Ares Commercial Real Estate Corporation (the “Company”) (NYSE:ACRE), a specialty finance company engaged in originating and investing in commercial real estate assets, reported generally accepted accounting principles (“GAAP”) net income of $9.8 million or $0.29 per diluted common share and Core Earnings(1) of $10.7 million or $0.32 per diluted common share for the second quarter of 2020.
“Despite overall volatile market conditions, our Core Earnings remained consistent and our credit quality showed further improvement through active asset management during the second quarter,” said Bryan Donohoe, Chief Executive Officer of ACRE. “Our portfolio, which is focused on multifamily, office and industrial properties, remains well positioned for the current low interest rate environment with 95% of our portfolio in senior loans and 96% with LIBOR floors or are fixed rate.”
“Our portfolio continues to perform well with 100% of our loans held for investment making their contractual debt service payments through the July 2020 payment date,” said Tae-Sik Yoon, Chief Financial Officer of ACRE. “We also further enhanced our liquidity by recently selling or partly monetizing five loans totaling $238 million in outstanding principal balance.”
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(1) Core Earnings is a non-GAAP financial measure. Refer to Schedule I for further details.
COMMON STOCK DIVIDEND
On June 19, 2020, the Company declared a cash dividend of $0.33 per common share for the second quarter of 2020. The second quarter 2020 dividend was paid on July 15, 2020 to common stockholders of record as of June 30, 2020.
ADDITIONAL INFORMATION
The Company issued a presentation of its second quarter 2020 results, which can be viewed at www.arescre.com on the Investor Resources section of our home page under Events and Presentations. The presentation is titled “Second Quarter 2020 Earnings Presentation.” The Company also filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 with the U.S. Securities and Exchange Commission on August 6, 2020.
CONFERENCE CALL AND WEBCAST INFORMATION
On Thursday, August 6, 2020, the Company invites all interested persons to attend its webcast/conference call at 12:00 p.m. (Eastern Time) to discuss its second quarter 2020 financial results.
All interested parties are invited to participate via telephone or the live webcast, which will be hosted on a webcast link located on the Home page of the Investor Resources section of the Company’s website at http://www.arescre.com. Please visit the website to test your connection before the webcast. Domestic callers can access the conference call by dialing +1 (888) 317-6003. International callers can access the conference call by dialing +1 (412) 317-6061. All callers will need to enter the Participant Elite Entry Number 2260614 followed by the # sign and reference “Ares Commercial Real Estate Corporation” once connected with the operator. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected. For interested parties, an archived replay of the call will be available through August 20, 2020 at 5:00 p.m. (Eastern Time) to domestic callers by dialing +1 (877) 344-7529 and to international callers by dialing +1 (412) 317-0088. For all replays, please reference conference number 10146422. An archived replay will also be available through August 20, 2020 on a webcast link located on the Home page of the Investor Resources section of the Company’s website.
ABOUT ARES COMMERCIAL REAL ESTATE CORPORATION
Ares Commercial Real Estate Corporation is a specialty finance company primarily engaged in originating and investing in commercial real estate loans and related investments. Through its national direct origination platform, the Company provides a broad offering of flexible and reliable financing solutions for commercial real estate owners and operators. The Company originates senior mortgage loans, as well as subordinate financings, mezzanine debt and preferred equity, with an emphasis on providing value added financing on a variety of properties located in liquid markets across the United States. Ares Commercial Real Estate Corporation elected and qualified to be taxed as a real estate investment trust and is externally managed by a subsidiary of Ares Management Corporation. For more information, please visit www.arescre.com. The contents of such website are not, and should not be deemed to be, incorporated by reference herein.
FORWARD-LOOKING STATEMENTS
Statements included herein or on the webcast / conference call may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which relate to future events or the Company’s future performance or financial condition. These statements are not guaranteeing of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including the returns on current and future investments, rates of repayments and prepayments on the Company’s mortgage loans, availability of investment opportunities, the Company’s ability to originate additional investments and completion of pending investments, the availability of capital, the availability and cost of financing, market trends and conditions in the Company’s industry and the general economy, the level of lending and borrowing spreads and interest rates, commercial real estate loan volumes, the impact of the COVID-19 pandemic and the pandemic's impact on the U.S. and global economy, and the risks described from time to time in the Company’s filings with the Securities and Exchange Commission (the "SEC"), including, but not limited to, the risk factors described in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K, filed with the SEC on February 20, 2020, and the risk factors described in Part II - Other Information, Item 1A. Risk Factors in the Company's Quarterly Report on Form 10-Q filed with the SEC on August 6, 2020. Any forward-looking statement, including any contained herein, speaks only as of the time of this press release and Ares Commercial Real Estate Corporation undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call. Projections and forward-looking statements are based on management’s good faith and reasonable assumptions, including the assumptions described herein.
ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) | |||||||
As of | |||||||
June 30, 2020 | December 31, 2019 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 72,987 | $ | 5,256 | |||
Restricted cash | — | 379 | |||||
Loans held for investment ($525,817 and $515,896 related to consolidated VIEs, respectively) | 1,794,049 | 1,682,498 | |||||
Current expected credit loss reserve | (26,063 | ) | — | ||||
Loans held for investment, net of current expected credit loss reserve | 1,767,986 | 1,682,498 | |||||
Loans held for sale, at fair value | 96,404 | — | |||||
Real estate owned, net | 37,693 | 37,901 | |||||
Other assets ($996 and $1,309 of interest receivable related to consolidated VIEs, respectively; $31,183 and $41,104 of other receivables related to consolidated VIEs, respectively) | 46,163 | 58,100 | |||||
Total assets | $ | 2,021,233 | $ | 1,784,134 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
LIABILITIES | |||||||
Secured funding agreements | $ | 876,842 | $ | 728,589 | |||
Notes payable | 54,819 | 54,708 | |||||
Secured term loan | 109,588 | 109,149 | |||||
Collateralized loan obligation securitization debt (consolidated VIE) | 443,467 | 443,177 | |||||
Secured borrowings | 47,533 | — | |||||
Due to affiliate | 3,217 | 2,761 | |||||
Dividends payable | 11,072 | 9,546 | |||||
Other liabilities ($371 and $718 of interest payable related to consolidated VIEs, respectively) | 9,569 | 9,865 | |||||
Total liabilities | 1,556,107 | 1,357,795 | |||||
Commitments and contingencies | |||||||
STOCKHOLDERS' EQUITY | |||||||
Common stock, par value $0.01 per share, 450,000,000 shares authorized at June 30, 2020 and December 31, 2019 and 33,441,937 and 28,865,610 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 329 | 283 | |||||
Additional paid-in capital | 497,054 | 423,619 | |||||
Accumulated earnings (deficit) | (32,257 | ) | 2,437 | ||||
Total stockholders' equity | 465,126 | 426,339 | |||||
Total liabilities and stockholders' equity | $ | 2,021,233 | $ | 1,784,134 | |||
ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) | |||||||||||||||
For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||
Revenue: | |||||||||||||||
Interest income from loans held for investment | $ | 29,835 | $ | 29,993 | $ | 61,283 | $ | 57,979 | |||||||
Interest expense | (13,042 | ) | (16,675 | ) | (28,576 | ) | (32,415 | ) | |||||||
Net interest margin | 16,793 | 13,318 | 32,707 | 25,564 | |||||||||||
Revenue from real estate owned | 1,189 | 8,357 | 6,409 | 10,267 | |||||||||||
Total revenue | 17,982 | 21,675 | 39,116 | 35,831 | |||||||||||
Expenses: | |||||||||||||||
Management and incentive fees to affiliate | 2,152 | 2,252 | 3,924 | 3,826 | |||||||||||
Professional fees | 660 | 532 | 1,563 | 1,011 | |||||||||||
General and administrative expenses | 959 | 1,029 | 1,827 | 2,148 | |||||||||||
General and administrative expenses reimbursed to affiliate | 1,038 | 771 | 2,089 | 1,430 | |||||||||||
Expenses from real estate owned | 3,254 | 7,118 | 9,930 | 8,806 | |||||||||||
Total expenses | 8,063 | 11,702 | 19,333 | 17,221 | |||||||||||
Provision for current expected credit losses | (4,007 | ) | — | 23,111 | — | ||||||||||
Unrealized losses on loans held for sale | 3,998 | — | 3,998 | — | |||||||||||
Income (loss) before income taxes | 9,928 | 9,973 | (7,326 | ) | 18,610 | ||||||||||
Income tax expense, including excise tax | 160 | 218 | 169 | 314 | |||||||||||
Net income (loss) attributable to common stockholders | $ | 9,768 | $ | 9,755 | $ | (7,495 | ) | $ | 18,296 | ||||||
Earnings (loss) per common share: | |||||||||||||||
Basic earnings (loss) per common share | $ | 0.29 | $ | 0.34 | $ | (0.23 | ) | $ | 0.64 | ||||||
Diluted earnings (loss) per common share | $ | 0.29 | $ | 0.34 | $ | (0.23 | ) | $ | 0.63 | ||||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic weighted average shares of common stock outstanding | 33,316,933 | 28,599,282 | 32,607,442 | 28,580,658 | |||||||||||
Diluted weighted average shares of common stock outstanding | 33,539,580 | 28,863,765 | 32,607,442 | 28,822,601 | |||||||||||
Dividends declared per share of common stock (1) | $ | 0.33 | $ | 0.33 | $ | 0.66 | $ | 0.66 | |||||||
(1) There is no assurance dividends will continue at these levels or at all.
SCHEDULE I
Reconciliation of Net Income to Non-GAAP Core Earnings
The Company believes the disclosure of Core Earnings provides useful information to investors regarding the calculation of incentive fees the Company pays to its manager, Ares Commercial Real Estate Management LLC, and the Company’s financial performance. Core Earnings is an adjusted non-GAAP measure that helps the Company evaluate its financial performance excluding the effects of certain transactions and GAAP adjustments that it believes are not necessarily indicative of its current loan origination portfolio and operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Core Earnings is a non-GAAP measure and is defined as net income (loss) computed in accordance with GAAP, excluding non-cash equity compensation expense, the incentive fee, depreciation and amortization (to the extent that any of the Company’s target investments are structured as debt and the Company forecloses on any properties underlying such debt), any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss), one-time events pursuant to changes in GAAP and certain non-cash charges after discussions between the Company’s external manager and the Company’s independent directors and after approval by a majority of the Company’s independent directors.
Reconciliation of net income attributable to common stockholders, the most directly comparable GAAP financial measure, to Core Earnings is set forth in the table below for the three and twelve months ended June 30, 2020 ($ in thousands):
For the three months ended
| For the twelve months ended
| ||||||
Net income attributable to common stockholders | $ | 9,768 | $ | 11,199 | |||
Stock-based compensation | 365 | 1,551 | |||||
Incentive fees to affiliate | 303 | 680 | |||||
Depreciation of real estate owned | 224 | 870 | |||||
Provision for current expected credit losses | (4,007 | ) | 23,111 | ||||
Unrealized losses on loans held for sale | 3,998 | 3,998 | |||||
Core Earnings | $ | 10,651 | $ | 41,409 | |||
Net income attributable to common stockholders | $ | 0.29 | $ | 0.37 | |||
Stock-based compensation | 0.01 | 0.05 | |||||
Incentive fees to affiliate | 0.01 | 0.02 | |||||
Depreciation of real estate owned | 0.01 | 0.03 | |||||
Provision for current expected credit losses | (0.12 | ) | 0.75 | ||||
Unrealized losses on loans held for sale | 0.12 | 0.13 | |||||
Basic Core Earnings per common share | $ | 0.32 | $ | 1.35 | |||
Net income attributable to common stockholders | $ | 0.29 | $ | 0.36 | |||
Stock-based compensation | 0.01 | 0.05 | |||||
Incentive fees to affiliate | 0.01 | 0.02 | |||||
Depreciation of real estate owned | 0.01 | 0.03 | |||||
Provision for current expected credit losses | (0.12 | ) | 0.75 | ||||
Unrealized losses on loans held for sale | 0.12 | 0.13 | |||||
Diluted Core Earnings per common share | $ | 0.32 | $ | 1.34 | |||
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Contacts:
Ares Commercial Real Estate Corporation
Carl Drake or Veronica Mendiola Mayer
(888) 818-5298
iracre@aresmgmt.com
