Ares mercial Real Estate (ACRE)2023-05-02 01:16Financial Performance - For the three months ended March 31, 2023, the company reported total revenue of $26.5 million, an increase from $24.0 million in the same period of 2022[191]. - The company experienced a net loss attributable to common stockholders of $6.4 million for the three months ended March 31, 2023, compared to a net income of $16.2 million in the same period of 2022[191]. - The net interest margin for the three months ended March 31, 2023, was approximately $26.5 million, compared to $21.4 million for the same period in 2022, reflecting the benefits from interest rate hedging and increased LIBOR and SOFR rates[191]. - The Company declared total cash dividends of $19,346,000 for the three months ended March 31, 2023, compared to $16,740,000 for the same period in 2022, representing an increase of approximately 15%[155]. - The Company recognized a realized gain of $2.2 million on the sale of a hotel property, which closed on March 1, 2022, with net sales proceeds exceeding the carrying value of the property[88]. Interest and Debt - The Company reported interest expense of $22.999 million for Q1 2023, an increase from $12.013 million in Q1 2022, reflecting a significant rise in secured funding agreements and securitization debt[50]. - Secured funding agreements increased to $12.311 million in Q1 2023 from $5.127 million in Q1 2022, indicating a strong growth in financing activities[50]. - The Company’s notes payable rose to $1.759 million in Q1 2023 compared to $453,000 in Q1 2022, showing an increase in borrowing[50]. - Securitization debt also saw an increase to $11.606 million in Q1 2023 from $4.351 million in Q1 2022, highlighting a growing reliance on securitization for funding[50]. - The outstanding balance of the Company's Financing Agreements as of March 31, 2023, is $953.2 million, with total commitments of $1,535.0 million[87]. Credit Losses and Reserves - Current expected credit losses (CECL) are reflected on both outstanding balances and unfunded commitments, impacting earnings and recorded within the provision for current expected credit losses[39]. - The CECL Reserve for loans held for investment increased to $92.3 million as of March 31, 2023, representing 387 basis points of the total loans held for investment commitment balance of $2.4 billion[79]. - Specific CECL reserves of $38.3 million and $5.6 million were assigned to the Illinois office loan and hotel loan, respectively, due to their downgraded risk ratings[80]. - The provision for current expected credit losses increased to $21.0 million for the three months ended March 31, 2023, compared to a provision of $(0.6) million for the same period in 2022[198]. Loan Portfolio and Investment - As of March 31, 2023, the Company held 53 loans for investment with an outstanding principal of approximately $2.2 billion, down from $2.5 billion in originated commitments[63]. - The Company funded approximately $26.4 million and received repayments of $72.8 million during the three months ended March 31, 2023[63]. - The total carrying value of loans held for investment is $2,173.2 million, with risk ratings distributed as follows: $19.1 million (Rating 1), $440.2 million (Rating 2), $1,230.1 million (Rating 3), $400.5 million (Rating 4), and $83.4 million (Rating 5)[84]. - Loans held for investment had a carrying value of $2.17 billion and a fair value of $2.09 billion as of March 31, 2023[141]. - The Company had five loans on non-accrual status with a carrying value of $173.3 million as of March 31, 2023, compared to three loans with a carrying value of $99.1 million as of December 31, 2022[76]. Risk Management - The Company is subject to macroeconomic conditions such as high inflation and interest rates, which could adversely impact its operations and borrowers[29]. - The Company actively manages various risks, including credit, interest rate, and market risks, to provide attractive risk-adjusted returns to stockholders[223]. - The Company has exposure to credit risk on its CRE loans held for investment and seeks to manage this risk through due diligence and ongoing portfolio review[224]. Facilities and Commitments - The Wells Fargo Facility allows borrowing up to $450.0 million, with a potential increase to $500.0 million, and has a funding period expiring on December 15, 2025[92]. - The Citibank Facility has an outstanding balance of $236.2 million and a total commitment of $325.0 million, with an initial maturity date of January 13, 2025[93]. - The CNB Facility has a total commitment of $75.0 million, with a maturity date extended to March 11, 2024, and incurs non-utilization fees of $70,000 for both Q1 2023 and Q1 2022[94]. - The MetLife Facility has a total commitment of $180.0 million, with an initial maturity date of August 13, 2023, and incurred a non-utilization fee of $73,000 for Q1 2023[95][97]. - The Company had total commitments of $2,388.3 million as of March 31, 2023, with total unfunded commitments amounting to $193.4 million[114]. Shareholder Returns - The company intends to maintain a debt-to-equity ratio not exceeding 4.5-to-1 to enhance potential returns to stockholders[219]. - The company anticipates distributing at least 90% of its REIT taxable income annually to stockholders, with potential tax implications for undistributed income[220]. - The Company did not conduct any stock repurchases under its $50.0 million Repurchase Program during the three months ended March 31, 2023[116]. - 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 2023[188].