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AC

Ares Commercial Real Estate Corp (ACRE)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered sequential improvement: GAAP diluted EPS of $0.08 and Distributable EPS of $0.10, with total revenue of $14.1M; CECL reserve and book value remained stable while leverage declined .
  • Results beat S&P Global consensus: Revenue $14.1M vs $12.35M* and EPS $0.10 vs $0.017*; beats were driven by lower interest expense, continued repayments, and modest reversal of CECL provisions; excluding realized losses, Distributable EPS was $0.13 .
  • Strategic progress: $93M of Q3 commitments and $271M subsequent commitments, co-investing with Ares vehicles; office loans reduced to $495M (−6% QoQ, −26% YoY); available capital $173M supported by $162M of Q3 repayments .
  • Dividend maintained at $0.15 for Q4 2025; management targets a return to portfolio growth in 1H 2026, with catalysts tied to resolving non-accruals, sale/marketing milestones on key risk loans, and origination momentum .

What Went Well and What Went Wrong

What Went Well

  • Sequential earnings improvement with stable CECL and book value; CEPH: “we delivered increased sequential earnings and stable CECL reserve and book values, while continuing to strengthen our financial flexibility…” .
  • Accelerating origination and financing advantages from Ares platform; CEO: “more than $360 million of new loan commitments since the beginning of the third quarter… ability to co-invest… advance rates between 75-80%” .
  • Balance sheet strengthened: net debt-to-equity ex-CECL down to 1.1x; $162M repayments in Q3, $498M YTD; available capital $173M (including $88M cash) .

What Went Wrong

  • Realized loss of $1.6M on restructuring a risk-rated 4 office loan; Distributable EPS excluding this loss was $0.13 vs reported $0.10 .
  • Risk migration: a $28M multifamily loan moved from risk 3 to 4 due to near-term maturity; management expects low severity given >95% occupancy but acknowledges timing risk .
  • Ongoing non-accrual exposure: focus on ~$330M of loans on non-accrual; largest risk-5 Chicago office ($141M) remains non-accrual; sale being explored amid sector valuation headwinds .

Financial Results

Income Statement Snapshot (USD Millions unless noted)

MetricQ1 2025Q2 2025Q3 2025
Total Revenue$14.948 $12.565 $14.105
Net Income$9.345 $(11.035) $4.653
GAAP Diluted EPS ($)$0.17 $(0.20) $0.08
Distributable EPS ($)$0.13 $(0.51) $0.10
Distributable EPS ex. realized losses ($)$0.13 $0.09 $0.13
Net Income Margin %46.06%*(33.73%)*28.55%*

Values marked with * retrieved from S&P Global.

Results vs S&P Global Consensus (Q3 2025)

MetricConsensus*ActualSurprise
EPS ($)$0.017*$0.10 +$0.082
Revenue ($)$12.35M*$14.105M +$1.76M

Values marked with * retrieved from S&P Global.

Portfolio Composition (Loans Held for Investment, Carrying Value as of 9/30/2025)

Property TypeCarrying Value ($MM)
Office$471.0
Multifamily$356.6
Industrial$91.1
Residential/Condo$119.5
Hotel$116.3
Self Storage$76.7

KPIs

KPIQ2 2025Q3 2025
Available Capital ($MM)$178 $173
Cash ($MM)$89.985 $88 (incl. restricted available for CLO)
Net Debt/Equity (ex-CECL)1.2x 1.1x
CECL Reserve ($MM)$119 $117
CECL Reserve % of Loans9% 9%
Repayments ($MM)$337 YTD $162 in Q3; $498 YTD
New Commitments ($MM)$43 (post Q2) $93 in Q3; $271 subsequent

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per common shareQ3 2025$0.15 (declared 8/5/25) $0.15 (paid 10/15/25) Maintained
Dividend per common shareQ4 2025N/A$0.15 (payable 1/15/26; record 12/31/25) Maintained
Portfolio growth1H 2026 targetN/AReturn to portfolio growth in 1H 2026 New disclosure

No formal revenue, margin, OpEx, tax guidance given; management emphasized liquidity, resolutions, and origination pacing .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Risk-rated 4 & 5 loans, non-accrualsQ1: 1 risk-5 Chicago ($148M), 1 risk-4 Brooklyn condo ($106M), ~80% of RR4/5 balance; focus on resolutions . Q2: 5 loans RR4/5; top two ~75% of balance; Chicago >90% occupancy, >8-year WALT; Brooklyn construction on budget, soft marketing begun .Two loans >70% of RR4/5 balance; Chicago risk-5 office ($141M) remains non-accrual; sale option explored; Brooklyn condo ($120M) to start formal marketing in 4Q25 .Progressing; resolution work continues; sale/marketing events are near-term catalysts.
Office exposure reductionQ1: Office outstanding $585M (−$55M QoQ) . Q2: Office loans $524M (−10% QoQ, −30% YoY) .Office loans down to $495M (−6% QoQ, −26% YoY) .Decreasing exposure.
Liquidity & repaymentsQ1: $307M repayments; available capital $147M (cash $113M) . Q2: $337M YTD; available capital $178M; leverage down .$162M Q3 repayments; $498M YTD; available capital $173M .Strong liquidity; supportive of resolutions and redeployment.
Origination activity & co-investmentsQ1: poised to invest; no originations . Q2: $43M commitments post quarter; pipeline robust .$93M commitments in Q3; $271M subsequent; >50% co-invested with Ares vehicles; financing advance rates 75–80% .Accelerating originations; platform leverage increasing.
Dividend coverage & earningsQ1: Distributable EPS $0.13 vs $0.15 dividend . Q2: DE ex-loss $0.09 vs $0.15 dividend .DE $0.10; DE ex-loss $0.13; management targeting reestablishing full coverage over time .Improving trajectory.
Macro (tariffs, multifamily)Q2: Rates volatility; CRE lending competitive; forward supply/demand constructive; tariffs a source of noise .Multifamily absorption strong (~500k units LTM); rent growth stagnant near-term but positive medium-term; extensions used to bridge maturities .Stabilizing fundamentals; selective duration extensions.

Management Commentary

  • CEO: “In the third quarter, we delivered increased sequential earnings and stable CECL reserve and book values… our progress is driving ACRE’s ability to accelerate its investing activity, evidenced by more than $360 million of new loan commitments since the beginning of the third quarter.”
  • CFO: “As of September 30, 2025, we had approximately $173 million of available capital… We anticipate additional repayments will generate greater liquidity and support increased investment activity.”
  • CFO detail: “We lowered our net debt-to-equity ratio, excluding CECL, to 1.1x… collected $162 million of repayments… CECL reserve declined to $117 million, ~9% of loans held for investment.”
  • CEO on platform: “Beginning in the third quarter, more than half of ACRE’s new commitments were co-investments… accretive financing terms with advance rates between 75–80%… could provide a window into what ACRE’s reshaped portfolio and financial profile could look like.”

Q&A Highlights

  • Origination mix and scale: Management expects ticket sizes to vary; self-storage leads to smaller tickets, while co-investments enable participation in larger institutional assets; strategy aims for diversification across industrial, multifamily, student housing, and self-storage .
  • Timeline for risk-5 Chicago and risk-4 Brooklyn resolutions: Continued progress; options include potential sale; condo marketing slated for 4Q25; velocity balanced against principal recovery and market conditions .
  • Multifamily downgrade and Texas maturity bridges: A $28M multifamily loan moved to risk-4 due to near maturity; occupancy >95% mitigates severity; Texas assets received short extensions to allow continued progress .
  • Guidance tone: Emphasis on redeploying capital efficiently to minimize earnings drag; goal to return to portfolio growth in 1H 2026 .

Estimates Context

  • S&P Global consensus for Q3 2025 EPS was $0.017* and revenue $12.35M*; ACRE reported Distributable EPS of $0.10 and total revenue of $14.1M, constituting notable beats. GAAP diluted EPS was $0.08, and Distributable EPS excluding realized losses was $0.13 .
  • Prior quarters: Q1 EPS $0.13 vs $0.046* consensus; Q2 DE $(0.51) vs $0.021* consensus; revenue consensus figures differed materially from reported “total revenue,” likely reflecting differing revenue definitions in mortgage REITs; we anchor comparisons to S&P for consensus and to company filings for actuals .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Earnings inflecting: Distributable EPS turned positive; excluding realized losses reached $0.13, nearing dividend coverage; focus remains on bridging to full coverage via resolutions and redeployment .
  • Liquidity and leverage supportive: $173M available capital, net debt-to-equity ex-CECL down to 1.1x; enables acceleration of resolutions and origination without stressing the balance sheet .
  • Origination momentum with platform leverage: $93M in Q3 and $271M subsequent commitments, with >50% co-investments and 75–80% financing advance rates; expect portfolio to regain scale through 2026 .
  • De-risking continues: Office loans down to $495M; targeted actions on risk-rated 4 and 5 loans; potential catalysts from Chicago office resolution and Brooklyn condo sales process .
  • CECL stability: Reserve at $117M (~9% of loans), with ~95% allocated to risk-rated 4/5; stability signals improving loss visibility .
  • Trading implications: Beats vs S&P consensus and visible origination ramp are near-term positives; watch for transaction updates (asset sales, condo marketing) and further non-accrual resolutions as stock catalysts .
  • Medium-term thesis: Return to portfolio growth in 1H 2026 with diversified, granular loans and accretive financing should rebuild earnings power; management conviction underpinned by Ares platform scale .