Ares mercial Real Estate (ACRE)2020-10-29 18:30Financial Data and Key Metrics Changes - The company reported GAAP net income of $14.9 million or $0.44 per common share, and core earnings of $10.5 million or $0.31 per common share, largely consistent with prior quarter results [13] - Core earnings per share remained stable at $0.31, consistent with the second quarter levels [8][13] - The liquidity position is stable at approximately $91 million, with a debt-to-equity ratio of 2.8 times overall and 1.8 times on a recourse basis [11][15] Business Line Data and Key Metrics Changes - The portfolio consists of 49 loans, primarily collateralized by multi-family, office, and industrial properties, with no loans collateralized by standalone retail centers [8] - The average occupancy rate for the multi-family portfolio is approximately 90%, with positive trends in underlying tenant rent collections in the mid-90% range [10] - There were no changes to the number of loans on non-accrual status, with 100% of loans held for investment making their contractual debt service payments [10] Market Data and Key Metrics Changes - The portfolio is diversified across 17 different markets with minimal exposure to gateway cities [9] - The company has a total of five hotel loans, all limited or select service models, and no full-service lodging assets in gateway cities [8][9] Company Strategy and Development Direction - The company focuses on defensively positioning its portfolio to withstand market downturns, with a 94% allocation to senior mortgage loans [7] - The strategy includes avoiding overpriced gateway markets and pivoting towards multi-family, office properties with long-term leases, and industrial properties [7] - The company aims to preserve credit quality while selectively making new investments based on safety and appropriate returns [11][17] Management's Comments on Operating Environment and Future Outlook - Management believes the company is well-positioned due to strategic decisions made prior to the pandemic, resulting in stable portfolio quality, earnings, and dividends [17] - The company is seeing a substantial pickup in both the quantity and quality of transactions, particularly in less volatile property types [11] - Management remains cautious about market volatility but is optimistic about the potential for attractive investment opportunities [21][47] Other Important Information - The CECL Reserve was at $27 million at the end of the third quarter, lower by approximately $1 million from the prior quarter [15] - The company has been actively managing its hotel asset, Westchester Marriott, which has seen improved performance due to reduced competition [14][29] Q&A Session Summary Question: Current liquidity holdings and future deployment - Management indicated that liquidity is at a good level, with $91 million available, and they are evaluating uses of that capital for new investments while maintaining defensive liquidity [20][21] Question: Average asset yield changes - Management noted that changes in asset yields are due to portfolio composition and not significant changes in the portfolio itself [22][23] Question: Update on Westchester hotel strategy - The strategy for Westchester Marriott has focused on long-term views, benefiting from reduced competition and managing costs effectively [25][29] Question: CLO market and financing plans - Management is evaluating various financing options, including CLOs, and sees positive signs in the capital markets [30][31] Question: Share repurchase considerations - Management is considering share repurchases but emphasizes the need to balance this with maintaining liquidity and market capitalization [34][36] Question: Non-accrual loans and outlook - There are currently three loans on non-accrual status, with constructive conversations ongoing with borrowers, leading to confidence in positive resolutions [50][52][55]