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Ares mercial Real Estate (ACRE) - 2024 Q4 - Earnings Call Transcript
ACREAres mercial Real Estate (ACRE)2025-02-12 19:32
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Financial Data and Key Metrics Changes - For Q4 2024, the company reported a GAAP net loss of 10.7millionor10.7 million or 0.20 per common share, and distributable earnings for the same period were a net loss of 8.3millionor8.3 million or 0.15 per common share, including realized losses of 18millionor18 million or 0.33 per common share [18][19] - For the full year 2024, the company reported a GAAP net loss of 35millionor35 million or 0.64 per common share and a distributable earnings loss of 44.6millionor44.6 million or 0.82 per common share [19] - The net debt-to-equity ratio, excluding CECL, was 1.6 times at year-end, a 16% decrease from year-end 2023 [13][25] Business Line Data and Key Metrics Changes - The company reduced risk-rated 4 and 5 loans by approximately 34% or 182millionin2024,leavingfiveloansrisk−rated4and5withatotaloutstandingprincipalbalanceof182 million in 2024, leaving five loans risk-rated 4 and 5 with a total outstanding principal balance of 357 million [10] - The company collected 137millioninrepaymentsduringQ42024,contributingtoatotalof137 million in repayments during Q4 2024, contributing to a total of 350 million for the full year, nearly double the amount collected in 2023 [12][20] - The cash yield on the carrying value of REO properties was over 8%, with two REO properties remaining totaling 139millionincarryingvalue[22][24]MarketDataandKeyMetricsChanges−Thecommercialrealestatemarketsawamoderaterecoveryin2024,withincreasedtransactionvolumesandstabletoimprovingpropertyvalues,particularlyinthesecondhalfoftheyear[8]−PositivenetabsorptionintheU.S.officemarketwasnotedforQ42024,markingthefirstsuchoccurrencesincepre−COVID[8]CompanyStrategyandDevelopmentDirection−Thecompanyaimstofurtherreducerisk−weighted4and5loans,officeloans,andREOpropertiesin2025,withaspecificgoalofprovingoutbookvalue[13][27]−Thecompanyisfocusedonresolvingunderperformingassetswhilemaintaininghigherliquidityandlowerfinancialleverage,whichmayimpactcurrentearnings[15][27]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementnotedthatthepaceofmarketrecoveryacceleratedtowardsyear−end2024,withexpectationsforcontinuedcapitalflowsintorealestate[32]−Thecompanyanticipatesmaintainingthepaceofreductioninrisk−weightedloansinthefirsthalfof2025,supportedbypositivecapitalflows[32]OtherImportantInformation−Thecompanydeclaredaregularcashdividendof139 million in carrying value [22][24] Market Data and Key Metrics Changes - The commercial real estate market saw a moderate recovery in 2024, with increased transaction volumes and stable to improving property values, particularly in the second half of the year [8] - Positive net absorption in the U.S. office market was noted for Q4 2024, marking the first such occurrence since pre-COVID [8] Company Strategy and Development Direction - The company aims to further reduce risk-weighted 4 and 5 loans, office loans, and REO properties in 2025, with a specific goal of proving out book value [13][27] - The company is focused on resolving underperforming assets while maintaining higher liquidity and lower financial leverage, which may impact current earnings [15][27] Management's Comments on Operating Environment and Future Outlook - Management noted that the pace of market recovery accelerated towards year-end 2024, with expectations for continued capital flows into real estate [32] - The company anticipates maintaining the pace of reduction in risk-weighted loans in the first half of 2025, supported by positive capital flows [32] Other Important Information - The company declared a regular cash dividend of 0.15 per common share for Q1 2025, with an annualized dividend yield above 10% based on the stock price as of February 10, 2025 [26] Q&A Session Summary Question: What are the expectations for repayments, deal activity, and realized losses in 2025? - Management indicated that they expect to maintain the pace of reduction in risk-weighted loans and see positive capital flows, which will support repayments and deal activity [32] Question: What environment is needed to increase originations and stabilize leverage? - Management stated that continued reduction of risk-weighted loans will be catalytic for deployment, and they are prepared to participate in market opportunities as asset management issues are clarified [38][41] Question: Can you discuss the Boston Life Science deal and its outlook? - Management noted a shift in business plans from full life science use to more traditional office use due to supply growth, and they are in active dialogue with the borrower [45][50] Question: What are the trends in the multi-family sector? - Management highlighted strong fundamentals in leasing and absorption, with expectations for resilient credit despite changes in interest rates [53][55] Question: What are the plans for issuing CLOs in 2025? - Management mentioned that they are considering the CLO market as an opportunistic way to term out leverage, depending on market conditions and portfolio scale [61][63] Question: How will repayment volumes impact new lending? - Management indicated that strong cash positions and the resolution of underperforming assets will prompt further deployment and portfolio growth [66][67]