Ares mercial Real Estate (ACRE) - 2020 Q3 - Quarterly Report

Financial Position - As of September 30, 2020, the company reported cash and cash equivalents of $81,295,000, compared to $5,952,000 in the same period of 2019[33] - The total cash, cash equivalents, and restricted cash amounted to $81,295,000 as of September 30, 2020, up from $6,331,000 in 2019[33] - As of September 30, 2020, the company's portfolio included 49 loans held for investment with an outstanding principal of $1.8 billion[54] - The balance of loans held for investment decreased from $1,682.5 million at December 31, 2019, to $1,778.2 million at September 30, 2020[65] - The carrying value of loans held for investment as of September 30, 2020, was $1.78 billion, with a fair value of $1.77 billion, indicating a slight decrease in value[128] Loan Portfolio and Performance - Total loans held for investment portfolio amounted to $1.778 billion with a weighted average yield of 6.3% as of September 30, 2020[55] - The net interest margin for the three months ended September 30, 2020, was $11.875 million, a decrease from $15.124 million in the same period of 2019[51] - The company reported interest expense of $40.450 million for the nine months ended September 30, 2020, down from $47.539 million in the same period of 2019[51] - 95.2% of the company's loans have LIBOR floors, with a weighted average floor of 1.74%[54] - The Company holds a total of $1,789.1 million in loans held for investment, with a carrying amount of $1,778.2 million, resulting in a weighted average unleveraged effective yield of 6.3%[61] Credit Risk Management - The company has adopted the Current Expected Credit Losses (CECL) methodology, which requires a broader range of historical experience and forecasts for credit loss estimates[38] - The company actively manages credit risk through due diligence and ongoing reviews of its loans held for investment portfolio[213] - The Company's CECL Reserve for loans held for investment is $27.1 million, representing 135 basis points of the total loans held for investment commitment balance of $2.0 billion[68] - The CECL Reserve related to outstanding balances on loans held for investment decreased from $26.1 million at June 30, 2020, to $25.5 million at September 30, 2020[69] - As of September 30, 2020, three loans held for investment were on non-accrual status with a carrying value of $68.0 million due to COVID-19[66] Impact of COVID-19 - The COVID-19 pandemic has introduced significant uncertainty, potentially leading to a prolonged recession that could adversely affect the company's business operations[25] - The Company has maintained regular communications with borrowers regarding the potential impacts of the COVID-19 pandemic on their loans[63] - As of September 30, 2020, the Company made four loan modifications totaling an aggregate principal balance of $108.0 million due to the impact of the COVID-19 pandemic[63] - The COVID-19 pandemic has led to increased volatility in global markets, affecting lending activity and potentially leading to margin calls[225] - The Company seeks to manage real estate risk through underwriting and asset management processes, particularly in light of the pandemic's impact[226] Debt and Financing Agreements - The total outstanding balance of the Financing Agreements was $960,291 thousand, an increase from $894,744 thousand as of December 31, 2019, reflecting a growth of approximately 7.3%[82] - The Wells Fargo Facility had an outstanding balance of $375,301 thousand as of September 30, 2020, compared to $360,354 thousand as of December 31, 2019, indicating an increase of about 4.2%[82] - The Citibank Facility's outstanding balance was $120,506 thousand as of September 30, 2020, down from $126,603 thousand as of December 31, 2019, showing a decrease of approximately 4.3%[82] - The MetLife Facility's outstanding balance decreased from $131,807 thousand as of December 31, 2019, to $104,124 thousand as of September 30, 2020, a decline of about 20.9%[82] - The Company has a $110.0 million Secured Term Loan with an initial maturity date of December 22, 2020, which can be extended to December 22, 2021[100] Income and Earnings - For the three months ended September 30, 2020, net income attributable to common stockholders was $14.9 million, compared to $9.0 million for the same period in 2019, representing a 65.5% increase[117] - Basic earnings per common share for the three months ended September 30, 2020, was $0.45, up from $0.32 in the same period of 2019, reflecting a 40.6% increase[117] - The company incurred a total income tax expense of $181,000 for the three months ended September 30, 2020, compared to $19,000 for the same period in 2019, showing a significant increase[119] - The total cash dividends declared for the nine months ended September 30, 2020, amounted to $33,201 thousand, consistent with the $28,573 thousand declared for the same period in 2019[146] Management and Fees - The base management fee is set at 1.5% of the Company's stockholders' equity per annum, calculated and payable quarterly in arrears[132] - The Company incurred management fees of $1,847 thousand for the three months ended September 30, 2020, compared to $1,578 thousand for the same period in 2019, and $5,468 thousand for the nine months ended September 30, 2020, compared to $4,730 thousand for the same period in 2019[140] - The Company incurred incentive fees of $303 thousand for the nine months ended September 30, 2020, down from $674 thousand for the same period in 2019[133] Real Estate and Asset Management - The company evaluates real estate assets for impairment quarterly, considering factors such as significant underperformance and economic trends[42] - Real estate assets are depreciated over useful lives of up to 40 years for buildings and improvements, and up to 15 years for furniture and fixtures[41] - The Company’s real estate owned as of September 30, 2020, was valued at $37.5 million, with no impairment charges recognized[78] - The fair value of the hotel property acquired on March 8, 2019, was estimated using a third-party appraisal, which utilized standard industry valuation techniques[126] Interest Rate Risk - The Company is subject to interest rate risk, with potential impacts on net income based on changes in 30-day LIBOR[219] - An immediate increase of 100 basis points in 30-day LIBOR could result in a decrease in net income by $11.9 million[220] - The company's assets and liabilities are sensitive to interest rates, impacting performance more than inflation[227] - Changes in interest rates do not necessarily correlate with inflation rates[227] - The company's activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation[227]