - BTIG Stephen Laws - Raymond James Richard Shane - JPMorgan Donald Fandetti - Wells Fargo Steve DeLaney - JMP Securities Douglas Harter - UBS Jade Rahmani - KBW Operator Please standby your program is ...

Ares Commercial Real Estate (ACRE) came out with quarterly earnings of $0.20 per share, beating the Zacks Consensus Estimate of a loss of $0.40 per share. This compares to earnings of $0.44 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 150%. A quarter ago, it was expected that this real estate investment trust would post earnings of $0.23 per share when it actually produced earnings of $0.25, delivering a surprise of 8.70%.O ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________________________ FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File No. 001-35517 ____________________________________________________ ...

Exhibit 99.1 ARES COMMERCIAL REAL ESTATE CORPORATION REPORTS FOURTH QUARTER AND FULL YEAR 2023 RESULTS Fourth quarter GAAP net income (loss) of $(39.4) million or $(0.73) per diluted common share and Distributable Earnings(1) of $10.8 million or $0.20 per diluted common share Full year GAAP net income (loss) of $(38.9) million or $(0.72) per diluted common share and Distributable Earnings(1) of $58.4 million or $1.06 per diluted common share - Subsequent to year ended December 31, 2023 - Declared first quar ...

sqback/iStock via Getty ImagesWe have covered commercial mortgage REITs previously including Blackstone Mortgage Trust, Inc. (BXMT) and Ladder Capital Corp (LADR). The general theme there has been that these are rather risky plays and investors might do better by going up the capital stack. Today, we look at Ares Commercial Real Estate Corporation (NYSE:ACRE) and whether this might have the right mix to actually support a buy rating on the equity. The Leverage In most cases, we have held rather negative ...