Ares mercial Real Estate (US:ACRE)2020-08-09 22:34Financial Data and Key Metrics Changes - The company reported consistent core EPS of $0.32 per share and GAAP EPS of $0.29, benefiting from a diversified portfolio and LIBOR floor protection on nearly all loans [10][16] - The internal credit risk ratings improved, with 91% of loans rated 3 or better compared to 84% in the previous quarter [11] - Non-accruing loans decreased from 6% to 4% of unpaid principal balance [11] Business Line Data and Key Metrics Changes - The company strategically positioned its portfolio with 95% senior loans across 50 investments in 17 different markets, focusing on multifamily, office, and industrial properties [8][9] - Five transactions were executed to enhance liquidity, resulting in $60 million of net cash and reducing hotel loan exposure by $31 million [13][12] Market Data and Key Metrics Changes - The company maintained diversified funding sources, particularly for hotel loans, and avoided financing with spread-based mark-to-market facilities [9] - The average price for the five loans sold was 97% of par value, indicating strong market performance [13] Company Strategy and Development Direction - The company aims to maintain stable earnings, enhance liquidity, and manage risk exposure through selective asset divestments [7][8] - Future investments will focus on multifamily properties, industrial properties, and offices with long-term leases, emphasizing strong credit quality [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to weather economic headwinds and take advantage of attractive financing opportunities [9][14] - The outlook for the company remains positive, with expectations for improved performance in the third quarter [16][21] Other Important Information - The company has approximately $80 million in unrestricted cash and additional sources of liquidity available [17] - The CECL reserve was at $28 million for the quarter ended June 30, down approximately $4 million from the previous quarter [20] Q&A Session Summary Question: What is the target leverage level for the company moving forward? - The company does not have a specific target but aims for a debt-to-equity ratio of approximately 2.5 to 2.75, down from 2.9 [22][23] Question: Can you discuss the unfunded commitments and how they will be drawn down? - The company has approximately $250 million in unfunded commitments, primarily for positive events related to leasing and capital expenditures [25][27] Question: What is the current pipeline of opportunities and how do spreads compare to pre-COVID levels? - The company has seen a significant expansion in the pipeline of opportunities, with spreads wider than before, indicating a favorable environment for new loans [31][33] Question: Will the current level of earnings be maintained? - Management believes that operating earnings will remain consistent, with mitigated losses from the Westchester Marriott and continued benefits from LIBOR floors [36][38] Question: What is the status of student housing in the portfolio? - The company has observed positive trends in student housing, with occupancy and rates outpacing last year, driven by off-campus demand [50]