Earnings call transcript Q1 2023

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Operator

Good morning. Welcome to Ares Commercial Real Estate Corporation's First Quarter March 31 2023 Earnings Conference Call. At this time all participants are in a listen-only mode.

As a reminder, this conference being recorded on Tuesday, May 2, 2023.

I would now turn the call over to John Stilmar, Managing Director and Investor Relations. begin. may you you, Thank

John Stilmar

our Good morning. conference Bryan us today's members for our thank I'm joined you of other call. and CEO; Tae-Sik joining today CFO; on Yoon And team. by Donohoe, our

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

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

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

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

call the Bryan our CEO, I'd Donohoe, Bryan? to Now, to like over turn

Bryan Donohoe

good everyone. morning, Thanks, and John

the progress real quarter. continue Despite first and estate towards during objectives market, constructive we a of our challenging goals many make to commercial

liquidity. cash further, continued our number our build to our sheet with we'll reduced and balance As we to outcomes sector, exposure of office resolved and a loans positive underperforming the delevered detail

In current we taking the have into account addition, reserve CECL and amounts conditions outlook. market set appropriate macro-economic

further to less our our sheet, of shareholder one, million we the more debt and strengthened equity. balance which ratio about our to quarter, end, to level XX% quarter represents net $XXX lowering our During than cash first at than two building to equity

Even strong generate cash dividend, points of of X.X% we basis a continue capital, benefited with our year-over-year carrying increase. from flow effective unlevered ample rising weighted rates, the interest loan support XXX level to short-term as portfolio our average to with a yield

progress with start loans. Let's our to-date certain resolving underperforming

we two entered levels. agreement loans sell attractive During an the into to quarter, at first

only we This of we this was line a last to successfully five our asset quarter. year-end resolve loan XXXX First, the held reserve we loan. our specific sold and against a small discussed $XXX,XXX as with discount at rated funded balance sold residential in loan to

entered fees above in the and into office following to area. reduced on basis par We we and defaulted expenses, loan the an amount instance, asset in maturity gross also loan the by executed began Chicago Ultimately, January. after metropolitan sell In of proceedings on secured recovered agreement foreclosure in we a at property an note and default a April sale loan office this fully our the exposure. our our

loans our management actively to as headwinds. are we office fully positive that We the outcome cushion five well enabled rated recover Ares loan, to believe subordinate to expertise our investment remaining demonstrates our our this four us the as seek outcomes. despite The equity platform maintains. asset and substantial managing active Similarly,

these other each loans outcomes capture capital circumstances sales, redeploy While investors. and for more we and explore to loan will unique, loan order and opportunities maximize creative strategies monetize our in all in is our loan including modifications, alternatives to foreclosures,

foreclosed and outcome management for we with know, you XXXX of resulting of a asset in the many As took to shareholders. ultimately positive Marriott over investment, our respect Westchester in the

one by rated that where process is end, property foreclosure started early the mixed of our we the in estate senior taking risk owned loan quarter. asset collateralized a To likelihood four there have $XX use as will a loans, we Florida, the as second this on be million a multi-use as real defaulted

available In Ares options in property. brought from to we regarding loan team continue future with the our to specialists the and this situation, evaluate to retail the I've borrower discussions have our the under documents opportunity the

of option right our our to a property. and we compelling property our believe view the strong capital take is protect the exercise Given to to position, value

you maturity some specifics walk AAA of opportunity performance experiencing me an office enhance cash and space occupied underpinned from rated occupancy nine state Despite to situation. property flow. also this tenancy with well continues tenant lease few remaining. strong to exhibit stable through Let over with government of a term years retail is The a the default, the by

continues payments to and interest cash generate cover overall basis. flows we to the Importantly, about property feel and the sufficient fully XX% waste, good is

Our to four case-by-case, believe reflect the five on risk. we we've appropriate levels them taken we very will outcome rated reserves assets are assets. but plans the maximizing be against and of And with focused the to respect other risk of these

our year. of what dividends remainder for quarter year. was near-term Historically today, industry at of expect For and current earnings headwinds the the the the position despite Based our detail the more a of we at about Tae-Sik, million, quarter example, the and portfolio be of provided in credit call. and dividend the level calls, cash provide CECL to or rate first $XX our regular end our total end. remainder quarterly to see outlook reserve challenges, run with for we've supplemental on in we'll a we power on continue later quarter X%

that some details our on capital With and Tae-Sik, position. through further portfolio let's of financial our walk and highlights

Tae-Sik Yoon

thank morning, and Bryan good you, Great, everyone.

our loss quarter about or of common to $X.XX was we This in million $X.XX XXXX, share. first CECL a or of due share. the provision primarily net common per a loss $XX reported million For GAAP net increase $X.X per

Distributable $X.XX resolution realized or per a earnings quarter share, million of first on share residential a was the per for $XX.X which common loan. defaulted previously $X.X or common of million XXXX, the $X.XX included loss

This distributable loss loss, XXXX, first realized loan in would was per this Without earnings our of realized $X.X quarter distributable million the impacting have sold, and the share. earnings. been common $X.XX

which our principal the of quarter with outstanding and Turning we of investment, to across is loans, for portfolio, $X.X held diversified ended a consisting XX% XX an loans loans. senior of balance billion, portfolio

status During contractual interest, XX% of March our despite on five we the XXXX. first collected loans quarter, non-accrual as XX, of having

terms also to portfolio loan of trends continued Our exhibit repayments. in healthy

quarter, repaid principal which a including $XX loan million, due, loans full a fully amounts of repayments supported million a total first hotel. by During five the $XX of repayment backed

and quality XXXX. of our risk of metrics, This at credit three risk In the change terms three the of rating loan default $XX fourth reflects million mixed of or rating earlier that better which quarter migration our of negative a loan risk primarily maturity to the a as rating property use referenced XX% portfolio four. XX% of a of declined from other Bryan from

for risk we principal a of We million one unpaid two loan, are five. sponsors rated These only investments. balance five with risk the office rating $XX also each one Since and a downgraded of processes loans as cash hotel sweeping to total And flows sales of both loans. reserves, initiated property both we assets have potential specific established level assets, $XX principal. across for these and totaling properties have these reductions have million approximately

metro $XX.X a reserves reserve of also area, total reserves, property, our balance. in property at reserve loan in about specific XXXX of net an and on metro our the our two Inclusive we The CECL include loan, outstanding on Chicago Chicago a by now these the reserve these office million million $X.X for stands quarter by of a a area. and million, principal senior specific assets by overall backed first reserve $XX.X million $XX senior a million in million $XX $XX or located a hospitality increase X.X% backed CECL

which value by reduces Let our $X.XX me our some common provide March of XXXX. XX, the as per around details reserve, importantly, $XX.XX total book to share of about further components

balance. reserves $XX rated on of specific two $XX XX% five have principal million representing of we mentioned, outstanding our previously the million in As loans,

the a of against rated of billion an balance loans, equates is four of loan loans, principal which million Of about against held balance. of of is rated X.X or the risk for accrued million for or The better investment final three in for total our average the loans remaining X.X% total million better. $XX X.X% the reserves, risk risk rating four reserves outstanding three rated reserve ratio $XXX held approximately to of with million $XX $XX

investment portfolio - levels, for hard macro CECL of it's properly into XX, to outlook March our believe the economic and market held takes future, we loans for our conditions While future reserve into account current XXXX. as look

than $XXX million liquidity as facility. we a cash including more referenced, in remain on to of capital our capital Bryan $XXX available million strong As draw with available XXXX quarter of amounts working end position for further us and in

the net to peer end, group, and X.X of strength Our amongst sheet times equity lowest balance debt is us at ratio and our quarter providing was additional stability.

None our ago relationships funding in companies. any continuation with banks. sources ACRE's of supplemental U.S. sources. $X.XX are per the our is of our put We no based of we a plus our benefit mark-to-market insurance two than interest direct of regional per share $X.XX hedges. declared has LIBOR financing floors quarter spread to rate and years All share earnings with from ACRE funding second leading of that dividend share, and dividend more place banks

call closing Bryan So the let with me some that, for back to turn remarks. over

Bryan Donohoe

Thank you, Tae-Sik.

are and The navigate this we opportunities we road well will present ahead and challenges equipped believe cycle. to

and we to at us of capital adjusted give experience that other for side can levels across our the on coupled shareholders cycle. returns liquidity risk our sector, deliver position continue Our this attractive strong the with confidence

lending in we're deposit opportunities of a loan around we conditions other bank asset set Against in investment instability bank maturing system, for Furthermore, wider and seeing phenomenon loans provide expect banking out to real classes runway concentrations should future and the questions a play us, accretive opportunity sales the long backdrop estate like as tighter ultimately commercial drive of from lenders opportunities. a well.

achieve It this play our we on Yet to out great outcomes the experienced take in offence the have will is play the to both confidence some asset provides cycle will team, when and time undoubtedly for time our we us better defense and there liquidity management and challenges opportunity and right. be to and capital ahead. know

the continue strong of and will our generate navigating we attractive of and these financial position, side opportunities, to levels we returns expect other a Once, challenges shareholders. we to in and be are on dividends for capital

their investors and their Ares grateful in the hard they've like Let work saying, for close I'd demonstrated the trust we deeply, for to dedication. support by entire me also deeply and to are thank and our of team confidence our company.

that, With open I'll the ask questions. line the for to operator

Operator

Thank Steve comes proceed. Instructions] Our Securities. Please question JMP you. [Operator first from DeLaney with

Steve DeLaney

of new everyone you morning, question. and you just sort continue And an but no you. the having thanks to despite lending Good are curious having I'm noticed you loans? opportunity quarter the for loan looking first in commitments new capacity We sure of pause, as taking the and do actively Thank new selectively, expect that costs. $XXX I'm you to million. at make or look had

Bryan Donohoe

the thanks Yes, for question.

I been we the build, expanding. that see but the priority clearly think opportunities liquidity the has as

do heard, that for a be is more liquidity And environment bar But being you've given I of us. I be it's the over so, high the expect year around the we've while as pretty to course position created. macro-economic the given selective, it active to us think

Steve DeLaney

a okay, it, certainly There's time yes. Got right. to reach not

through loan think I'm and office Can of property I the to its just the speaking You're for in that, about? type sell held loan curious sale, found million other transaction how like XQ. and things, of generally - asset a describe And issues. of - troubled the then buyer sold subsequently working transfer $XX the came ability that you just Thanks. that to you what that. that for

Bryan Donohoe

to the think us story, loan good Absolutely, in deal for so flexibility behind has I a back overall equity the footprint. certainly allowed subordination the that as of one it's a

CBD lend was we but and also amount. in to asset about the expected an residential, assets to in So terms like use us that more the flexibility this it, dollar one the correct conversion and the surrounded land result an while timing, alternative and for successful with given all to one terms of of itself the for the hear was we'd

Steve DeLaney

Right.

development way long-term investor so of So basically, kind with an had sort it longer attracted development, - potential a I think Is view. about that a should it? of the

Bryan Donohoe

movement property the - And some takeaway will the was buyer for just think not that I was best end. from this I use expect forward. so, our think initiate office moving highest going perspective and towards be the that we to

Steve DeLaney

for comments. thank Well, you it. the Got

Bryan Donohoe

you. Thank

Operator

with comes from Our next KBW. question Jade Please Rahmani proceed.

Jade Rahmani

your show to Thank deployment. use with wanted XX%, mix. X% off I hypothetical you portfolio much. XX% other Slide very that's, I about mixed the as cash and On leverage, just asking start think by as then X, you is so

So mixed you're little in color also, provide could investment the the loan going some in that you slide? probably outlook? not just senior why what I'm include and there's be new making on capacity please and until clarity includes, sure use other to a loans bit more that

Tae-Sik Yoon

Jade. morning, good Thanks for question. Sure, your

pie categorize less just uses the X% other to for to read. other than like of non-rent, a of residential things other terms bit today other we easily to to sits would In just be something example. We self-storage, chart make as like more - going would portfolios, include But self-storage. little would include and just felt, is that

term primary than mixed of there's use, terms In as use. implies, the more one

Generally for example there find than to class, very upper potentially mixture a get because draw use residential really well. will more a together isn't asset floors the essence, floor, more it primary one, way one retail as There use that be the neat there's for We retail include maybe building. the it to just experiential involved than on a more of, is property to in for categorize on office itself. the ground attractive mix

high our goal do time, Bryan I we're think right to really just to JMP really Steve the loan the new capacity, investment our loans time. asked, while about as why the including that future. we address is from in anticipate question the it's is senior the And capital making I In capacity, think $XXX terms is XX% of the million mentioned, of DeLaney which bar at invest certainly the over

which just of significant cash classes they significant that again, highlight in. equity, represents have number the asset not than will do to given want sure of what one, million, But more that graphs amount we exactly be these XX% have we're shareholder really buildup we in the $XXX our invested we capacity,

That's So, any assets. as out why categorize aren't broken to we it in kind going a specific certainly XX%. we show of

when But portfolio. the asset and do that we highlight we change this we characteristics make such in that investment, graph and do diversification do will want to it have geographic that other capacity, our really - significant that of type

Jade Rahmani

story mixed of credit but would terms point, that use, outlook to really still also the most days at resilient you're you you at the other say secular stage. other and is this think concerned In is about? this is on the this headwinds sectors mixed office or multifamily Do self-storage, pretty early in office and some crux looks this unfolding? for it's of a that's be the hand, what performance There's as

Bryan Donohoe

that perspective, fundamental's a spear is the from in of absolutely, think, tip Jade. office the focus the I point

in offices published rise changes the behaviors relates to in where is and repayments But are expense the as you significantly, it have lower and CapEx and schedules, as as a capital perspective. apartments, causing the holding has markets degraded well mentioned the in otherwise. I in as with in rates revenue macro fundamentals better think been an some classes from self-storage, industrial up asset well

Jade Rahmani

the taking questions. for Thanks

Bryan Donohoe

Appreciate it, Jade.

Operator

Harter The proceed. with Please Doug Suisse. next from question Credit comes

Douglas Harter

those the of as of were What loans similarities the kind you problem to kind other? looked kind did of of the kind the two the Thanks. what reserve? have? then, of guess lines, that office. led that did they favorable like one but loans larger outcome of I of there a requires that in Chicago they that guess on are big a I portfolio other have this the reserve at kind along one, And differences quarter look kind on

Bryan Donohoe

think The Doug. all, building to Tae-Sik the the Yes, repurpose. I'll And to asset. and to much keep of confines I the so that talked resolved, really within likelihood, weigh of was repurposement allow start the necessary at touched was let this to I I'll flexibility for structure we But with that the Obviously, hearing as the about, about flexibility but not in conversion resolution the that well. total we're on all residential in asset had we and building. ability respect

around is decided the further leased where well, pretty got fairly that cash there. the weigh let so to movement it's you actually Yes, flow in and north something we XX% Tae-Sik, take given built that we I'll we've reserve into with mortgage. markets a wealth we the and where did. But headwinds of capital But geography, long

Tae-Sik Yoon

mentioned, mean think I I asset think Sure. Doug, unique. we is right. No Bryan, as I was it every fairly

office favorable was land that said, led had the office favorable resolution. properties. really The resolution, other from and land package redevelopment the it part significant as to as of of the property and different had collateral is one land, believe One - and the outcome that the Bryan very that we

And assets. we certainly at for underwrite We're part current alternative looking potential collateral, use. looking are alternative do of of best When its look the we itself. original certainly site of that and underwriting value the all our to always redevelopment highest

have metro specific that in reserve. the you The where properties rated took now that we office also five other at the significant, mentioned, Chicago and in is area,

is land as in not the that site Unfortunately, significant.

configured other significant We office outcome. alternative a is to it as a asset have are while larger here. potential So uses it of think favorable has parcel, that redevelopment the do not is kind there the

of be isn't as but an to as to parcels, the addition because significant. In the value office, going continue smaller land

the similar, between think say, even two use alternative led base different. we were the though different is outcomes, office I today properties would that so, the as to, And use really potential

Douglas Harter

resolution? of reserve, on one where the the to or kind path any took thoughts timing on And you

Bryan Donohoe

part it's about best to because to the it's difficult plans next, and itself the who to came I reserve quarter situations the a we of working lend think to - the together, of finding the buyer bit because that the specific time we that do little this nine taking give your reason, Sure, of borrower, hopeful kinds value something can resolve, six We're resolution. are that maximize we the hopefully, visibility reason in timing, months towards the can we asset. that the for we asset, better just on mean know is the have particular qualified these and

we borrower process. of have the But that hard, the to we pushing full start very cooperation are

pushing this are something we done So, have to certainly by year.

Our these for goal, we of to we're the assets, is value that certainly to get assets types resolve can capital. redeploy the going of so monetize it out that that

very, resolve quickly want and make on motivated are we her loans these we so So, very to maximize these But recovery to sure do we efficiently. assets. to again,

Douglas Harter

Great, thank you.

Bryan Donohoe

Doug. you, Thank

Operator

next Laws Stephen Our James. Please Raymond comes from with question proceed.

Stephen Laws

Hi, morning. good

cost caps a about wanted First spreads the notes to Q, new paying - are borrowers, some or extensions they You're and interest type the the modifications? sort notice which more that I to talked of or indeed QX? that I putting changes modifications any number or Can other talk you buying at in floors equity? start of occurred of in making this guess or about an characteristics in process

Bryan Donohoe

position, that well, is the that's today, sit the that more we a I elsewhere in over likelihood in lot used they outlined money in that taken can that And place. extent the some, think don't, that interest structure. to overall as of the caps and loans something you all accretively rate consider, have we here things our be we've XX% pretty of

rate et reductions, working changes, getting we're general, in principal So cetera. extension fees, towards

the All system there keeping be that lot that with think costs you to and lender best in out of the frictional ultimately. going so, there, best and the one the money loan landscape existing rework how lead kind a markets, situation. or us to we lenders, and would sayings best is that's movement mind that capital outcome you and restructure sit the certain the in to overall to instances, in ability expect But going of things of is the given the through keeping the doing without of - to doing, resolve the in

Stephen Laws

Great. can have earlier any sound a tie given? on together like It new portfolio follow-up commitments, but as originations, preexisting a we maybe And of couple some will to expectations doesn't fundings maybe questions, possibly and for we comments, kind when you to of your free that intention your you Ares resolutions? think this then up as appetite to facility previous about And later year reinvest loan sales. of additional the your around follow-ups capital my near-term

facility down efficiently Their higher less thoughts keep lending and know pulling Ares and with you later, funding deployed? the to how about returns now do then a utilizing competitive think to in capital that you world what and your that

Bryan Donohoe

potentially sources And It's away we benefit at of expect as to liquidity the terms continue overarching, we anytime well. I a a look loans don't that to set of in soon. point. guess great opportunity as origination both go new and

creativity will table in and will So the in like coming the with closing environment. positioning quarters employ the this to selectivity ourselves relative we think we loans capital at the that Certainly, be with the favors structure that constant. a those

is look today. at forward. referencing, really CLOs accretive well financing that dollars the position avenues the of put legacy, us the moving advantage what a But to selectivity to you're we our focus out cetera, So, take and structure point of et facilities, as as all

Stephen Laws

comments. Thanks. the appreciate Great,

Operator

The with comes next question Please from proceed. Rick JPMorgan. Shane

Rick Shane

questions million was for the different down that have noticed come thanks the things $XX the funding the taking When that topics. of balance at has XXXX on it's quarters, two over over CLO my $XX couple million quarters about a guys, the last quarter? Hi somewhat we look last I the on outstanding I question. two about one

guys, that's frankly are reinvestment in that. about not? that points. is curious I'm longer - is buyouts way which why period funding occurred, that As a XXXX, no deleveraging those Are is you on widened the structure the the XX in basis older, I'm spreads assuming

Tae-Sik Yoon

recycling period. the for Thanks Rick. The not morning, have good XXXX Sure, question. CLO a does

funding one that FLX of the replenishment cost balance we smaller slightly again, one is CLO, see as - a investment over a you're then off one that reasons, loans XXXX feature pay a that CLO referred So does our the certificate. to And is is investor holding graded that the certain six now with will CLO of that capital years ago of costs you A all you elevated completed see have a single down. base. that amortizing you'll go in

And what is done renew we single have closely worked carefully have we and basically revolving this to investor very period. the with

it's now is have, So been ACRE place very turned that has a to beneficial have what to to very, be out in and which six-year replenishment terrific. period,

of is things the One other LIBOR the at to in XXX. is that pricing note FLX plus

when loans And today's and to off, today, called make going be not liability our the new cost a so, we so mark rate. roll to loan replacement is of

So, in loans we'll existing we question. as your off, and new wider be replace for it interest on with is margin wider think We'll enjoy net a answers loans much put able be we're a higher roll that net to enjoy margin going loans. Hope there. what margin we to interest that to able there

Rick Shane

and we outs know just It the from buy been FLX - defaulted of is so loans? have there

Tae-Sik Yoon

No, just majorities. these natural are

Rick Shane

you. Excellent, thank

implicitly markets, stock the plus is - guys that cumulative thing I your on a you've relative in look, the leverage terms basis, quarterly terms versus XX properties you you second dividend putting rate and back low us with on think proactive shares, price? the have implicitly to in time in been of running today said transparent reserves, a hard having been policy reiterating default basis of So connecting a and what the topic a is conservative your buying this managing I'm percent that you're have

much conservative investment market huge it an was if you could, saw are risk. mispricing was you if between XX%, Your a the felt and reserves guys there's those where gap stocks that you yielding credit two yielding the because

all disconnect make the dividend the investment would understand between the don't You policy that day. just and I buyback? -

Tae-Sik Yoon

it's Rick. I'll question, my point. No, to excellent and great will add Bryan then an hopefully start Sure, thoughts. And

we much we As all have program evaluating We're at cash we maintain buyback on sheet. is something always balance it times. place in how and want certainly the to do evaluate a

that can have underperforming on some So our again, favorable of we outcomes loans.

along bargaining us give of an to to gives to, the peers, the flexibility leveraged CLO. loan a out our buy fact cash we're the ability many than willing out that wanted gives tremendous we what that talking you with a more of strength, less and buy It we about just work we us loan. there, So to a the example warehouse with gives can to to time senior if aren't It borrowers are our resolve do. so we're or lenders, to us

And one. And outcomes of assets. as liquidity those powerful sure. of that so, very we be capital, the back excellent originations, an find our new buying are you point again, competing managing, as make having shares, well to balance low When sheet very, in underperforming leverage weigh think for against, I all making the uses that you is, is

again, of recurring is that believe we deserve the predictable, our very you think do made that capital, our fourth mentioned, cash clear really paying out evaluating Board regular The and I In expect, want uses dividends. use, and it shareholders, dividends. has as

is long We important believe, as our to dividend. that earn it we're as And to, so those believe operations. dividends through maintain able we

on have that we pay to we regular use and sure the to working dividends two to and tremendous is have And our to time. that underperforming why continue cash to choose not that one low again, news our we now, flexibility cash only trying for continue compete that multiple priority will assets, supplemental good Right we we're can priorities. and dollars, in maintain that's don't I priority make we'll leverage meaning or through think

capital to consider buybacks. to We look will have we for share continue we new origination opportunities. believe And sufficient

matter good leverage much. of how us, somewhat so one accommodate one it's and to not think really cash It's than news the much more So can given have, we But is, priority. I evaluating other is versus we the timing. low

Rick Shane

that, in what seems return context again, hear buyback stand of to versus seems me it I when that And of that, the others. other feels the just you're the questioning options? that the I'm from magnitude I okay. And just to in sort investment guess, that surety reserve. empirically, - not of it, really the you Got connect of like the - of I return saying. know believe the out guys and it all appropriateness you the

Tae-Sik Yoon

couldn't We think well. agree we our agree. would opportunity that We buyback you shares, and hear as a hoping with you that to we're more others great is do

Rick Shane

it. got you, Tae-Sik. Okay, Thank

Tae-Sik Yoon

Thank Rick. you,

Operator

question from with Sarah Barcomb next proceed. comes Please The BTIG.

Sarah Barcomb

for questions. to on Thanks here. a on I want specific just assets balance dig everyone. Hi, taking in the couple the sheet

is a because paying quarter interest. that after and I And end believe, property that typically that issues Could that's that saw debt I ground multifamily talk more was partial a defensive, service in defaults your resulted April, Washington, from we in happening on given on what about in assuming you the led sponsors that what was default? lower was of there what that I'm So - resulting one or there there. to sector haven't on not was seen

Tae-Sik Yoon

Yes, Thanks which the caused Really absolutely. otherwise for the in increase has debt performing stress a in situation what's Sarah. on question, a service rates some asset.

asset, the referencing for just latter to the about well, fairly multifamily capital we assets. markets, as to situation bridge a markets are a still the and as and it's equity innings with get I think would the you're that as So there sale, favorable

So we the a reserve despite against take debt serviceness. that not did

is there the good to our clearly, value implication the So about relative we there. feel bases

Sarah Barcomb

Okay. And rate in interest cap they an place? have did

Tae-Sik Yoon

they not. No, did

Sarah Barcomb

I'm hoping hoping that's to mature a detail can $XXX of an one up condo sum them, loans? those looking give their also they loan any little about on there, more on more million. we've at the this year, process, lease talked for a Okay. office. particularly or me they milestones about And in on to and the Was later But two loans. - you update get lot the detail construction then There's, was just I given both for default. two the residential

Bryan Donohoe

Yes, different in throughout they both or pre different redevelopment country. the in more the are some at liquid but geographies, terms of their there. I'd of say stages markets

understates these the markets generally neighborhoods I valuations given scarcity think but well, up gentrification the seen the of these the around probably that, pretty what held we've progress that in is including have it, of some assets. in housing

ultimate related to over But in some that causing past the seen the that issues the years certain remiss three I'd value. execution. about positively So delays mention be I feel think are you've construction of not

the cognizant watching markets can should at provide level, high both ultimate little I liquid resolution, that closely. these of But of for we're timing a assets and that vary bit. a which very So, think

Sarah Barcomb

Okay, thank you

Operator

next question up from Instructions] [Operator proceed. Our Jade is with a follow KBW. Rahmani Please

Jade Rahmani

Thank you very much.

mortgages, estate that area transferable, that cushion would could wanted you because what or know do potential outcomes? commercial assignable an credit agree of to area an transferable the in that mortgages definitely could or ask industry Just that's the some real are be of adverse you percentage

Bryan Donohoe

lenders I'd to I more for a ourselves say probably But exist realm of lending. loan, subject it's the think the to fair, of the flexibility the right. does that's private like discretion incumbent in for certainly, assumption if CMBS than the lender, allow

liquidity then the Jade, gap we financing someone's So that's something today, down that us we can the given in pay bridge space loan, to we would that if and to the assume and said consider. flexibility going our and have certainly in come

I'd of would outcome see for discretion said, more with we overarching, ourselves which, constituents, that documents then have whether it, most able we borrower CMBS. for asset to buyer as flexibility bring is something you'd or in allow to that specifically So be a creative the the work create the Or and I say loan our to that that's

Jade Rahmani

of performance subsidizing the new performance that the project, to and low interest developing a seen? flow are theme loans protect rates create on sponsor And where would the is income, with restructuring capital, that considering, not value? you've new consider yet current putting taking order over book at in capital, capital you you pick Is with of that or payments a in willing a you sponsors, capitalization to or but issues, commit

Bryan Donohoe

otherwise whether to that To the a first or maximize that borrower resolution. flexibility underlying of that degree, we're I with to that the to think to buyback stock and obviously, touched approach respect the And starting on ultimate accretive a is thought question, the value value, able be return. we to be is, with and the we going the is situations ultimate

into of how So an kind our resolve we process all goes thought to asset. as

mentioned one last with it resolve with And we was potentially of that the to remarks there's or value we outside our that on create to our asset on either in mixed some in operator. respect move juxtapose we quarter use there our asset the that belief when It's appropriate to from Chicago was, prepared Florida. another own

available given things those us we maintain. of that all to are So that the liquidity position

Jade Rahmani

you Thank for taking the follow-up questions.

Bryan Donohoe

problem. No Thanks, Jade.

Operator

Hewett Our next Derek Bank proceed. with America. from comes Please of question

Derek Hewett

Florida? Could question my of And the what percentage you the property recaps? use everyone. $XX talk overall mixed has morning, Good potential for funding second then interest is in the million strategy just portfolio about

Bryan Donohoe

the bit interest would not is Absolutely, cap asset cap XX% with I'll little interest situations, used duration on rate XX% for just that the portfolio hold, have the elsewhere, And capital specific situation extent a that where - less as so a short gotten up has let the started me doesn't the than that Sarah to earlier, over the payment or on it's interest a the of either better side, brought it have mentioned short there coverage. does it's I get like rate it.

And what some on around usually specific reason that. we're through working there's

terms asset, for is this. situations In space the strategy of like that for funding liquidity there in

would lease. given long fairly the on well the to is as that financing the yield - accretive profile, us, we flow tenancy of have structures. the that that as lender mentioned of We duration for and us cash to position as And allow asset, various asset advantageous credit

assets we've we to sources different best a few a to path. as that. of But type decide that for would financing cash out directly like go indirectly or that the asset of good there we're got that that's talking So about profile bit should situations could liquidity flow allow flexibility provide the re-lever we

Derek Hewett

you. thank Great,

Operator

in call no Thank back I at you. like this would There to comments. further the closing time. turn Bryan are questions for Donohoe queue to over

Bryan Donohoe

to we to on months Thank again thank time your next I'd today. with few support our Estate, you. their you in of Real everybody Appreciate a Ares for look you. forward speaking just continued and And Commercial like earnings call. Thank

Operator

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

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

archived replay a will located the replays please all link website. of be on homepage available webcast For you. Investor on the conference reference also Resources XXXXXXXX. number An section on Thank our

disconnect. You now may

Ares Commercial Real Estate (ACRE) 2 May 232023 Q1 Earnings call transcript