Ares Commercial Real Estate Q2 Earnings Call Highlights

Key Points

• ACRE reported second-quarter 2026 distributable earnings of $6.9 million, or $0.12 per diluted share, while GAAP net income totaled $4.4 million, or $0.08 per share. The board declared a $0.15 quarterly dividend.
• The company continued repositioning its portfolio, growing loans held for investment to $1.8 billion and closing $130 million in new commitments. Office exposure fell to less than 25% of the loan portfolio from 39% a year earlier.
• Credit risks remain concentrated in troubled assets: CECL reserves rose to $139 million, with 94% tied to risk-rated four and five loans. ACRE is pursuing resolutions and asset sales while maintaining $106 million of available capital and a 2.0x net debt-to-equity ratio.

Ares Commercial Real Estate NYSE: ACRE reported second-quarter 2026 GAAP net income of approximately $4.4 million, or $0.08 per diluted common share, while distributable earnings totaled about $6.9 million, or $0.12 per diluted common share.

The commercial mortgage REIT said it continued to reposition its portfolio during the quarter by reducing office exposure, addressing underperforming loans and deploying capital into newer investments. CEO Bryan Donohoe said commercial real estate markets showed relative stability despite macroeconomic and geopolitical uncertainty, with modest property-price appreciation, open financing markets and improving liquidity.

“We are making steady progress resolving underperforming assets while selectively investing alongside the broader Ares platform in high-quality new originations,” Donohoe said.

Portfolio Growth and New Originations

Loans held for investment reached $1.8 billion as of June 30, up $129 million from the prior quarter and $484 million from a year earlier, according to CFO Jeff Gonzales. The outstanding principal balance of the overall portfolio increased 36% year over year, Donohoe said.

During the second quarter, ACRE closed three new loan commitments totaling $130 million across multifamily, self-storage and hotel properties. Each commitment was made through co-investment opportunities with other Ares Management-affiliated vehicles.

The company has committed more than $900 million to new loans over the past 12 months, representing more than 40% of its current loan portfolio. Loans originated over that period accounted for 42% of loans held for investment and offer gross levered returns in the low double digits, according to management.

ACRE also sold a $69 million loan during the quarter that corresponded to a larger $144 million loan originated and classified as held for sale in the first quarter. Gonzales said the short-term holding period generated additional income from accrued interest and fees. The company may use the approach opportunistically in the future, though management said such loans are generally held for between 30 and 120 days.

Office Exposure and Problem-Loan Resolutions

Office loans declined to $442 million, representing less than 25% of the total loan portfolio, compared with 39% at the end of the second quarter of 2025. The company had five risk-rated one through three office loans as of June 30.

Management said there were four risk-rated four and five loans outstanding at quarter-end. For a third consecutive quarter, no loans rated one through three migrated into the risk-rated four or five categories. The company also reported no new real estate owned, or REO, properties.

The largest risk-rated five loan, a Chicago office loan, remained on non-accrual status but continued to make contractual interest payments. Donohoe said the property had occupancy above 90%, a weighted-average lease term of more than seven years and positive net cash flow. The loan was extended for three months after quarter-end from its July 2026 maturity as the borrower continued a sales process.

ACRE’s Brooklyn residential condominium loan also remained on non-accrual, although construction is now substantially complete. The company said marketing and pre-sale activity was underway, with no issues reported so far regarding sales velocity or pricing.

A $13 million subordinate loan secured by a California industrial property was downgraded to risk-rated five from risk-rated four. Management cited the January 2027 loan maturity and a higher probability of a near-term realized loss, while noting continuing sponsor support, prospective tenant interest and positive trends in the submarket.

The company is also working toward a sale of its North Carolina office REO property, where Donohoe said market interest has been strong. Its remaining REO investment, a Florida mixed-use property, maintained consistent occupancy and generated a 10% income yield.

Reserves, Liquidity and Dividend

ACRE’s current expected credit loss, or CECL, reserve increased by roughly $900,000 from the prior quarter to $139 million, equal to approximately 8% of loans held for investment. Gonzales said the increase was driven principally by about $1 million of reserves associated with new loans, while reserves for the existing portfolio were largely unchanged.

Risk-rated four and five loans accounted for $130 million, or 94%, of the CECL reserve. Nearly half of the total reserve was associated with the Chicago office loan. The reserve attributed to risk-rated four and five assets represented approximately 34% of those loans’ outstanding principal balance.

The company ended the quarter with a net debt-to-equity ratio, excluding CECL, of 2.0 times and available capital of $106 million. It collected more than $110 million of repayments in the first half of 2026 and expects repayment activity in the second half to be supported by portfolio turnover and additional asset resolutions.

Management said more than $150 million in carrying value of loans, net of CECL, was not accruing interest. Gonzales said resolving those loans and redeploying the proceeds could enable earnings to rise to the current dividend level and eventually beyond it. Over the longer term, the company expects to return to a historical return on equity of roughly 9% to 10%.

The board reauthorized a share repurchase program through July 31, 2027, permitting repurchases of up to $50 million of common stock. It also declared a third-quarter cash dividend of $0.15 per common share, payable Oct. 15 to shareholders of record as of Sept. 30.

Leadership Transition

ACRE also announced that Chief Operating Officer Tae-Sik Yoon will step down from his day-to-day executive role and transition to senior advisor to Ares Management, including continued work with ACRE. Donohoe thanked Yoon for 14 years of service and said the company would continue to benefit from his industry experience and guidance.

About Ares Commercial Real Estate (NYSE:ACRE)

Ares Commercial Real Estate Corporation NYSE: ACRE is a publicly traded real estate investment trust (REIT) primarily focused on commercial real estate debt investments. Externally managed by an affiliate of Ares Management Corporation, ACRE seeks to generate attractive risk-adjusted returns through its diversified portfolio of CRE financing strategies. The company specializes in originating, acquiring, financing and managing first mortgages, mezzanine loans, preferred equity and other structured finance products.

Since its inception, Ares Commercial Real Estate has targeted a broad range of property types, including multifamily, office, industrial, retail and hospitality assets.

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