Ares Commercial Real Estate Corporation Reports Fourth Quarter and Full-Year 2018 Results

Fourth quarter GAAP net income of $10.0 million or $0.35 per
diluted common share and Core Earnings
(1) of
$10.9 million or $0.38 per diluted common share

Full-year 2018 GAAP net income of
$38.6 million or $1.35 per diluted common share and Core Earnings
(1)
of $40.8 million or $1.43 per diluted common share

– Subsequent to year ended December 31, 2018 –

Declared a $0.02 per common share increase in the quarterly
dividend to $0.33 per common share for the first quarter 2019,
representing the fourth quarterly dividend increase since the beginning
of 2018

DECEMBER 31, 2018 FINANCIAL RESULTS

NEW YORK–(BUSINESS WIRE)–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 $10.0 million or $0.35 per diluted
common share and Core Earnings(1) of $10.9 million or $0.38
per diluted common sharefor the fourth quarter of 2018. The
Company reported GAAP net income of $38.6 million or $1.35 per diluted
common share and Core Earnings(1) of $40.8 million or $1.43
per diluted common share for full-year 2018. In addition, the Company
announced that its Board of Directors declared a first quarter 2019
dividend of $0.33 per common share payable on April 16, 2019 to common
stockholders of record on March 29, 2019, representing the fourth
quarterly dividend increase since the beginning of 2018.

We had a very strong finish to the year which led to record Core
Earnings in 2018, up 27% year over year. Our strong financial
performance benefited from a higher level of invested capital, increases
in short term interest rates on our senior floating rate loan portfolio
and further reductions in the borrowing spreads of our liabilities,”
said Jamie Henderson, Chief Executive Officer of ACRE. “As a result of
our continued strong business position and favorable longer term
earnings outlook, our board increased our first quarter 2019 dividend to
$0.33 per common share, representing the fourth quarterly dividend
increase since the beginning of 2018 and a $0.06 per share increase over
our fourth quarter 2017 dividend.”

We continued to improve the efficiency of our financing sources to
further enhance our financial position throughout 2018,” said Tae-Sik
Yoon, Chief Financial Officer of ACRE. “During the year, we renewed and
extended over $900 million of our debt facilities with similar or
improved terms. So far in 2019, we made further progress by expanding
the size and reducing the initial borrowing spread over LIBOR on our
existing FL3 securitization.”

THREE MONTHS ENDED DECEMBER 31, 2018 FINANCIAL
HIGHLIGHTS

Financial Results and Activities:

  • For the three months ended December 31, 2018, GAAP net income was
    $10.0 million or $0.35 per diluted common share and Core Earnings(1)
    were $10.9 million or $0.38 per diluted common share.
  • For the three months ended December 31, 2018, new originations were
    $181.6 million in commitments and $161.0 million in outstanding
    principal funded at the origination date and an additional $15.8
    million of fundings on existing commitments.
  • For the three months ended December 31, 2018, the Company exited
    $310.4 million of loans held for investment as measured by outstanding
    principal.

_________________________________

   

(1)

Core Earnings is a non-GAAP financial measure. Refer to Schedule I
for further details.
 

Capital Activities:

  • In December 2018, the Company amended the master repurchase facility
    with Citibank, N.A. (the “Citibank Facility”) to increase the
    facility’s commitment amount from $250.0 million to $325.0 million and
    extend the initial maturity date to December 13, 2021. The initial
    maturity date of the Citibank Facility is subject to two 12-month
    extensions, each of which may be exercised at the Company’s option
    assuming no existing defaults under the Citibank Facility and
    applicable extension fees being paid, which, if both were exercised,
    would extend the maturity date of the Citibank Facility to December
    13, 2023. In addition, in December 2018, the Company amended the
    Citibank Facility to decrease the interest rate on advances from a per
    annum rate equal to the sum of one-month LIBOR plus an indicative
    pricing margin range of 2.25% to 2.50%, subject to certain exceptions,
    to a per annum rate equal to the sum of one-month LIBOR plus an
    indicative pricing margin range of 1.50% to 2.25%, subject to certain
    exceptions.
  • In December 2018, the Company amended the master repurchase funding
    facility with Wells Fargo Bank, National Association (the “Wells Fargo
    Facility”) to extend the initial maturity date to December 14, 2020.
    The initial maturity date of the Wells Fargo Facility is subject to
    three 12-month extensions, each of which may be exercised at the
    Company’s option, subject to the satisfaction of certain conditions,
    including payment of an extension fee, which, if all three were
    exercised, would extend the maturity date of the Wells Fargo Facility
    to December 14, 2023. In addition, in December 2018, the Company
    amended the Wells Fargo Facility to decrease the interest rate on
    advances from a per annum rate equal to the sum of one-month LIBOR
    plus a pricing margin range of 1.75% to 2.35% to a per annum rate
    equal to the sum of one-month LIBOR plus a pricing margin range of
    1.50% to 2.25%.

FULL-YEAR 2018 FINANCIAL HIGHLIGHTS

Financial Results and Activities:

  • For full-year 2018, GAAP net income was $38.6 million or $1.35 per
    diluted common share and Core Earnings(1) were $40.8
    million or $1.43 per diluted common share.
  • For full-year 2018, new originations were $608.6 million in
    commitments and $510.5 million in outstanding principal funded at the
    origination date and an additional $33.7 million of fundings on
    existing commitments.
  • For full-year 2018, the Company exited $746.8 million of loans held
    for investment as measured by outstanding principal.

PORTFOLIO DETAIL AS OF DECEMBER 31, 2018

As of December 31, 2018, the Company’s portfolio included 44 loans held
for investment, totaling approximately $1.7 billion in originated
commitments at closing and $1.5 billion in outstanding principal. As of
December 31, 2018, 76 loans totaling approximately $2.7 billion in
outstanding principal were repaid or sold since inception of the Company.

Portfolio Interest Rate, Yield and Remaining
Life Summary ($ in millions):

     

As of December 31, 2018

Carrying
Amount (2)

   

Outstanding
Principal (2)

   

Weighted Average
Minimum Loan
Borrowing
Spread (3)

   

Weighted Average
Unleveraged
Effective
Yield (4)

   

Weighted
Average
Remaining Life (Years)

Senior mortgage loans $ 1,489.7 $ 1,498.5 5.2% 7.0% 1.7
Subordinated debt and preferred equity investments 35.2   36.2   12.7% 14.9% 4.3
Total loans held for investment portfolio $ 1,524.9   $ 1,534.7   5.4% 7.1% 1.8
   

_________________________________

   

(1)

Core Earnings is a non-GAAP financial measure. Refer to Schedule I
for further details.

(2)

The difference between the Carrying Amount and the Outstanding
Principal amount of the loans held for investment consists of
unamortized purchase discount, deferred loan fees and loan
origination costs.

(3)

Minimum Loan Borrowing Spread is equal to (a) for floating rate
loans, the margin above the applicable index rate (e.g., LIBOR)
plus floors, if any, on such applicable index rates, and (b) for
fixed rate loans, the applicable interest rate.

(4)

Unleveraged Effective Yield is the compounded effective rate of
return that would be earned over the life of the investment based
on the contractual interest rate (adjusted for any deferred loan
fees, costs, premiums or discounts) and assumes no dispositions,
early prepayments or defaults. The total Weighted Average
Unleveraged Effective Yield is calculated based on the average of
Unleveraged Effective Yield of all loans held by the Company as of
December 31, 2018 as weighted by the outstanding principal balance
of each loan.

 

As of December 31, 2018, 98% of the portfolio of loans held for
investment consisted of floating rate loans and 98% of the portfolio of
loans held for investment consisted of senior mortgage loans (as
measured by outstanding principal).

Portfolio Diversification Summary as of
December 31, 2018 ($ in millions):

 
PROPERTY TYPE
     

Outstanding
Principal

    % of Portfolio
Multifamily $ 511.1 33 %
Office 411.1 27 %
Hotel 298.9 20 %
Student Housing 169.5 11 %
Industrial 52.0 3 %
Mixed-use 50.0 3 %
Residential/Condominium 42.1   3 %
Total $ 1,534.7   100 %
 
 
GEOGRAPHIC MIX
     

Outstanding
Principal

    % of Portfolio
West $ 382.5 25 %
Midwest 370.2 24 %
Southeast 363.7 24 %
Southwest 218.3 14 %
Mid-Atlantic/Northeast 200.0   13 %

Total

$ 1,534.7   100 %
 

RECENT DEVELOPMENTS

On January 11, 2019, the Company (through its wholly-owned subsidiary)
privately placed $172.7 million of additional investment grade notes in
its CLO securitization. Together with $272.9 million of investment grade
notes issued to a third party in the initial March 2017 private
placement, the investment grade notes in the Company’s CLO
securitization now total $445.6 million, with a blended initial weighted
average coupon of LIBOR plus 1.70%, representing a 15 basis point
reduction in the borrowing spread compared to the borrowing spread in
effect prior to January 11, 2019. In addition, the reinvestment period
of the Company’s CLO securitization was extended two additional years to
March 2021.

On February 6, 2019, the Company originated and fully funded a $30.0
million senior mortgage loan on a student housing property located in
North Carolina. The loan has a per annum interest rate of LIBOR plus a
spread of 3.15% (plus fees) and an initial term of three years.

On February 14, 2019, the Company originated a $100.6 million senior
mortgage loan on a mixed-use property located in Florida. At closing,
the outstanding principal balance was approximately $37.0 million. The
loan has a per annum interest rate of LIBOR plus 4.25% (plus fees) and
an initial term of two years.

On February 21, 2019, the Company declared a cash dividend of $0.33 per
common share for the first quarter of 2019. The first quarter 2019
dividend is payable on April 16, 2019 to common stockholders of record
on March 29, 2019.

2019 ANNUAL STOCKHOLDERS MEETING

The Board of Directors set February 26, 2019 as the record date for the
Company’s 2019 Annual Meeting of Stockholders. The 2019 Annual Meeting
of Stockholders will be held on April 23, 2019.

FOURTH QUARTER 2018 DIVIDEND

On October 30, 2018, the Company declared a cash dividend of $0.31 per
common share for the fourth quarter of 2018. The fourth quarter 2018
dividend was paid on January 15, 2019 to common stockholders of record
as of December 28, 2018.

CONFERENCE CALL AND WEBCAST INFORMATION

On Thursday, February 21, 2019, the Company invites all interested
persons to attend its webcast/conference call at 11:00 a.m. (Eastern
Time) to discuss its fourth quarter and full-year 2018 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
(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 5990794 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 March 7, 2019
at 5:00 p.m. (Eastern Time) to domestic callers by dialing
(877)-344-7529 and to international callers by dialing +1(412)-317-0088.
For all replays, please reference conference number 10127187. An
archived replay will also be available through March 7, 2019 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 (NYSE:ARES), a publicly traded, leading global
alternative asset manager with approximately $130.7 billion of assets
under management as of December 31, 2018. 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 and the risks
described from time to time in the Company’s filings with the Securities
and Exchange Commission. 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
As of December 31,  
2018       2017  
ASSETS
Cash and cash equivalents $ 11,089 $ 28,343
Restricted cash 379 379
Loans held for investment ($289,576 and $341,158 related to
consolidated VIEs, respectively)
1,524,873 1,726,283
Other assets ($843 and $945 of interest receivable related to
consolidated VIEs, respectively; $51,582 of other receivables
related to consolidated VIEs as of December 31, 2018)
66,983   15,214  
Total assets $ 1,603,324   $ 1,770,219  
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Secured funding agreements $ 777,974 $ 957,960
Secured term loan 108,345 107,595
Collateralized loan obligation securitization debt (consolidated VIE) 270,737 271,211
Due to affiliate 3,163 2,628
Dividends payable 8,914 7,722
Other liabilities ($541 and $414 of interest payable related to
consolidated VIEs, respectively)
8,604   3,933  
Total liabilities 1,177,737   1,351,049  
STOCKHOLDERS’ EQUITY
Common stock, par value $0.01 per share, 450,000,000 shares
authorized at December 31, 2018 and 2017, and 28,755,665 and
28,598,916 shares issued and outstanding at December 31, 2018 and
2017, respectively
283 283
Additional paid-in capital 421,739 420,637
Accumulated earnings (deficit) 3,565   (1,750 )
Total stockholders’ equity 425,587   419,170  
Total liabilities and stockholders’ equity $ 1,603,324   $ 1,770,219  
 

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

For the three months ended
December 31, 2018

For the year ended
December 31, 2018

Net interest margin:
Interest income from loans held for investment $ 30,882 $ 118,284
Interest expense (16,357 ) (63,002 )
Net interest margin 14,525   55,282  
Expenses:
Management and incentive fees to affiliate 2,116 7,418
Professional fees 510 1,945
General and administrative expenses 892 3,307
General and administrative expenses reimbursed to affiliate 946   3,570  
Total expenses 4,464   16,240  
Income before income taxes 10,061 39,042
Income tax expense, including excise tax 43   446  
Net income attributable to common stockholders $ 10,018   $ 38,596  
Earnings per common share:
Basic and diluted earnings per common share $ 0.35   $ 1.35  
Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding 28,553,540 28,529,439
Diluted weighted average shares of common stock outstanding 28,709,145 28,656,660
Dividends declared per share of common stock $ 0.31 $ 1.16
 

SCHEDULE I
Reconciliation of Net Income to Non-GAAP Core
Earnings

The Company believes the disclosure of Core Earnings provides useful
information to investors regarding the calculation of incentive fees the
Company pays to its manager, Ares Commercial Real Estate Management LLC,
and the Company’s financial performance. Core Earnings is an adjusted
non-GAAP measure that 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. 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. Core Earnings is a non-GAAP measure and is defined as net income
(loss) computed in accordance with GAAP, excluding non-cash equity
compensation expense, the incentive fee, 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
external manager and the Company’s independent directors and after
approval by a majority of the Company’s independent directors.

Reconciliation of net income attributable to common stockholders, the
most directly comparable GAAP financial measure, to Core Earnings is set
forth in the table below for the three months and year ended
December 31, 2018 ($ in thousands):

       

For the three months
ended December 31, 2018

     

For the year ended
December 31, 2018

Net income attributable to common stockholders $ 10,018 $ 38,596
Stock-based compensation 324 1,102
Incentive fees to affiliate 540   1,150
Core Earnings $ 10,882   $ 40,848

Contacts

INVESTOR RELATIONS CONTACTS
Ares Commercial Real Estate
Corporation
Carl Drake, John Stilmar or Veronica Mendiola Mayer
(888)-818-5298
[email protected]

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