ACRE - Earnings call transcript Q3 2024 | Ares Commercial Real Estate Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon, everyone. Welcome to the Ares Commercial Real Estate Corporation's Third Quarter Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded on Thursday, November 7, 2024. I will now turn the call over to Mr. Public Relations. of Partner Stilmar, Markets Investor John Please sir. go ahead,

John Stilmar

thank for afternoon, on today's Good us conference you joining and call.

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

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

and performance, materially These SEC factors, of expressed uncertainties. management's not listed forward-looking guarantees filings. These risks or number results condition of are could judgment. differ those from of a current forward-looking statements are conditions on statements future its based and company's in number actual including and management's statements of result those involve results The as a a the market expectations in of

Ares statements. assumes to no Commercial such any Real Estate update Corporation forward-looking obligation

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

the Bryan? like to Donohoe. turn Now over call Bryan to I'd

Bryan Donohoe

Officer; of Relations management call. and other Gonzales by I'm as Chief third Good joining XXXX John. our Tae-Sik earnings team. the our members Operating our Jeff everyone, as afternoon, Officer; for today Investor you Yoon, well you, and Thank Chief Financial thank joined quarter

our to goals: the further of and we was tightening sheet balance primary and set forth in the As flexibility ago X higher we and the order period the risk distress discussing liquidity years cycle uncertainty the real Fed's rated of address estate commercial entering approximately in beginning assets. improve at first our to X began market,

goal was capital portfolio to those expeditiously resolve assets. assets the second our The and into and to more resulting reinvest prudently stable available reshape same

progress in plan activity real our property market, With the estate signs values. balance are goal the encouraging sheet and positive positioning for have by to in accomplish first real made backdrop we stabilizing estate commercial the and goal. by increasing second accelerate the commercial increasing and we this Supporting expect more slightly transaction of improvement our our evidenced to year-end

as for We leasing see velocity fundamentals of supply such future and support reductions strengthening these values.

office the to hopeful forward alongside challenged, signs some market see are that potential cuts. While remains will we of further are progress we beginning stabilization, rate and moving we future see

goals market For company. for our supporting overall this more both is us, environment constructive the

rated our the compared During million X and $XXX X or XX% rooms we reduced to quarter. quarter, by -- approximately risk and last

the of loan in X rated risk third Our risk The rated rated the during quarter X and reducing now X total the Form X X of our quarter. driven for third XX% by at our portfolio the of risk loans. progress loans was primarily account resolution end loans

greater The held against risk multifamily reserve proceeds loan. CECL first carrying million Texas loan, full the $XX than repayment of where $X.X X a net was rated were a net value, million this of our

North we reserve. foreclosure in prior which line loan demo of Carolina $XX rated incurred for that The CECL a second was X with quarter office realized was loss a million risk our a completed

our on relatively asset attractive that cash the the office worth phone earn at is carrying By nonaccrual. on was noting we North expect to Carolina previously owning property, return value. It the a

X XX% year-end since than rated XXXX. more down and X risk Our assets are

the third risk no X were During there into migrations new X quarter, the loans. rated and

the risk as the to borrowers a rating led from overall recent downgraded and indications a Despite to was support the date, the property rated beyond accounting supporting conditions loan X. borrower risk the to of of office office Illinois XXXX. rated may provides the re-leased wheat asset million X $XXX the the This us not being the for this change March asset market, maturity line. you, alongside in However,

of Shifting paydowns to $XXX capital business expenditures, million to loans, a the loans leasing year funding quarter of or the XX contributing interest and risk purchase these caps purposes. rating are million $XX or X other the of borrowers past support rate in underlying by third with continuing capital months as lower expenses, of reserves, in plans

sentiment driving in repayments with CRE date, in the beginning the and million and repayments we more than received of To also sector The repayment of dynamics overall $XXX greater the our since of portfolio. stronger liquidity volume XX% are quarter. third rate improving and received

further expect into quarter year. next of continue We first quarter repayments in fourth to and the

the our the accomplish to balance trends, should repayment the delevering by balance These of sentiment the us positive progress market goal bolstering in allow shift positioning and we sheet the and sheet made XXXX. liquidity in year-end of

portfolio. year our X to we us to reinvest enabling opportunistically we X book progress look loans, repayments XXXX, into accelerate will risk the value and us As and rated resolution position to reshape this believe of prove our our out

named is more quarter Jeff, since And Jeff's provide turn earnings This to with call in the and I'll that, capital on positions. who will details CFO being first September. third call our over

over So to you, Jeff.

Jeffrey Gonzales

I'm company's working and and years look for with opportunity the over serve Bryan, coming months CFO. ahead. the excited forward as you, Thank to I the all you to

to Turning results. our

approximately $X.XX $X.X For the share. common reported quarter a third XXXX, or loss we of per net GAAP million of

distributable that million share which was $X.X with loss the $X.XX second or taking title Carolina share, realized a $X.X million of or quarter to includes the Our the property upon end approximately per XXXX loss common line realized The as the third quarter. as reserve REO North per office was in CECL level Bryan of common of of for $X.XX earnings the mentioned.

have this important to received million is It we third million that the or not $X approximately payments thus, quarter $X.XX quarter for placed per loans during our million reflected excluding note nonaccrual of realized in $X.X or from were the was been common over that loss, on quarter. earnings, share cash share $X.X Distributable payments and per $X.XX earnings. third common interest these in

approximately fully reserves We $XX million existing $XXX a CECL stands reserve higher the previously primarily loan $X risk as -- reserves $XX offset in on by multifamily or previously value. to about combined approximately of held the investment, and overall for partially in loans million than of a now reserve reserves $XXX driven due at rated of increase was repaid XXXX. million on the better-than-expected was million Our the a increase June reversal risk previous in on associated XX, $XX conversion REO to The a -- X our loan, with excess office million by million increase X X this of loans. carrying than outcome rated which increases previous

$XXX principal investment. of million CECL our million X held the approximately of risk held The X around total or of of balance rated XX% loans at for total of rated about or principal investment. reserve $XXX overall reserve outstanding represents XX% for of balance approximately outstanding quarter representing X loans X end loans X% and to risk our in the $XXX CECL our million relates

third into resolutions maintain Bryan flexibility financial fourth available sheet and and support to As focused on In continued loan quarter, the positioning. been in we liquidity. strengthening future order portfolio quarter we mentioned, build have our to our the to balance

increase million, and As of an of undrawn but X, which was quarter. capital, $XXX million XXXX, November financing available $XX to includes second compared -- of sources our the available of XX%

reducing leverage We We billion, quarter. also continue reduced by from in flexibility billion to the financial $X.X quarter. to financial down last leverage drive our further X% third $X.X

of third the declined quarter, second ratio, down the at end debt-to-equity to the quarter. in from Our X.Xx net excluding CECL, X.Xx

conclude, fourth XXXX. fourth payable $X.XX and cash declared XX, stockholders December regular To January as the of XX, to quarter be XXXX, will for XXXX. share dividend quarter on record common we dividend The -- common of of a per of

remarks. will some back turn call that, Bryan over the now for to With I closing

Bryan Donohoe

Thanks, Jeff.

having will end the our to the year balance we with We goals are our quarter and third strengthening in proud liquidity. and believe accomplishments of achieved sheet we our respect

positioned feel seeing our progress addressing we portfolio. across and work continued still Although have execute to there assets company ahead, important problem overall our the of is we in goal our most confident that

of remain maximizing shareholder to value. overall enhance committed By crystallization particularly to so, aim We book doing value, we the through dividend strategy returns. and our shareholder

joining call As appreciate for today, always, our open line the and questions. to we happy you be we'd

Operator

Shane JPMorgan. of first Instructions]. We [Operator to today Rick go

Richard Shane

think Can point about I probably will of issue. scope the or be that? of we're how inflection the to is certainly the range actually us that, able I most it in to an you to take narrow mind, starting approaching through work help that the Look, my think dimensionalize defaults think that's long outcomes. industry misunderstood

Bryan Donohoe

the appreciate Rick. question, I Yes,

of we're asset leasing the the think, with then see cycle obviously, kind with that in for that years. exists lease virtuous are financing accelerate earlier assets forward rates. I you on the think velocity remarks And long-term from prepared classes has the developed mentioned then and I more where real been move we and starting to and of couple about backdrop mature up as interrupted last many stable cycle said commercial the on call and estate

of remains historically, was the I such component market estate think which longer a in taking terms market a the ability to bit predict. and large uncertain of little real office overall just that's

what extensions So plans that longer. leading are is more business that taking of credits, for speaking, to is broadly

with as but isolate debt are we resolution the in work and us, making that in been we've sure an equity can remain those tell, seat. maintaining focus that that assets thematically, priority for towards relationship borrowers So of those expeditious you versus also to trying

over So difficult have you more can last But fully been of positive the see. signs as a quarters, predict. couple to little the

Richard Shane

that clearly, that Yes. you the from clear the to reality something to some been appropriate, really have mean, that on. working to it Look, extent, setting that's reserves market. And your are starts been hard is I with perspective, allows

appreciate So it.

Bryan Donohoe

Thank Yes, said. well you.

Operator

at go Citizens next to Steve We now JMP. Delaney

Steven Delaney

yields have properties, Page the XX of X that I of deck fairly these noticed decent. your X on ooffices, them REO you income look

there some -- leasing in place. seems it they So have

strategy as your these on far you period? curious have the any sale of do as hold Or for this at time? Just listed

Bryan Donohoe

like sometimes certainly, when that appreciate that. some things we for I And default, necessarily fund was is many about And life not of the for transfers. it Yes. the reasons potentially, but these think times, and always asset-related sponsor-related catalyst question.

I gets exit obviously, that's right a yields say what and the buyer lot that easier over period see ours structure next right to opportunistically page. assets. to look the and makes on into would you these of that finding goal patient the But the it of with time. I'd find think, we capital be exit easier a And it this

in volatile fairly movements been of market this rate liquidity the couple the but and approach past take lack as years the So, the make way, sector, we're the patient this has well, of paid instability along has that but more we're getting the to value, a the past, made as the over can obviously, week us here, you of see over sure maximizing to

Steven Delaney

question. I was another to moved

to you reply wanted second have follow-up, . So that add question. if to I another because a

Jeffrey Gonzales

I North going the from Yes. as loan just just Bryan Yes. took recently we was on on evidence that add top that Carolina of office to back. is most

You that on have on disclosed That impact nonaccrual. our a cash saw loan stable can flows positive we was earnings.

property balance going go-forward it cash in falling a in on to earnings a and rates. can following impacted is to be be interest back that environment, to by our taking producing this our being stable accretive not flows a that's rate And have sheet benefit this on basis. So

Bryan Donohoe

And asset sale out, for held Steve, California it currently. is in mentioned the office last is just to thing, close that

Steven Delaney

$X read up? received hands, property I to sale had the the but that loan Okay. did interest. had Was you changing a fourth of clean cash sale you for excuse million -- not Bryan, -- And in interest. you the -- fourth -- and you the in The a quarter, guess, quarter, I me, in related, We a you've but accrued to -- payoff, that had the you payment, not had third they

Jeffrey Gonzales

Yes.

the is this received on we our number $X cash I we that EP disclosed think in million of what loans. that to referring you're of nonaccrual quarter

that So that's really we the had. loans

go Sorry, ahead.

Steven Delaney

the in hear I loans $X quarter nonaccrual, on you correct? I think said on million -- you it was third

Jeffrey Gonzales

. Correct.

Steven Delaney

in you not least there quarter. may thought I interest fourth at $X wrong. at accrued paid I it down cash written million an have that was had X/XX, of the

Jeffrey Gonzales

is Yes, that number million. $X

Steven Delaney

not million, $X That's $X million.

for that. you Very good. Thank Okay. comment. appreciate the I

Operator

Jade at go you. Thank KBW. We next now Rahmani to

Jade Rahmani

has as your on get treasury Curious market thoughts deals if off. pay for ability to the financing and to any that to implications

see you refinance, to stabilized would loan, as the that portfolio rate look fixed next presumably into them of a potentially creating Some do for challenges year?

Bryan Donohoe

it's a the of and it as gravitational degree. as market, question, good of cost and Jade, I leverage entire a said think I in and real on obviously, rely we've I Look, values majority the that impacts like this lot pull earlier, estate volatility of or think that kind leverage -- a market some touched of to does

I think is offset week, if seen broadly. from you what of that into improved come factors the the the flows reduced come to likely think capital funding. sector regulation events And that government of the in change I this we've is and those have that cost take the with may presidency some of our

the is muted higher as in so. picture focused, and the already classes about industrial forward are which we become supply this think lead certainly speaking, what to I multifamily will in I going that of was think inflation that think asset rents you largely which if will more

will the cost I offset than the in funds be certainly, sectors think those impactful, should but it. of So more growth

Jade Rahmani

And are those the for already looked when portfolio, the X X, come risk dates then have just rated maturity you implications are what or the that profile looking the up? XXXX at not loans office and at maturity

Bryan Donohoe

Yes.

that on business think dialogue As And bit, -- these achieve. the to what particular. holistically I is of we're I across little seeing but sponsors entirety And a are throughout leasing in mentioned we're the there with longer market. in you'd taking office office expect, some constant as in assets the improvement but plans portfolio, are Jade, the

those through at the backdrop this but at time. for market . seeing course, work So least improve due fundamental in the we'll office

Jade Rahmani

. And positive positive translating? is that ACRE, assets? you the leasing within Are at portfolio leasing trends your seeing in own

Bryan Donohoe

there. level. more is conversations, into interest the translating migration We're Obviously, actual seen leases difficulty positive we've discussions Yes. but certainly leases, and these more the

Operator

Doug at you. Thank UBS. now to next We Harter go .

Douglas Harter

with how XQ of declared kind losses? level the already dividend, comfort excluding earnings I guys know the but your you in you about dividend the -- thinking of are the current

Bryan Donohoe

well. investors a we the it's of there. returns as and the allows the the with we certainly The can Yes, one the that's channels a as Tae-Sik good of free that But and something of Jeff I'll discuss liquidity that we a to question. to flexibility, Board form them. think I dividend And lot company that the take our add the is remarks different profile us mic being we portfolio with of in regularly, covered think positive. share in power discussed past, with then and that of longer which potentially we've over through any time. earnings prepared feel color think period But a Jeff,

Jeffrey Gonzales

future our But continue evaluate that. the as estate comes shareholders, quarter-by-quarter -- when balance always of has we're has dividend priority a a and Yes. real what's created that. we've add make policy. quarter-over-quarter to returns. on to consistently just markets, us No, is flexibility provide it been stable The in goal yes, to done. for our But always enhance to provided position, for decision top we're I'll which which basis as board our We did of returns our our it possible. a the of at and as optionality analysis, And shareholder looking and we looking sheet dividend going at is on we've far on best the

Operator

go America. We'll next of Eric to of now Dray Instructions]. [Operator Bank

Eric Dray

there curious to portfolio I'm thoughts ask on of about rated X little that. kind wanted migration more to that bit view any good Do on of negative I quarters? Or you migration have of negative your credit we coming assets specific the in bucket, about risk see in? a kind are your you everything the kind see a the and like could feel of kind just of sensed

Bryan Donohoe

fair It's Yes. a question.

sponsors. conversations what we've retain with seeing past in I best think in and to these is to that what what do we and on attempt ground our the the exactly done we're

think as of never in accretive many last encapsulated been we're approach. on has industry I estate think don't the it's positive real a feel risks months, I never more and we've over the learned an if we portfolio, backdrop we've and broadly, more owners. the the seeing say But based XX anything what to

that to think passed loan I gets So well. as the portfolio through

expect, you'd these they constant describe of did each seen presentation. around dialogue the fundamentals we've sit. with certainly as improve board where to across So and we sponsors best But that throughout the our earnings

Eric Dray

of question just prepared remarks outlook. deployment maybe first Okay. was It like was Great. a correctly. kind understanding sounds hear. That's other my if half 'XX And the good of your then story, to I about

then of of pick start multi starting out just up when lag? kind up about I already timing origination pick a and I pipeline there the you pipeline kind originations a of guys the to you build are was Or building curious kind to up? question several on Is could again? guess of see now. when really kind quarter timing a on

Bryan Donohoe

been think, same We've of don't we participated the throughout soon. see book. than the engine billion throughout pace to year of and where been quarter, north the date through seen But more originations anytime in sat has broader Xx Obviously, we've not has very down real Absolutely. that. where third which slowing $X I that for really lending is ACRE time estate our active last at -- the platform, running

our the extremely that So ACRE the sheet the of capital market positioning Ares. has for it like but allows active constructive building balance be available can been team has been and should when the to, very providers the for pipeline rest

Operator

comments. closing no appears questions Mr. to you, call it the like I'd sir, gentlemen, turn have to we today. any Donohoe, And further for back

Bryan Donohoe

forward for Certainly Commercial Thanks, it. our on to next Estate, Yes, continue of I Real look again time your call. appreciate speaking support with everybody. earnings thank Ares today. I and to you we appreciate to just everybody their want

Operator

Thank Mr. Ladies today. this and for Donohoe. our concludes call you, gentlemen, conference

Again, call replay available to dialing XXX-XXXX missed we on callers our any dialing (XXX) approximately all XXX-XXXX. located (XXX) Investor by section great much a callers be available for everyone, An of this by If today's the of conference archived archived webcast domestic will an us, Resources so the be international X part of will call to of hour and link December this you end website. you the of homepage through replay the and XXXX, wish X, also call, joining on Goodbye. day. after thanks

Ares Commercial Real Estate (ACRE) 7 Nov 242024 Q3 Earnings call transcript