ACRE - Earnings call transcript Q3 2019 | Ares Commercial Real Estate Corporation

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Operator

Good morning and welcome to the Ares Commercial Real Estate Corporation's Conference Call to discuss the Company's Third Quarter 2019 Earnings Results.

As a reminder, this conference is being recorded on November 8, 2019.

I will now turn the call over to Veronica Mayer from Investor Relations.

Veronica Mayer

Thank you, Elli [ph]. Good morning and thank you for joining us on today's conference call. new today Estate Benjaminour, our Head Group Henderson; Roth, by Head Chairman CEO, of joined our David Real Yoon, of of our Investor am Relations. by Carl our Bill and Jamie CFO; I and Tae-Sik Drake, President; Ares Management,

In our our the under Investor and section of press the filed that we presentation addition the an SEC, earnings at to website www.arescre.com. with we release XX-Q have posted Resources

comments forward-looking should, made want conference risks I we as are these that can identified believes, of of and remind Before forward-looking intends, subject Many the to and this such be during anticipates, expects, everyone by call the may begin, course expressions. accompanying statements to webcast similar use and the uncertainties. words will, statements documents and contain and of

update management's forward-looking risks results of not expectations current of based market performance, are could involve future number are condition and These and Corporation statements company's statements. guarantees differ actual judgment. uncertainties. no in results filings. The statements, of a result Ares statements These a on management's conditions its factors the Real listed number expressed and or of of Commercial Estate materially as a including to SEC forward-looking forward-looking obligation those from any those such in assumes

titled isolation These other be like comparable in as accepted accounting use this generally operating During considered not non-GAAP prepared measures measures certain or performance companies. should used conference in may be call, for we measures measures of these not with these to measures. We as will principles. by to financial accordance refer and substitute measures from

over turn Henderson. to now the Jamie I call will

Jamie Henderson

joining and you, thank everyone you morning Thank us Good today. for Veronica.

a Ares announced December as have may morning in this on of But stepping be you the As down my Xth. I as position CEO Director continuing Board. that I am on we will seen

of the I year. In this Ares at will through remain end addition,

or me my for bittersweet best a one This is the interest to that family. in decision is

position management I'm In Benjamin our our team Board addition, that and capable I Yoon Gerber, extensive Originations. with Head feel and Tae-Sik outstanding led Bill and of leaving company experience Roth, a highly JB deep led by in with David President, a an the by

very I in our say the of he with I thank chapter highly leading last very of also CEO. this job will our And next together ACRE Donohoe proud conviction new an Bryan team over great excellent several growth. accomplished can has all do that of I'm that years.

our with expand generate remain executed to offices, attractive invested our We've augment new to have initiatives U.S. our risk-adjusted loans with our fully more the platform offering. talent, and our strategic broaden us on across enabled plan product improve origination These returns. that capabilities

shareholder As we materially our improved have a result, increase profitability value. and collectively

of a increased very four have are fourth we addition, exceed beginning the In for times quarterly to coverage well-positioned earnings total XX%, our the since dividend XXXX increase of of for year. consecutive core dividend we and XXX%

I look to and of and future. to to the the for for to I forward the to future my foreseeable success team gratitude would all their as express to our a of entire continue contribute shareholders constituents ACRE and Director support like

third results. now quarter Let our me to turn

to balance sheet. generate can well-positioned Company you our this see a healthy and the results investment from As morning, earnings earnings continues activity strong with

And earnings During an $X.XX early will of better share the $X.XX Tae-Sik looks potentially generated describe, the third we core standpoint. as fourth respectively. and quarter, per from quarter GAAP and

increase year-to-date $XXX same commitments million, loan three we XX% totaling quarter commitments XXXX. which During we've loans an from the new originated $XXX third a of five closed end in Since our additional period $XXX million. quarter, the million to in brings

in and portfolio current rate regions low the floating digits. sectors senior double loans levered across diversified returns all our were growth the new with with Consistent anticipated

We're continuing are increased XX% in investment our advanced and reviewing quoted funnel versus are over amount stages we to more new opportunities. The in currently broaden have has the that with period XXXX. same

time, than of we to-date. that transactions the less selective X% we remaining year reviewed closing highly the At same are

best reflects Looking products. pipeline ahead, types our focus our on forward finding across value relative the property and

We commitments have fourth approximately on those $XXX and close the executed pipeline in is quarter, sheets are million term to deep. behind expected additional of that the loans

to quarter's our of third than our and result we in fourth fourth a quarter As activity expect to-date, third quarter. deployment EPS the be our currently strong higher

now turn discuss detail. our Tae-Sik more to forward third in results me the to Let outlook call quarter over and

Tae-Sik Yoon

income Earlier morning today or everyone. Terrific. of net XXXX. million Thank $X.X earnings of quarter core and Jamie common share or $X.XX for share GAAP common the $X per and reported we of you third good per $.XX million

brings of the us comparable $X.XX this total this for months first for period. earnings in share to common -- per in excess $X.XX the core brings of share year paid that we nine So have dividends our per the common

five the closed senior totaling mentioned Total a we new million quarter the new loans $XXX in Jamie were rate quarter million. As for $XXX third commitments. in floating funding

the $X.X effective was from X.X%. included quarter second of the portfolio loans up principal with XXXX. Credit billion, no impairments in yield XX, our XX weighted remain average outstanding loan with continues X% September of As stable quality an portfolio unlevered balance to of

target loans remain This consistent with in our ratio X.X of with XX% is senior that the are times. balance sheet, levered to positions. of Turning given our line our debt-to-equity our

this morning the me positioning environment. unique now our rate current given time discussing portfolio some spend interest declining Let

past, have loan floating-rate. we historically given portfolio rates from in of As is our noted our rising XX% interest has the benefited portfolio that

however we provide the in-LIBOR To have built that declining against time this end, we deep almost loans on loans. of At purposely protection structure and all to interest have sponsor capabilities relationships rates. origination floors our direct leveraged our same

quarter, built-in in of at rate. consisted about with floors fixed our of precisely loans the of loans end are More addition, XX% averaging loan X.X%. our the third floating-rate of LIBOR portfolio And X%

on more than loans some fixed our our loans and fact of are the have rate. of LIBOR of level in either LIBOR protection XX% currently X.XX% LIBOR, declining overall that means floors that money of against XX% This based or in

rate careful debt. are match we risk while on floating-rate interest liabilities our to XXX% for contrast utilizing In

other words, of rate our and X% in all only million agreed principal floating provide and less LIBOR debt So of billion $XX outstanding to our balance than we shown is sheet or on floors. $X.X

rate. Overall, LIBOR by what at our is XX% declining this of are protected environment means fact that our at in interest the well that rate is interest loans income fixed floors the

having At benefits to the are floating realize XX% same interest expense. we floors, of as environment than XXX% lower declining liabilities interest rate a with less a in time LIBOR expect X% the of of our rate

you XXXX result pro on presentation believe as fall five see or we forma our page and liabilities our of our net quarter should would September rise. XX, LIBOR XXXX either a can of as earnings that our of assets including sheet As basis increase balance third on a income

our win will particular win, as to paid on current it with situation time changes change Based over unique Although, our heads in balance tails it's and we loans portfolio LIBOR. off. respect we construction a sheet

to Now, three let for third me the the loans touch bringing the on of of repayment activity. first repay, million. $XXX year million quarter quarters In repayments XXX

increase our in However a we earnings expecting last as indicated call in material fourth repayments quarter. we in the are

our quarter respect to early expect investment based fourth on construction portfolio Jamie we improving fourth In conclusion, LIBOR currently mentioned the in quarter that with activity our and and as sheet balance our This than gives XXXX be dividend earnings we'll confidence year. earnings cover will fourth consecutive for full-year exceed clearly to quarter. our those us of for that third core the more

closing for that, the over some will remarks. Benjamin to Bill call now And turn I with

Bill Benjamin

management, you, I Thank Board for of ACRE Tae-Sik. Real On all to of want thank Jamie years. the behalf over his past and contributions Group the Ares's the of Estate few

work after as continuing X and his December the He forward in Jamie continue Director leaving We company look wish with outstanding we is much position. role an him in success. to to

has to estate pleased December to ACRE the is team well known relationships to also the community. and the real leadership us Bryan Donohoe sponsor respected strong welcome by which been entity in accomplished I'm and extensive track executives, effective record, Bryan X.

for and growth strong on that well to continued in We Bryan ACRE profitable and the to are very confident lead execute our is come. successfully plans suited years

can extensive team of estate their the broader management Gerber I market and you and along capable David highly Bryan the and that him, real by of professionals investment with with deeply behind asset of by Board have XX Tae-Sik strong capital assure a the led resources full experience, JB team Directors management will platform led professionals.

our In management equity benefit broader addition, Bryan and from business. side on estate to the collaborate real his will able the be of platform across colleagues including Ares'

fronts. to express management in ACRE the management on and that I outperforming is confidence I want business the team senior given Ares' the of all that

We outstanding leadership in an place. have team

shareholders. invested fully to our returns to continue We for dividends are more on generate plan executing and attractive we stay

lines the open please operator, questions. that With for

Operator

Instructions] [Operator from James. Stephen first with question Our Raymond Laws comes

Stephen Laws

job with guess ACRE Hi. first you you've this. congratulations what pursue a couple luck Good after morning. good last done And over done the years. I at good Jamie, on

pretty Moving those breakout so early couple February then the are or talk repayment you that to like to mature rates can interest high some I And with pay touch scheduled might you loans of guess three if or in specifically as expect repayments, April on those? whether could maybe Tae-Sik, to condo the be that to you to like questions, mature. your I comment, follow residential those them up -- And of maturity QX if Looks the four at first, to looks then got you next Could a increase your on loans senior specifically well. scheduled of year. off extend?

around I'd So comments appreciate your that?

Tae-Sik Yoon

Thanks for morning, Good Stephen. question. Sure. your

do So quarter. the with mentioned, of we repayment as repayments, pick-up in respect expect a to I activity fourth

similar said think conference last I call. our we on very something

And we've aggregate quarter payoffs without for in so plus fourth of had expect quarter hundred it the far. million So so in that's estimate, somewhere XXX I paid we exact between total far XXX more think giving the call little for XXX the the off a than and quarter. for an inclusive the

this that part XX.X That to fourth senior is slightly more million three as Florida. off referring to More loans paid far you're that that specifically, the in And respect that residential one so you're XXX loan referring paid the condominium quarter. of than identified off. already to, in the the million has is has of

of off is be those don't in February objective XXXX. I has but the think And pay there two those loans referring you're is pay the both maturity situations those coming for expect maturity around we have have again, of one, off up maturity XXXX, both about of the to, then to to timeline other We a March in date. do maturity specific The or two, a that date. on the third, loans right

Stephen Laws

slow? Have Ares' Great. So, has facility? if or you at about talk update as on repayments utilization in that bit that you – of if as all? What are any on And could utilize your the can access little company you financing we touch thoughts the a facility. the especially see far utilization

Jamie Henderson

Sure.

tell of capacity first facility all, quarter. any this will still us we to So so-called past helpful utilized have you extremely it's that knowing this excess that not at we have us behind point. I

will all make not gives our of that being commit originators the funded. loans of that no we have the confidence example for that it risk available sure be So to capital to always

continues So capacity that it hand activities be make having down. think slow while it's never our extra again our always not that origination to very terms sure been very, in additive specifically origination I of drawn on to to

warehouse would We utilizing certainly the facility. anticipate

really And a the Our balance first any fully repayment and foremost done I of to capital drawing possible. sheet even is fully really good existing that getting and the and We're maximize was full courses of utilizing full eventually the making and goal to as we've more capital think towards get existing we'll job redeployed. keep of potential. warehouse working then it obviously sure and very capital as to is as its primary deployed

third in invested answer been we quarter sheet our the as not to-date the fourth have have we as far warehouse to your question quarter But this existing line possible. fully because keeping in drawn so upon specifically balance and capital

Stephen Laws

what Are back other more underwriting? you there? us in discussions could you. in places borrowers, competitive the LIBOR update the are market floors? seeing other marketplace? they Thank those competitive And on Jamie, you and competitors spending on an there on could talk question. pushing with out Great. If last landscape maybe you're about give Our

Jamie Henderson

Sure. Thank you, Stephen.

little QX. There feels think was I in really a blip good. it

with presence better David as of I Overall quarter was decrease Roth's in prepared ever strategy treasury closely year-over-year more has adjusting pipeline of mentioned has I is result our think lot of A feels my regional industry remarks, partnering that Fourth the us to equity out great. broader effectuating yields. and it building in been pipeline a than the been. team.

flow feels really deal good. So

that's nobody team needed and during testament earnings. more a demonstrably done when approach that of in first really our are like I a And think floors of that's up kind has LIBOR structure we time the and Borrowers whereby think I exceptional alert job felt an just our the they approach rigor building in credit it. showing lending. to to

getting on still kind And structural structure think Don't really [ph] really them. we're Now, good. overall see pitchuation of mask feels terms. I

So I good. pretty feels think

estate good the real feel darn expansion. fundamentals still think I given long

Stephen Laws

the commentary for Take Thanks Great. Appreciate care. there. it.

Jamie Henderson

Thanks Stephen.

Operator

Our next with Steve Delaney comes JMP question from Securities.

Steve Delaney

Good morning no meet about XX% aside comments to look better Bryan, step Jamie, Stephen's this than having to to year. opportunity you I the And the probably with soon. And stock forward everyone. would echo way you; congrats up to

presentation sensitivity on So Q&A; the very turning new to new or the welcome. was LIBOR Tae-Sik slide

we're think XXX. sitting today mentioned I as So here you

floors So, that down essentially to of and benefit roughly all weighted I LIBOR benefit. and XX way $X.XX would with be the think fit averages already have the from that today, of that move, were know but approximately reasonable realizing half numbers we're down that it

So, of that part going are quarter third you forecast to annually why Jamie improved is fourth Thanks. maybe the $X.XX over per is be and force quarter? quarter LIBOR [ph] and suggesting and

Jamie Henderson

morning, That's Good Steve. exactly for right. Thanks your question.

I exceed And we experienced. LIBOR earnings those for quarter that the of our do part we've fourth comments I think expect of to the quarter. is that impact of that I third mentioned already reason think in

see we that which shows rate really September earnings you is show changes So LIBOR the X%. spot on that the from the presentation the page that can of five chart XXth around on

minus experienced in plus XX or LIBOR. change already we've So point basis

and in So we fourth LIBOR impact drop get part estimate that quarter positive of based our the is our LIBOR the from upon floors.

Steve Delaney

to cumulative appreciate Thanks. core. comparison turning the dividends dividend, paid of And the to

have will assured do you've fourth dividends met the $XX -- assume quarters whatever. this, your you with quarter flat. your income with taxable that assume because some you final already may distributing there's point you If you've have and Just to requirement a dividend may your if to at ways time with met this your couple respect assuming filed. and return deal that that -- that before got fourth declared it one you that not obviously you with be is Will through

then and thing the raise it. dividends where a REIT at healthy too I worst and can they think have cut mortgage dividend be the given position the – nice is level their in But dividends a to a do much

do As we or a where of look you this at raising rate year? now past additional possible as over the kind dividend to you from Thanks. next the increases year dividend as consider would I you given mean be would had in the you special point just are patience prefer if to distribution we an which

Tae-Sik Yoon

Sure.

Future of and in dividend in the is mentioned, there As as terms consideration will you know Board being its of and factor. to and there's as considerations inputs of our a another certainly that deliver key earnings growth is you also factor. of the then number returns stability into to Certainly our mirrored a other take requirement a a dividend. factor well. a of Management important forecast the read and setting recommendation is consider obviously ability is Tax

answer in really to now a tax I think shape. question, right we're So good for perspective from your

are There manage obviously other have REIT is them. said year requirements met the and distribution we you ways this a by test. not year As to fully

we of I down earnings have undistributed have the described fact taxable had not if call that the we paid you think in dividends. want to it form also we previously that do some

the time few as ago, Mac our Freddie when ago we Mae income that sold result we for Fannie long of that of years mortgage about a derive Some business. example came

Jamie Henderson

Agency business.

Tae-Sik Yoon

is had gain we because excise that in and expense there. the manage business some obviously to We Agency We're a a that do one we statement. of reasons income able that. have line of tax pay tax our do and

and And another well. your And into something companies and can REIT else that we some consider. done really that's special to know our manage that option other other in have of finally another able can So the as consideration a we of and -- we that dividend, question about follow. certainly are the take that the in very I they're well world companies that's we'll consideration. space some certainly certainly

it, have I throughout sort we we'll And now that question the to monitor number well at outlook think at say, The carefully very quarter's this I considerations just a we right you the what in on would our looked to has dividends give continue just carefully. I don't of closely of looked about. can setting be obviously think dividend question but this very will prior as given as Board future year. this need really dividend any

Steve Delaney

All going up. right. watch Well, we'll the and to that keeps extent EPS core

comfort Tae-Sik. will us that Thanks think for the I give dividend. on give comment us your

Tae-Sik Yoon

Thank Perfect. you, Steve.

Jamie Henderson

Thanks Steve.

Operator

Romani Our Jade next KBW. with from question comes

Ryan Tomasello

Good on morning everyone. actually is for This Jade. Tomasello Ryan

Just you returns talk was seeing the levered go-forward basis. on currently a pipeline can where incremental across you're about and hoping

Just about confluence cuts of out. rate trying factors what seems these recent how cuts, you understand to laid rate to spread LIBOR the with floors additional compression, coupled potential you're the thinking still be of ongoing

still roll that Just the on floors basis achievable for LIBOR particularly a as in IRRs low off you this inevitably repayments? general with double-digit business think go-forward if are

Jamie Henderson

has us plus little start the million. been having I've outset business at spread or the compression model of like midst by slowed Hey, or ground broader space a Ryan, creating saying people to lot of and funnel. that's top a with little minus the do in on the $XX kind and a this kind is a in QX, Jamie. that market but the gives and I that to even over much medium really on in did see we've country. feels And focused very a operate has deliberate mid of the happy infrastructure guess loan of see I'd that been of We a of down it's $XX bit. all size bit we of million widened And

are. that. concerned structuring So feel about done terribly job Not I To you pretty spreads the a tell has think good where around about truth, of great team index. the the

double-digits. As current ROEs of we've low in levered kind the stated many still are times

source that good the So space. hits today. We feel feel good feel able we're good to about the balance loans sheet. the our where And mid business about about market in

experiencing pressure on large of I a more spreads. space pressure the think loan or lot is

really the about happy we've that So business model adopted.

Ryan Tomasello

Thank of on then guess loans in some wondering really terms helpful. what's and type that I'm That's already color guess how you on on give I types you. spreads, with loans those are prior comments And your geography, you're fits returns? of I levered what that overall of the us pipeline closed. in seeing Can an property just

Tae-Sik Yoon

Ryan. Sure. is Good This morning Tae-Sik.

that think and loans closed again, history In of so they're our far our we characteristics the with very the terms portfolio. consistent of I

look if from of to our So you metrics those deck of we change have. at materially what types don't earning page we four expect

other what to the with we fully in mentioned, and levered to again little as chase relatively I Jamie overall we we deals as loans far the go continue before obviously don't so very I basis, a again, that selective benefits can market out far do. deals type more smaller returns. be that balance again our have of that because as closed that we so talked we we ROEs think seen rate of sheet bit keep the and invested one be good expected of their want the think we've And consistent a a always is, need about that, is upon news we've based terms on to in possible,

construction, returns as both in of And our terms as as well selectivity so that's I very credit, remain as think with existing portfolio. consistent well portfolio

Ryan Tomasello

there mezzanine New just two in one lastly, in on loan quarter the And were in it one of looks your York condo modifications Hawaii. like and two loans,

we Are on performance? can us what's you going sort those some give we payoff borrower on there. -- hoping some a possible you on or their was is color should see performing? loans full business could plans just How So pending impairment it of expecting those

Tae-Sik Yoon

certainly loans can Well, maturity out of two we Hawaii that the did on loan, again, loan any that we as the any don't impairment probably you on mentioned. extend tell. expect our including you The

a asset. the give time feel I think the is good of want to that more loan. in that little is, process. borrower very execute to we refinancing We That a bit

some up And think coming Laws that on so Stephen about the of we of as I mentioned first has what loans I question half expect asked the XXXX. of in the repayment are

on do about maturity And date expect the now of repay that loan so sort to Hawaii XXXX. or new of stated we March

felt a really really was to With was developer New of mix bit was the it this make respect to originally relation than needs is a units the envisioned. change in that of the to the different the in building. York to meet loan, market of right the decision We what

insight where XXXX, that pay in sort two doesn't but or whether its much May So was the don't on loans. see maturity until that the of we that change primary early mature loan certainly reason of That will about impairment on to either any to give itself. too those loan so loan as for it's

Ryan Tomasello

sellout is book? you really of value perhaps that condo color loan That's bit pushing what foot too per underwritten but can and for be here, Tae-Sik. the overall New the square may a say much helpful I York

Tae-Sik Yoon

their but careful respectful these we plans. some itself. units. and give a Again, I the not analysis comments. LTV, think our We very our too of Certainly, specifics the We business plans do of want want do analysis Jamie be you business borrowers do to of of a very we're on did in-depth very to add to in-depth market

Jamie Henderson

pretty interested. luxury very there's I'll major the we've ultra-Lux some a sector we'll point metros, that systematic and in think avoiding opportunity which We in that And there's good maybe is, very projects. reset that's risk I That's think material been and be question. answer way the for at condo Ryan. Sure, material actually probably -- of

also a you we I haven't for these I'd very you is significant there say. as middle in demand kind what of done. markets tell lot can road And very, of of tell product I So

every been avoiding we've and project really and loan we've to about systematic that elected really So good on. feel the high-end

Ryan Tomasello

Thanks for that color. all

Jamie Henderson

You're welcome.

Operator

next with comes JPMorgan. from question Our Rick Shane

Rick Shane

best in been questions. we your to you It's morning, my pleasure guys. over the Jamie, Thanks to as And move wish a career. you Good for on know getting next taking the what's years. very you

compare one interesting sort versus something and like Just originations just I report the peer that took last a that is shifting context, describe this quarter more guys quarter you curious well. a are tactical? a portfolio that after value notice to you the night cautious outlook. classes had thing I guys were seen overall are would relative company defensive more I'm company really that's defensive And or it Is you you that do seems of an if mix more opportunity. as

Jamie Henderson

Rick, words. So composition. on your question And you loan I'll for mix, kind thank portfolio I start address your portfolio guess to

and over every strengths equity tremendous that ACRE the to years deal it, a real and experience of as investment of and estate credit. of committee that's on both debt is goes one XXX the global fact So, professional

easy it billions of is not have much class markets. that transacted us an and pretty everyone every There's in dollars So of to most major many hurdle committee clear. asset on

committee. and knowledge there's very So granular a on class of knowledge asset that street-level lot

say think I would over conservative history I been our of we've deliberate the our that. been and over portfolio of even kind pretty in increasing composition the we've throughout reflects gotten last past rigor quarters. say, We've level the quarters. several And the I'll slightly conservative more really several over

saying the not rigor a to is every deal been portfolio, add scientific has level like of extremely I'm So I high. the that think single but

Rick Shane

you. Okay. Thank

Jamie Henderson

welcome. You're

Operator

for concludes our today. conference Ladies and Q&A and gentlemen, call this our

call, of this replay domestic will available archived by callers, this dialing one If international this end November XXXX. X-XXX-XXX-XXXX. be approximately dialing by the and conference of X-XXX-XXX-XXXX an To part you to will be callers missed any call through call XX, available today's after hour of

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Ares Commercial Real Estate (ACRE) 8 Nov 192019 Q3 Earnings call transcript