Business Wire | Jul 30, 2021 06:00AM EDT

Ares Commercial Real Estate Corporation Reports Second Quarter 2021 Results

Jul. 30, 2021

NEW YORK--(BUSINESS WIRE)--Jul. 30, 2021--Ares Commercial Real Estate Corporation (the "Company") (NYSE:ACRE), a specialty finance company engaged in originating and investing in commercial real estate assets, reported generally accepted accounting principles ("GAAP") net income of $17.6 million or $0.43 per diluted common share and Distributable Earnings(1) of $15.1 million or $0.37 per diluted common share for the second quarter of 2021.

"We reported another strong quarter with Distributable Earnings per share up 16% versus the same period a year ago," said Bryan Donohoe, Chief Executive Officer of Ares Commercial Real Estate Corporation. "With our broad market coverage and increased capital base, we are in a strong position to invest given our growing pipeline of attractive opportunities. During the second quarter, we closed $311 million of commitments and, subsequent to the end of the quarter, another $254 million of commitments in July."

"Our senior-oriented portfolio continues to perform well with recovering real estate market fundamentals leading to a corresponding lift in our weighted average portfolio risk rating," said Tae-Sik Yoon, Chief Financial Officer of Ares Commercial Real Estate Corporation. "In addition, as we continue to see further reductions in our CECL reserve due to improvements in our overall loan performance and market environment outlook, combined with the accretive impact of our recent common share offering, our book value per share has now increased for the fourth consecutive quarter."

_________________________________

(1) Beginning in the fourth quarter of 2020, the non-GAAP financial measure of Core Earnings was renamed to Distributable Earnings. Refer to Schedule I for the definition and reconciliation of Distributable Earnings.

COMMON STOCK DIVIDEND

On May 4, 2021, the Company declared a regular cash dividend of $0.33 per common share and a supplemental cash dividend of $0.02 per common share for the second quarter of 2021. The second quarter 2021 dividend and supplemental cash dividend were paid on July 15, 2021 to common stockholders of record as of June 30, 2021. On July 30, 2021, the Company declared a regular cash dividend of $0.33 per common share and a supplemental cash dividend of $0.02 per common share for the third quarter of 2021. The third quarter 2021 dividend and supplemental cash dividend will be payable on October 15, 2021 to common stockholders of record as of September 30, 2021.

ADDITIONAL INFORMATION

The Company issued a presentation of its second quarter 2021 results, which can be viewed at www.arescre.com on the Investor Resources section of our home page under Events and Presentations. The presentation is titled "Second Quarter 2021 Earnings Presentation." The Company also filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 with the U.S. Securities and Exchange Commission on July 30, 2021.

CONFERENCE CALL AND WEBCAST INFORMATION

On Friday, July 30, 2021, the Company invites all interested persons to attend its webcast/conference call at 12:00 p.m. (Eastern Time) to discuss its second quarter 2021 financial results.

All interested parties are invited to participate via telephone or the live webcast, which will be hosted on a webcast link located on the Home page of the Investor Resources section of the Company's website at http://www.arescre.com. Please visit the website to test your connection before the webcast. Domestic callers can access the conference call by dialing +1 (888) 317-6003. International callers can access the conference call by dialing +1 (412) 317-6061. All callers will need to enter the Participant Elite Entry Number 9261682 followed by the # sign and reference "Ares Commercial Real Estate Corporation" once connected with the operator. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected. For interested parties, an archived replay of the call will be available through August 13, 2021 at 5:00 p.m. (Eastern Time) to domestic callers by dialing +1 (877) 344-7529 and to international callers by dialing +1 (412) 317-0088. For all replays, please reference conference number 10156566. An archived replay will also be available through August 13, 2021 on a webcast link located on the Home page of the Investor Resources section of the Company's website.

ABOUT ARES COMMERCIAL REAL ESTATE CORPORATION

Ares Commercial Real Estate Corporation is a specialty finance company primarily engaged in originating and investing in commercial real estate loans and related investments. Through its national direct origination platform, the Company provides a broad offering of flexible and reliable financing solutions for commercial real estate owners and operators. The Company originates senior mortgage loans, as well as subordinate financings, mezzanine debt and preferred equity, with an emphasis on providing value added financing on a variety of properties located in liquid markets across the United States. Ares Commercial Real Estate Corporation elected and qualified to be taxed as a real estate investment trust and is externally managed by a subsidiary of Ares Management Corporation. For more information, please visit www.arescre.com. The contents of such website are not, and should not be deemed to be, incorporated by reference herein.

FORWARD-LOOKING STATEMENTS

Statements included herein or on the webcast / conference call may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, which relate to future events or the Company's future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including the returns on current and future investments, rates of repayments and prepayments on the Company's mortgage loans, availability of investment opportunities, the Company's ability to originate additional investments and completion of pending investments, the availability of capital, the availability and cost of financing, market trends and conditions in the Company's industry and the general economy, the level of lending and borrowing spreads and interest rates, commercial real estate loan volumes, the impact of the COVID-19 pandemic and the pandemic's impact on the U.S. and global economy, the Company's ability to pay future dividends at historical levels or at all, and the risks described from time to time in the Company's filings with the Securities and Exchange Commission (the "SEC"), including, but not limited to, the risk factors described in Part I, Item 1A. Risk Factors in the Company's Annual Report on Form 10-K, filed with the SEC on February 18, 2021 and the risk factors described in Part II, Item 1A. Risk Factors in the Company's Quarterly Report on Form 10-Q, filed with the SEC on July 30, 2021. Any forward-looking statement, including any contained herein, speaks only as of the time of this press release and Ares Commercial Real Estate Corporation undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call. Projections and forward-looking statements are based on management's good faith and reasonable assumptions, including the assumptions described herein.

ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands, except share and per share data)

As of

June 30, 2021 December 31, 2020

(unaudited)

ASSETS

Cash and cash equivalents $ 75,671 $ 74,776

Loans held for investment ($1,118,269 and$550,590 related to consolidated VIEs, 2,032,408 1,815,219 respectively)

Current expected credit loss reserve (16,893) (23,604)

Loans held for investment, net of current 2,015,515 1,791,615 expected credit loss reserve

Real estate owned, net 36,860 37,283

Other assets ($2,467 and $1,079 of interestreceivable related to consolidated VIEs,respectively; $105,990 and $6,410 of other 128,789 25,823 receivables related to consolidated VIEs,respectively)

Total assets $ 2,256,835 $ 1,929,497

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Secured funding agreements $ 404,205 $ 755,552

Notes payable 43,976 61,837

Secured term loan 60,000 110,000

Collateralized loan obligation securitization 979,777 443,871 debt (consolidated VIEs)

Secured borrowings 59,902 59,790

Due to affiliate 3,731 3,150

Dividends payable 16,528 11,124

Other liabilities ($599 and $391 of interestpayable related to consolidated VIEs, 9,679 11,158 respectively)

Total liabilities 1,577,798 1,456,482

Commitments and contingencies

STOCKHOLDERS' EQUITY

Common stock, par value $0.01 per share,450,000,000 shares authorized at June 30, 2021and December 31, 2020 and 47,001,121 and 464 329 33,442,332 shares issued and outstanding at June30, 2021 and December 31, 2020, respectively

Additional paid-in capital 700,994 497,803

Accumulated other comprehensive income 117 -

Accumulated earnings (deficit) (22,538) (25,117)

Total stockholders' equity 679,037 473,015

Total liabilities and stockholders' equity $ 2,256,835 $ 1,929,497

ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data)

For the three months ended June 30,

For the six months ended June 30,

2021

2020

2021

2020

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue:

Interest income

$

30,859

$

29,835

$

61,564

$

61,283

Interest expense

(11,092)

(13,042)

(23,231)

(28,576)

Net interest margin

19,767

16,793

38,333

32,707

Revenue from real estate owned

3,764

1,189

6,421

6,409

Total revenue

23,531

17,982

44,754

39,116

Expenses:

Management and incentive fees to affiliate

2,951

2,152

5,518

3,924

Professional fees

615

660

1,400

1,563

General and administrative expenses

1,195

959

2,351

1,827

General and administrative expenses reimbursed to affiliate

788

1,038

1,540

2,089

Expenses from real estate owned

3,842

3,254

7,120

9,930

Total expenses

9,391

8,063

17,929

19,333

Provision for current expected credit losses

(3,883)

(4,007)

(7,123)

23,111

Unrealized losses on loans held for sale

-

3,998

-

3,998

Income (loss) before income taxes

18,023

9,928

33,948

(7,326)

Income tax expense, including excise tax

408

160

593

169

Net income (loss) attributable to common stockholders

$

17,615

$

9,768

$

33,355

$

(7,495)

Earnings (loss) per common share:

Basic earnings (loss) per common share

$

0.43

$

0.29

$

0.88

$

(0.23)

Diluted earnings (loss) per common share

$

0.43

$

0.29

$

0.88

$

(0.23)

Weighted average number of common shares outstanding:

Basic weighted average shares of common stock outstanding

41,009,175

33,316,933

37,731,317

32,607,442

Diluted weighted average shares of common stock outstanding

41,294,597

33,539,580

38,025,933

32,607,442

Dividends declared per share of common stock(1)

$

0.35

$

0.33

$

0.70

$

0.66

(1) There is no assurance dividends will continue at these levels or at all.

SCHEDULE I

Reconciliation of Net Income to Non-GAAP Distributable Earnings

Beginning in the fourth quarter of 2020, the non-GAAP financial measure of Core Earnings was renamed to Distributable Earnings to more appropriately reflect the principal purpose of the measure. Distributable Earnings helps the Company evaluate its financial performance excluding the effects of certain transactions and GAAP adjustments that it believes are not necessarily indicative of its current loan origination portfolio and operations. To maintain the Company's REIT status, the Company is generally required to annually distribute to its stockholders substantially all of its taxable income. The Company believes the disclosure of Distributable Earnings provides useful information to investors regarding the Company's ability to pay dividends, which is one of the principal reasons investors invest in the Company. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Distributable Earnings is defined as net income (loss) computed in accordance with GAAP, excluding non-cash equity compensation expense, the incentive fees the Company pays to its Manager (Ares Commercial Real Estate Management LLC), depreciation and amortization (to the extent that any of the Company's target investments are structured as debt and the Company forecloses on any properties underlying such debt), any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss), one-time events pursuant to changes in GAAP and certain non-cash charges after discussions between the Company's manager and the Company's independent directors and after approval by a majority of the Company's independent directors. Loan balances that are deemed to be uncollectible are written off as a realized loss and are included in Distributable Earnings. Distributable Earnings is aligned with the calculation of "Core Earnings," which is defined in the Management Agreement and is used to calculate the incentive fees the Company pays to its Manager.

Reconciliation of net income attributable to common stockholders, the most directly comparable GAAP financial measure, to Distributable Earnings is set forth in the table below for the three and twelve months ended June 30, 2021 ($ in thousands):

ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share data)

For the three months For the six months ended ended June 30, June 30,

2021 2020 2021 2020

(unaudited) (unaudited) (unaudited) (unaudited)

Revenue:

Interest income $ 30,859 $ 29,835 $ 61,564 $ 61,283

Interest expense (11,092) (13,042) (23,231) (28,576)

Net interest margin 19,767 16,793 38,333 32,707

Revenue from real 3,764 1,189 6,421 6,409 estate owned

Total revenue 23,531 17,982 44,754 39,116

Expenses:

Management andincentive fees to 2,951 2,152 5,518 3,924 affiliate

Professional fees 615 660 1,400 1,563

General andadministrative 1,195 959 2,351 1,827 expenses

General andadministrative 788 1,038 1,540 2,089 expenses reimbursedto affiliate

Expenses from real 3,842 3,254 7,120 9,930 estate owned

Total expenses 9,391 8,063 17,929 19,333

Provision for currentexpected credit (3,883) (4,007) (7,123) 23,111 losses

Unrealized losses on - 3,998 - 3,998 loans held for sale

Income (loss) before 18,023 9,928 33,948 (7,326) income taxes

Income tax expense, 408 160 593 169 including excise tax

Net income (loss)attributable to $ 17,615 $ 9,768 $ 33,355 $ (7,495) common stockholders

Earnings (loss) per common share:

Basic earnings (loss) $ 0.43 $ 0.29 $ 0.88 $ (0.23) per common share

Diluted earnings(loss) per common $ 0.43 $ 0.29 $ 0.88 $ (0.23) share

Weighted averagenumber of common shares outstanding:

Basic weightedaverage shares of 41,009,175 33,316,933 37,731,317 32,607,442 common stockoutstanding

Diluted weightedaverage shares of 41,294,597 33,539,580 38,025,933 32,607,442 common stockoutstanding

Dividends declaredper share of common $ 0.35 $ 0.33 $ 0.70 $ 0.66 stock^(1)

(1) There is no assurance dividends will continue at these levels or at all.

SCHEDULE I

Reconciliation of Net Income to Non-GAAP Distributable Earnings

Beginning in the fourth quarter of 2020, the non-GAAP financial measure of Core Earnings was renamed to Distributable Earnings to more appropriately reflect the principal purpose of the measure. Distributable Earnings helps the Company evaluate its financial performance excluding the effects of certain transactions and GAAP adjustments that it believes are not necessarily indicative of its current loan origination portfolio and operations. To maintain the Company's REIT status, the Company is generally required to annually distribute to its stockholders substantially all of its taxable income. The Company believes the disclosure of Distributable Earnings provides useful information to investors regarding the Company's ability to pay dividends, which is one of the principal reasons investors invest in the Company. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Distributable Earnings is defined as net income (loss) computed in accordance with GAAP, excluding non-cash equity compensation expense, the incentive fees the Company pays to its Manager (Ares Commercial Real Estate Management LLC), depreciation and amortization (to the extent that any of the Company's target investments are structured as debt and the Company forecloses on any properties underlying such debt), any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss), one-time events pursuant to changes in GAAP and certain non-cash charges after discussions between the Company's manager and the Company's independent directors and after approval by a majority of the Company's independent directors. Loan balances that are deemed to be uncollectible are written off as a realized loss and are included in Distributable Earnings. Distributable Earnings is aligned with the calculation of "Core Earnings," which is defined in the Management Agreement and is used to calculate the incentive fees the Company pays to its Manager.

Reconciliation of net income attributable to common stockholders, the most directly comparable GAAP financial measure, to Distributable Earnings is set forth in the table below for the three and twelve months ended June 30, 2021 ($ in thousands):

For the three For the twelve months months ended June 30, ended June 30, 2021 2021

Net income attributable to common $ 17,615 $ 62,689stockholders

Stock-based compensation 497 1,767

Incentive fees to affiliate 693 1,884

Depreciation of real estate owned 225 897

Provision for current expected credit (3,883) (10,048)losses

Change in unrealized losses on loans held - (3,998)for sale

Distributable Earnings $ 15,147 $ 53,191



Net income attributable to common $ 0.43 $ 1.76stockholders

Stock-based compensation 0.01 0.05

Incentive fees to affiliate 0.02 0.05

Depreciation of real estate owned 0.01 0.03

Provision for current expected credit (0.09) (0.28)losses

Change in unrealized losses on loans held - (0.11)for sale

Basic Distributable Earnings per common $ 0.37 $ 1.50share



Net income attributable to common $ 0.43 $ 1.75stockholders

Stock-based compensation 0.01 0.05

Incentive fees to affiliate 0.02 0.05

Depreciation of real estate owned 0.01 0.03

Provision for current expected credit (0.09) (0.28)losses

Change in unrealized losses on loans held - (0.11)for sale

Diluted Distributable Earnings per common $ 0.37 $ 1.49share

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CONTACT: INVESTOR RELATIONS

CONTACT: Ares Commercial Real Estate Corporation Carl Drake or John Stilmar (888) 818-5298 iracre@aresmgmt.com