Executive Summary

Q2 2025 was driven by active portfolio de-risking and a large realized loss on the exit of a life-sciences office loan, resulting in GAAP net loss of $(11.0)M ($0.20) and Distributable Earnings (DE) loss of $(27.9)M ($0.51) per share; excluding realized losses, DE was $0.09, below the $0.15 dividend .
Management emphasized an inflection: office exposure down 10% QoQ (30% YoY), risk-rated 4/5 loans narrowed to five with concentrated exposure, and new originations resumed post-quarter with $43M of senior self-storage loans; liquidity stood at $178M, including $94M cash .
Consensus vs. actual: EPS missed S&P Global consensus (+$0.02) by $0.53 while S&P revenue measure exceeded its consensus ($32.7M vs. $14.5M), noting definitional differences from the company’s “Total revenue” ($12.6M) [GetEstimates*] .
Forward setup: Management expects origination activity to build in 2H25, portfolio size to be equal or larger in 12 months, and “earnings potential in excess of the current dividend,” supported by balance sheet flexibility and CECL reserve coverage focused on risk-rated 4/5 assets .

What Went Well and What Went Wrong

What Went Well
- Proactive de-risking: Exited a $51M life-sciences office loan (portfolio now has no loans collateralized by properties primarily used for life sciences) and cut office exposure to $524M (–10% QoQ, –30% YoY) .
- Liquidity and leverage: Available capital $178M (incl. $94M cash); net debt-to-equity (ex-CECL) held at 1.2x; borrowings down to $889M (–6% QoQ; –39% YoY) .
- Resuming growth: Closed $43M of new senior self-storage loans post quarter; pipeline seen as robust given platform scale and improving lending market dynamics .
What Went Wrong
- Loss events and earnings shortfall: $33M realized loss on the life-sciences office loan drove DE/share to $(0.51) (vs. $0.09 ex-loss), leaving DE below the $0.15 dividend .
- Core revenue pressure: Total revenue declined to $12.6M (vs. $14.9M in Q1 and $16.8M in Q2’24), as repayments and nonaccrual drag ($0.17/share; ~$8.9M) weighed on NII .
- Watch-list persistence: Five risk-rated 4/5 loans remain; two loans comprise ~75% of that bucket (Chicago office $146M RR5; Brooklyn condo $113M RR4), with sector headwinds still a constraint on office asset valuations .

Financial Results

Metric	Q4 2024	Q1 2025	Q2 2025
Interest Income ($M)	33.49	27.48	23.12
Net Interest Margin ($M)	11.21	9.29	7.02
Revenue from REO ($M)	6.30	5.66	5.55
Total Revenue ($M)	17.51	14.95	12.57
CECL (Benefit)/Provision ($M)	0.97 (benefit)	5.34 (benefit)	20.15 (benefit)
Realized Losses on Loans ($M)	(15.71)	—	(33.00)
GAAP Net Income (Loss) ($M)	(10.66)	9.35	(11.04)
GAAP Diluted EPS ($)	(0.20)	0.17	(0.20)
Distributable Earnings (DE) per Share ($)	(0.15)	0.13	(0.51); ex-realized losses $0.09
Dividend Declared ($/sh)	0.25	0.15	0.15

Year-over-year (YoY) reference: Q2 2024 total revenue $16.80M; GAAP diluted EPS $(0.11); DE/share $(0.12) .

Estimates vs. Actuals (S&P Global definitions)

Metric	Consensus (Q2 2025)	Actual (Q2 2025)
EPS (Primary, S&P Global)	$0.02*	$(0.51)*
Revenue (S&P Global) ($M)	$14.51*	$32.72*

Note: S&P Global’s revenue and “Primary EPS” definitions for mortgage REITs can differ from the company’s “Total revenue” and GAAP EPS/DE; ACRE’s reported “Total revenue” was $12.57M in Q2 2025 . Values marked with “*” retrieved from S&P Global (GetEstimates).

Portfolio composition snapshot (as of June 30, 2025)

Category	Count	Carrying Value ($M)
Risk-rated 1–3 loans (ex-Office)	16	677
Risk-rated 1–3 Office loans	5	266
Risk-rated 4 and 5 loans	5	358
Real Estate Owned (REO)	2	135
Total	28	1,436

Select balance sheet and capital KPIs

KPI	Q1 2025	Q2 2025
Available Capital ($M)	147 (as of May 2)	178 (incl. $94M cash)
Outstanding Borrowings ($M)	946	889
Net Debt / Equity (ex-CECL) (x)	1.2x	1.2x
CECL Reserve ($M; % of loans HFI)	140; ~9.9%	119; ~9%
Office Loans (Outstanding Principal, $M)	585 (as of 3/31/25)	524 (as of 6/30/25)
Repayments ($M)	$307 in Q1 (YTD by 5/2)	$337 YTD by Q2

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Common Dividend	Q3 2025	$0.15/sh (Q2 declared)	$0.15/sh (declared 8/5, payable 10/15)	Maintained
Portfolio Size	Next 12 months	—	“Equal to or larger than as of Q2 2025”	Qualitative Upbeat
Earnings Power vs Dividend	Forward	—	“Earnings potential is in excess of the current dividend”	Qualitative Upbeat
Origination Activity	2H 2025	—	“Expect origination activity to increase”	Qualitative Upbeat

No formal quantitative guidance for revenue/EPS/expenses/tax provided; management emphasized qualitative outlook tied to resolutions, redeployment, and market conditions .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24, Q1’25)	Current (Q2’25)	Trend
Office exposure & resolutions	Risk-rated 4/5 declined 33% in Q3’24; continuing de-leveraging focus . Q1: office loans down 25% YoY; five 4/5 loans; progress on Chicago and Brooklyn assets .	Office loans down 10% QoQ (30% YoY); exited life-sciences loan; five 4/5 loans remain; Chicago >90% occ, WALT >8 yrs; Brooklyn condo on-budget with sales to begin by 4Q25 .	Improving risk posture; concentrated residual risk
Liquidity & leverage	Q1: Available capital $147M; net debt/equity cut to 1.2x; FL3 redemption; Wells facility extended .	Available capital $178M (incl. $94M cash); borrowings $889M; net debt/equity 1.2x; MS facility amended/extended with $100M accordion .	Strong and stable
Origination pipeline	Q1: “Evaluate new loans” selectively given volatility and tariffs; patient stance .	Post-quarter closed $43M self-storage loans; expect origination to build 3Q+; platform origination >$6B last 12 months across Ares .	Building
Macro/rates/tariffs	Q1: Tariff announcements disrupted acquisitions; refinancing pipeline intact .	Stable-to-gradual improvement in CRE; lenders finding attractive ROEs; supply/demand turning favorable for MF/industrial/storage over 24–36 months .	Constructive
Share buybacks	Q1: $50M authorization through July discussed as option .	Management prioritizes new loan investing and scale benefits; buybacks remain a tool but not priority now .	Lower priority near term

Management Commentary

“We continued to…accelerate resolutions of risk rated 4 and 5 loans and reduction of our office loans… Given the progress…we have begun to invest in new loans” .
“The portfolio no longer includes loans collateralized by properties that primarily used for life sciences” .
“Over the next twelve months, we expect the portfolio to be equal to or larger than it was as of 2Q 2025… we remain confident that our earnings potential is in excess of the current dividend level” .
“Our liquidity position as measured by available capital was $178 million… includes $94 million of cash… net debt to equity…1.2x… outstanding borrowings… $889 million… CECL reserve… $119 million (~9% of loans HFI)” .

Q&A Highlights

Earnings trajectory and nonaccrual drag: Management expects NII to rebuild as nonaccrual drag subsides and redeployment progresses; nonaccrual drag was ~~$0.17/share (~~$8.9M) in Q2 .
Deployment vs. leverage: With low leverage and an accordion feature on the MS facility, ACRE can lever new originations to bolster NIM while keeping risk in check .
Chicago office loan: Above 90% occupancy and extended tenant; management does not see a path to returning it to accrual yet; yield enables multiple resolution pathways .
Capital allocation: Buybacks evaluated, but priority is portfolio scale and repositioning for long-term earnings; covenants/operating scale also considered .
Realized loss mechanics: Of the $33M loss on the $51M life-sciences loan, ~$19M was covered by CECL reserve; net impact to book value ~$14M .

Estimates Context

S&P Global consensus for Q2 2025: EPS (Primary) $0.02 (5 est.); Revenue $14.5M (4 est.); Actual per S&P: EPS $(0.51); Revenue $32.7M. Note S&P’s definitions for REITs may differ from ACRE’s “Total revenue” ($12.57M) and GAAP EPS; ACRE’s reported DE/share was $(0.51) [GetEstimates*] .
Implication: ACRE posted a significant EPS miss vs. consensus; revenue outcome varies by definition (S&P’s reported actual vs company “Total revenue” differ), so investors should anchor on company-reported revenue trends (–16% QoQ; –25% YoY) and NIM pressure, while monitoring redeployment cadence .

Values marked with “*” retrieved from S&P Global.

Key Takeaways for Investors

De-risking progressed meaningfully (exit of life sciences loan; office exposure down 30% YoY), with CECL concentrated on remaining 4/5 loans (94% of $119M reserve), improving portfolio quality and visibility around book value .
Near-term earnings remain sensitive to realized loss timing and nonaccruals; however, management affirmed earnings potential above the $0.15 dividend over time as resolutions and redeployment gather pace .
Balance sheet flexibility (1.2x net debt/equity, $178M available capital) and diversified funding (MS accordion; multiple repo lines; CLO) support opportunistic growth without sacrificing risk controls .
Pipeline/market: Ares platform scale and a more constructive lending environment (better ROEs, tighter attachment points) should aid origination ramp into 2H25, with initial $43M deployed in self-storage .
Watch concentration: Two loans (Chicago office and Brooklyn condo) represent ~75% of the 4/5 bucket; outcomes here are key catalysts for book value proof and EPS normalization .
Trading setup: Focus on cadence of repayments vs. originations (NIM rebuild), updates on the two largest watch-list assets, and realized loss trajectory; confirmation of dividend coverage via DE ex-losses ($0.09 in Q2) improving would be a positive inflection .

Appendix: Additional Items

Dividend: Board declared Q3 2025 dividend of $0.15 per share (payable Oct 15; record Sep 30) .
Book Value: $9.52/share including CECL; $11.69/share excluding CECL .
REO: Two properties with 9–10% income yields; progress consistent with active asset management .

Citations: Press release and 8-K/exhibits ; Q2 2025 earnings call transcript ; Prior quarter press releases/transcripts . S&P Global estimates via GetEstimates for consensus data (marked with “*”).

Ares Commercial Real Estate Corp (ACRE)·Q2 2025 Earnings Summary