What Ares Commercial Real Estate (ACRE) Said on Its Q3 Earnings Call

Key Points

• Ares reported third-quarter net income of $10 million, or $0.18 per diluted share; distributable earnings were $6.7 million, or $0.12 per share. The board declared a fourth-quarter dividend of $0.15 per share, with no timeline given for when earnings may fully cover the dividend.
• The company repaid its only defaulted loan after quarter-end and reduced office loans and REO investments to $444 million. Resolving remaining troubled loans and properties—about $160 million in carrying value—is a priority, with the Chicago and Brooklyn assets accounting for most of the risk-rated four and five loan balance.
• Ares ended the quarter with $116 million in available capital and a $141 million CECL reserve, nearly all of which was tied to risk-rated four and five loans. Management said future portfolio growth will depend on liquidity, asset resolutions and market conditions.

Ares Commercial Real Estate NYSE: ACRE reported third-quarter 2026 net income of $10 million and said it had resolved its only defaulted loan after the quarter ended, as management continued to work through underperforming real estate investments.

The commercial real estate lender reported net income of $0.18 per diluted common share. Distributable earnings, a non-GAAP measure, were $6.7 million, or $0.12 per share. Excluding a realized gain from the sale of an office property, distributable earnings were $6.4 million, or $0.11 per share.

The board declared a fourth-quarter dividend of $0.15 per common share, payable Jan. 15, 2027, to shareholders of record on Dec. 31, 2026. Asked about the timing of dividend coverage, CEO Bryan Donohoe did not provide a timeline, saying the resolution of troubled loans and real estate owned, or REO, assets would help drive distributable earnings growth.

Office sale and loan resolutions

During the third quarter, Ares sold an office property in Charlotte, North Carolina, for net proceeds approximately $7 million above its carrying value. The company had acquired title to the property in 2024.

CFO Jeffrey Gonzales said the sale produced a $7.1 million GAAP gain but a $300,000 realized gain for distributable earnings purposes. The latter figure excluded accumulated depreciation and amortization that had not previously been recognized in distributable earnings.

After the quarter ended, a $28 million industrial loan in Newark, New Jersey, that had been in maturity default was fully repaid, including accrued default interest. Donohoe said the loan had not been in the company’s risk-rated four and five categories, describing the default as more technical than indicative of distressed value. Gonzales said it had been the company’s only defaulted loan.

At quarter-end, office loans and office REO investments totaled $444 million, down 10% from the prior quarter and 19% from a year earlier, Donohoe said. Seven office loans remained.

Chicago and Brooklyn assets in focus

Ares has begun the process of acquiring title to a Chicago office property backing a risk-rated five loan. Donohoe said taking title would give the company more control over the sale process and its timing.

The property was more than 90% occupied, with a weighted average lease term of more than seven years, Donohoe said. Management does not expect a significant capital expenditure cycle at the property.

Construction was completed during the quarter at a Brooklyn residential condominium project backing another troubled loan. Donohoe said increased visibility into the timing and proceeds of condominium sales was a primary factor in the loan’s risk rating being changed from four to five. The company expects to recognize proportional losses as individual unit sales close.

The Chicago and Brooklyn loans accounted for 95% of the outstanding principal balance of the company’s risk-rated four and five loans at quarter-end. The four loans in those categories collectively represented 10% of loan carrying value, net of related current expected credit loss, or CECL, reserves.

Donohoe said resolving the remaining REO asset and risk-rated four and five loans, including non-accrual loans, remains a priority. Those investments totaled approximately $160 million in carrying value, net of CECL reserves but before associated financing. He said resolutions could allow capital currently generating little or no income to be reinvested in earning assets.

Reserves, liquidity and new lending

Ares ended the quarter with a $141 million CECL reserve, up approximately $2 million from the prior quarter and equal to about 8% of the outstanding principal balance of loans held for investment. Gonzales said $133 million of the reserve related to risk-rated four and five loans, with nearly half of the total reserve attributed to the Chicago office loan.

Book value was $8.86 per share, which Gonzales described as relatively stable. Available capital totaled $116 million as of Sept. 30, and the company’s net debt-to-equity ratio, excluding CECL, was 1.9 times. Ares fully repaid its secured term loan after quarter-end.

The company collected $35 million of loan repayments during the quarter and $146 million for the first nine months of 2026. It also closed a $35 million senior co-investment loan on industrial properties, retaining $28 million as held for investment and selling the remaining $7 million during the quarter.

Donohoe said the portfolio had grown more than 40% over the past 12 months, but that future growth would depend on liquidity, the pace of asset resolutions and market conditions. He characterized the commercial real estate market as moderately constructive, with higher interest rates offsetting generally positive property fundamentals.

About Ares Commercial Real Estate (NYSE:ACRE)

Ares Commercial Real Estate Corporation is a specialty finance company organized as a real estate investment trust (REIT). The company originates and invests in commercial real estate loans, with a primary focus on senior mortgage loans secured by properties in the United States.

Its investment portfolio may include loans backed by multifamily, office, industrial, retail, hotel and other commercial properties. Ares Commercial Real Estate generally targets transitional and other commercial real estate assets that require financing for acquisition, redevelopment, renovation or repositioning.

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