Core Insights - The company experienced a transition year in 2025 for the commercial real estate market, with macroeconomic and geopolitical uncertainties impacting valuations and transaction activity [1] - The second half of 2025 saw improved conditions as the Federal Reserve eased monetary policy, leading to increased transaction volumes and stabilizing values [4] - The company achieved its goal of maintaining flexibility on its balance sheet with moderate leverage and over $100 million in liquidity [4] Financial Performance - For the full year 2025, the company reported a GAAP net loss of $1 million or $0.02 per diluted common share, and a distributable earnings loss of $7 million or $0.12 per diluted common share [13] - The company closed 13 new loan commitments totaling $486 million in 2025, with over 50% collateralized by residential and industrial properties [10] - The loan portfolio reached an outstanding principal balance of $1.6 billion, a 24% increase compared to 2025 [15] Loan Management - The company reduced office loans by 30% since year-end 2024 to $447 million, and office loans now represent 28% of the total loan portfolio, down from 38% at the end of 2025 [5][15] - There are five remaining risk-rated four and five loans, with the two largest comprising approximately 85% of the overall balance [6] - The largest risk-rated five loan is a Chicago office with a carrying value of $140 million, while the second largest is a Brooklyn residential condominium loan valued at $130 million [7] Strategic Focus - The company aims to resolve the remaining risk-rated four and five loans to support portfolio growth and earnings [11] - A regular cash dividend of $0.15 per common share was declared for 2026, reflecting confidence in the execution of the business plan [12] - The company has a flexible balance sheet with available capital of $110 million and increased borrowing capacity by $250 million [21] Market Outlook - The Ares real estate debt platform originated over $9 billion globally in new commitments in 2025, nearly double that of 2024 [11] - The company is focused on addressing risk-rated loans while also exploring new investment opportunities in various sectors, particularly avoiding office properties [30] - The origination activity is expected to continue, with a target debt-to-equity ratio of 3.0, supporting a loan portfolio size of approximately $2 billion [43]

Financial Data and Key Metrics Changes - For the full year 2025, the company reported a GAAP net loss of $1 million or $0.02 per diluted common share, and a distributable earnings loss of $7 million or $0.12 per diluted common share [12] - In Q4 2025, the company reported a GAAP net loss of approximately $4 million or $0.07 per diluted common share, while distributable earnings were approximately $8 million or $0.15 per diluted common share, including a realized gain of $2 million [12][13] - The net debt-to-equity ratio at the end of Q4 was 1.6 times, an increase from 1.1 times in the previous quarter [13][42] Business Line Data and Key Metrics Changes - The company reduced office loans by 30% since year-end 2024 to $447 million, representing 28% of the total loan portfolio, down from 38% at the end of Q3 2025 [5][15] - New loan commitments in Q4 totaled $393 million, contributing to a total loan portfolio of $1.6 billion, a 24% increase from Q3 2025 [13][14] - The company closed 13 new loan commitments totaling $486 million in the second half of 2025, with over 50% collateralized by residential and industrial properties [9] Market Data and Key Metrics Changes - The Ares Real Estate debt platform originated over $9 billion globally in new commitments in 2025, nearly double the amount from 2024 [10] - The company anticipates that the trajectory of earnings may be uneven depending on the resolution of asset issues, but remains confident in its earnings potential [10] Company Strategy and Development Direction - The company aims to address risk-rated 4 and 5 loans while reducing office and REO assets, focusing on portfolio reshaping and investment activity [5][10] - The board declared a regular cash dividend of $0.15 per common share for Q1 2026, reflecting confidence in the execution of the business plan [10][20] - The company is focused on maintaining moderate leverage and ample liquidity, with available capital exceeding $100 million [5][19] Management's Comments on Operating Environment and Future Outlook - Management noted that the commercial real estate market experienced a transition in 2025, with improved conditions in the second half of the year due to easing monetary policy [4] - The company is optimistic about the potential for earnings growth and the resolution of remaining risk-rated loans, despite acknowledging that the timeline for asset resolutions is somewhat outside of their control [21][30] Other Important Information - The total CECL reserve at year-end 2025 was $127 million, representing approximately 8% of the total outstanding principal balance of loans held for investment [18] - The company has increased its borrowing capacity by $250 million and reduced borrowing costs through various actions [19] Q&A Session Summary Question: When will Brooklyn start receiving repayments for the condo project? - Management hopes to see a smooth sales process in the second half of 2026, with proceeds expected to pay down debt [23][24] Question: What is the current debt yield for the Chicago office asset? - Management indicated that while they have not provided a specific yield, the asset's occupancy and lease duration provide some patience for resolution [25][26] Question: Where do you see office exposure balanced by the end of 2026? - The focus remains on resolving risk-rated 4 and 5 loans, with expectations for a more regular cadence of asset repayments moving forward [29][30] Question: Where are the most attractive risk-adjusted returns currently? - Management noted a broad spectrum of opportunities across sectors, with a focus on logistics, industrial, and multifamily segments [34][35] Question: How much higher is ACRE's leverage expected to trend throughout 2026? - Management expects leverage to max out around 2.0 times in the near term, with a long-term target of 3.0 times [41][42] Question: What is the target portfolio size? - Management indicated that achieving a 3.0 debt-to-equity ratio would imply a loan portfolio size of about $2 billion [56]