Ares Commercial Real Estate Corp Q1 FY2025 earnings call

• Collected $307 million of repayments across nine loans, the highest quarterly repayments as a percentage of outstanding principal balance in the company's history.
• Reduced outstanding borrowings by $228 million to $946 million, with net debt to equity ratio (excluding CECL) at 1.2 times.
• Redeemed FL3 securitization, renewed $450 million Wells Fargo secured funding facility, extended its maturity, and increased available capital to $147 million as of May 2, 2025.
• Reduced office loans by 25% since March 31, 2024, with no new migrations to risk rated four or five loans. Chicago office loan (risk rated five) 90% occupied with weighted average lease term of eight years. Brooklyn residential condo development (risk rated four) nearing completion.
• Board declared a regular cash dividend of $0.15 per common share for the second quarter of 2025.

For the first quarter of 2025, GAAP net income was approximately $9.3 million or $0.17 per common share. Distributable earnings were approximately $7.2 million or $0.13 per common share. $2.9 million or $0.05 per common share of cash interest on nonaccrual loans was collected. The portfolio had stable credit quality, and the CECL reserve declined to $140 million as of March 31, 2025, representing approximately 9.9% of the total outstanding principal balance of loans held for investment. Repayments totaled $307 million across nine loans, double the prior quarter's amount.

• Available capital allows evaluating opportunities such as new loans, share buybacks, debt repayment, dividends, and other strategic initiatives.
• Will continue to monitor and evaluate lending and other opportunities, being patient with capital allocation decisions, especially watching for market stability in the second half of the year.

• Market uncertainties affecting office assets, particularly in Chicago, due to shifts in risk premium and economic conditions.
• Volatility in economic conditions impacting loan resolutions and portfolio performance.
• Potential risks related to specific assets like the Life Science Boston project, with market struggles and conversion of some assets to traditional office use.

Q: Look, it sounds like there's been some progress on the Chicago office loan... Is the issue the implied cap rate, lease rates, or interest rate? And potential reserve conservatism or migration to risk rated four?

A: Yes, it's reflective of market dynamics and overall shift in risk premium associated with office assets, especially in Chicago. We maintain a reserve reflective of the asset.

Q: The stock is up today... Do you have a buyback authorization and is that a capital allocation choice?

A: We do have a $50 million authorization in place through July of this year. Evaluating whether to use additional capital to buy back stock, while considering capital base importance.

Q: Can you give an update on the Life Science Boston project? And what do strategic initiatives refer to?

A: Market has struggled, in discussions with sponsor, with over a year left on term. Strategic initiatives refer to evaluating various capital allocation options like share buybacks and new investments