Ares mercial Real Estate (ACRE) - 2025 Q4 - Annual Report

Financial Position and Debt - As of December 31, 2025, the outstanding balance under the Financing Agreements was $948.2 million[31] - The company had $90.0 million outstanding under its Credit and Guaranty Agreement as of December 31, 2025[31] - The outstanding balance of the FL4 CLO Securitization was $99.9 million as of December 31, 2025[33] - The company expects to maintain a debt-to-equity ratio not exceeding 4.5-to-1, focusing on first or senior mortgages[29] Investment Strategy and Management - The company relies on its Manager for investment advisory services, with no direct employees[27] - The company aims to enhance its position in preferred equity investments through covenants that limit the activities of the entities in which it invests[25] - The company has a disciplined investment philosophy focused on delivering strong risk-adjusted returns throughout market cycles[24] - The company actively manages credit risk through due diligence and ongoing reviews of its loans held for investment portfolio[413] Market Conditions and Risks - Continued weakness in financial markets could adversely affect lenders' willingness to provide financing, potentially increasing costs[425] - Elevated interest rates and inflation have negatively impacted industries whose properties serve as collateral for the company's portfolio investments[427] - The company is subject to risks from defaults by large banking institutions that could impact liquidity and borrowing capabilities[423] - Prepayment rates on existing CRE loans can affect net income, especially if borrowers prepay faster than expected[422] Interest Rate Sensitivity - As of December 31, 2025, a hypothetical increase of 100 basis points in the 30-day SOFR could lead to an increase in net income by $2.6 million[418] - A decrease of 100 basis points in the 30-day SOFR could result in a decrease in net income by $1.7 million[418] - The estimated fair value of fixed-rate investments is expected to decrease in a rising interest rate environment, while it would generally increase in a decreasing interest rate environment[421] - Interest rate floors on floating rate mortgage assets may limit the benefits from lower interest rates, potentially harming financial condition[419] - The company did not have any hedging or derivative financial instruments in place as of December 31, 2025[416] Workforce and Competition - Ares Management had over 4,250 employees across more than 55 offices in over 25 countries as of December 31, 2025[24] - The company competes with various financial entities, including public and private REITs, banks, and institutional investors[36] - The company may incur significant losses if it fails to meet senior note overcollateralization ratio tests in future CLO securitizations[424]