Earnings call transcript: Ares Commercial Real Estate Q2 2025 reports loss, stock dips

Ares Commercial Real Estate (ACRE) reported a significant earnings miss for Q2 2025, with earnings per share (EPS) at a loss of $0.20, missing the forecast of a $0.04 loss by a substantial margin. The company’s revenue also fell short, coming in at $12.56 million against a forecast of $13.59 million. Following the announcement, Ares’ stock dropped 7.41% in pre-market trading. According to InvestingPro analysis, ACRE is currently trading below its Fair Value, suggesting potential upside opportunity despite recent challenges.

Key Takeaways

• Ares reported a net loss of $11 million for Q2 2025.
• The company’s stock declined by 7.41% following the earnings report.
• Ares reduced its office loan exposure and improved its liquidity position.
• The company expects to increase loan origination in the coming quarters.
• Dividend maintained at $0.15 per share, with a 13% annualized yield.

Company Performance

Ares Commercial Real Estate faced a challenging second quarter, reporting a net loss of $11 million, or $0.20 per diluted share. This performance contrasts with the company’s efforts to stabilize its portfolio, including significant repayments and reductions in office loan exposure. Despite these efforts, the company struggled with lower-than-expected revenue and earnings.

Financial Highlights

• Revenue: $12.56 million, down from a forecast of $13.59 million.
• EPS: Loss of $0.20 per share, compared to a forecast loss of $0.04.
• Book value per share: $9.52.
• Dividend: $0.15 per share.

Earnings vs. Forecast

Ares missed earnings expectations significantly, with a 400% negative EPS surprise. Revenue also fell short by 7.58%, marking a challenging quarter for the company. This miss is larger than previous quarters, indicating increased volatility in their financial performance.

Market Reaction

Following the earnings announcement, Ares’ stock experienced a sharp decline, falling by 7.41% to $4.36 in pre-market trading. This movement reflects investor concerns over the earnings miss and its implications for future performance. The stock remains well below its 52-week high of $7.83, with a beta of 1.38 indicating higher volatility than the broader market. InvestingPro analysis reveals the stock has maintained dividend payments for 14 consecutive years, demonstrating long-term shareholder commitment despite market fluctuations.

Outlook & Guidance

Looking ahead, Ares plans to increase loan origination activities in the third and fourth quarters of 2025. The company remains confident in its earnings potential, aiming to maintain or exceed current dividend levels. While it anticipates ongoing challenges in resolving higher-risk assets, analysts maintain a moderate buy consensus with a price target range of $4.80 to $5.50. For deeper insights into ACRE’s financial health and growth potential, investors can access comprehensive analysis through the InvestingPro platform, which offers detailed metrics and expert commentary on over 1,400 stocks.

Executive Commentary

"We believe that ACRE is on the right track to drive shareholder value," said Brian Donahoe, CEO. CFO Jeff Gonzalez added, "We do expect to originate additional loans moving forward," signaling optimism about future growth opportunities. Donahoe also emphasized the attractiveness of current lending returns.

Risks and Challenges

• Continued pressure on earnings due to non-accrual loans.
• Potential market volatility in the commercial real estate sector.
• Challenges in resolving high-risk assets.
• Competitive pressures from larger market participants.
• Economic uncertainties impacting lending activities.

Q&A

During the earnings call, analysts inquired about the impact of non-accrual loans on net interest income, which amounted to an $8.9 million drag. Questions also focused on the potential for stock repurchases, with management indicating a preference for new loan investments. Additionally, the multifamily market’s current phase and expected rent growth were discussed, highlighting ongoing industry challenges.

Full transcript - Ares Commercial Real Estate Corp (ACRE) Q2 2025:

Conference Operator: Good afternoon, everyone. Welcome to Ares Commercial Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded on Tuesday, 08/05/2025. I would now like to turn the call over to Mr.

John Stilmar, Partner of Public Markets Investor Relations. Please go ahead, sir.

John Stilmar, Partner of Public Markets Investor Relations, Ares Commercial Real Estate: Thank you, and good afternoon, everybody. Thanks for joining us on today’s conference call. In addition to our press release and the 10 Q that we filed with the SEC, we have posted an earnings presentation under the Investor Resources section of our website at www.arescre.com. Before we begin, I want to remind everyone that comments made during the course of this conference call and webcast as well as accompanying documents contain forward looking statements and are subject to risks and uncertainties. Many of these forward looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may and similar such expressions.

These forward looking statements are based on management’s current expectation of market conditions and management’s judgment. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. The company’s actual results could differ materially from those expressed in the forward looking statements as a result of a number of factors, including those listed on its SEC filings. Ares Commercial Real Estate assumes no obligation to update any such forward looking statements. During this call, we will refer to certain non GAAP financial measures.

We use these as measures of operating performance, and these measures should not be considered in isolation from or as a substitute for measures prepared in accordance with Generally Accepted Accounting Principles. These measures may not be comparable to like titled measures used by other companies. Now I’d like to turn the call over to our CEO, Brian Donahoe. Brian?

Brian Donahoe, CEO, Ares Commercial Real Estate: Thank you, John. Good afternoon, everyone, and thank you for joining us. I am also joined today by Jeff Gonzalez, our Chief Financial Officer Tae Sik Yoon, our Chief Operating Officer as well as other members of the management and Investor Relations team. During the second quarter, we continued to execute on our strategic objectives. We maintained a strong balance sheet, which has driven our progress addressing our risk rated four and five loans and further reducing our office loans in the quarter.

Importantly, the portfolio no longer includes loans collateralized by properties that primarily used for life sciences. Given the progress we have made in narrowing the range of potential outcomes in our portfolio and having achieved our target balance sheet objective, we have begun investing in new and attractive loans. As we look forward, we expect origination activity to increase as we collect repayments and further address our risk rated four and five loans and reduce our office loan holdings. Let me now walk you through the details of the quarter and lay the foundation for how we see these activities unfolding in order to drive higher levels of distributable earnings and dividend coverage. During the second quarter, we reduced our office loans to $524,000,000 a decrease of 10% quarter over quarter and a decrease of 30% year over year.

This decrease was driven by repayments, active asset management and the decision to accelerate resolutions. Across office loans, including our one rated five office loan, we saw improved leasing fundamentals and broadly speaking, more positive capital markets around the sector, which may also impact the rate of resolutions. During the second quarter, we exited a $51,000,000 office life sciences loan and took a $33,000,000 realized loss, which was in excess of the prior quarter’s CECL reserve. While we don’t take any loss lightly, we believe the resolution of this loan creates greater stability in our portfolio. Reductions in federal funding for life science research led to further erosions in tenant demand and further elevated the supply demand imbalance for life science properties.

By exiting this loan, we removed significant unfunded commitments in the portfolio. The exit of this loan contributed to the 50% decrease in future funding commitments from $73,000,000 in 1Q twenty twenty five to $36,500,000 as of 06/30/2025. We believe utilizing the strength of our balance sheet to exit the loan created greater certainty around our portfolio and allows us to get back to growth more quickly. We see this as an important advancement for the company as there are no remaining loans in the portfolio collateralized with properties that are primarily used for life sciences. We also changed the risk rating on an 81,000,000 senior loan collateralized by an office property in Arizona to a risk rated four loan from a risk rating of three.

While occupancy increased at this property during the quarter and the sponsor has historically supported the asset, the lease up business plan is taking longer than expected and with maturity coming up in October, discussions regarding an extension or modification with the sponsor are taking place. Let me now shift to our overall risk rated four and five loans. As of 06/30/2025, we had one risk rated five loan and four risk rated four loans, maintaining the same number of risk rated four and five loans as we held last quarter. Notably, two of the five risk rated four and five loans comprised 75% of the outstanding principal balance. The first of these two loans is our risk rated five Chicago office loan with a carrying value of $146,000,000 Occupancy at this property has stabilized and remains above 90% with a weighted average lease term of more than eight years.

Post quarter end, the positive momentum at the property continued as a significant tenant amended and extended its lease, resulting in a $3,000,000 payment to our borrower, upon which the borrower applied these proceeds to reduce the principal balance of the loan. While we continue to see positive momentum towards the business plan, we note that challenges remain in the office sector with respect to the depth of investor demand, financing availability and thus valuations for office properties. The second of the two largest risk rated four and five loans is our risk rated four Brooklyn, New York residential condominium loan with a carrying value of $113,000,000 This property continues to hit development milestones on budget with nearly all of the remaining necessary materials to complete construction procured, which mitigates supply chain and known tariff risks. Subsequent to quarter end, the soft marketing launch began at the property, while the formal marketing and sales process is targeted to begin by 4Q twenty twenty five. Beyond these areas of focus in our loan portfolio, our risk rated one to three loans, which are primarily collateralized by multifamily, industrial and self storage properties, continue to perform well with strong overall execution of business plans.

Specifically, during the second quarter, we upgraded a risk rated $356,000,000 loan collateralized by a hotel property to a risk rated two loan based on positively trending occupancy and operating cash flow levels. Beyond this positive risk rating upgrade, we believe the overall loan portfolio is much improved over recent quarters. Further, our balance sheet is positioned to both drive additional resolutions as well as invest our capital in new loans. To this end, following the end of the second quarter, we successfully executed our first investment commitments of the year. We closed four senior loans totaling $43,000,000 in loan commitments collateralized by self storage properties.

While this marks our initial deployment into new loans in 2025, the overall Ares debt business has remained actively engaged in the real estate market with a strong and growing pipeline of opportunities. In the past twelve months, the team has originated over $6,000,000,000 of new investment commitments, primarily focused on mixed use industrial and multifamily assets. Supported by the scale and reach of the broader platform, we expect origination activities to build in the third quarter and in future periods. While it is hard to predict timing, over the next twelve months, we expect the portfolio to be equal to or larger than it was as of 2Q twenty twenty five. From an earnings standpoint, we recognize that 2Q twenty twenty five distributable earnings excluding losses of $09 per share is below our dividend level of $0.15 per share.

However, we remain confident that our earnings potential is in excess of the current dividend level. Our confidence in our earnings potential is derived from a number of levers that we can pull to enhance earnings, including the resolutions of our higher risk rated assets, redeploying our additional capital and making new loans. Looking ahead, we recognize that results may be uneven quarter to quarter, but our strategy remains clear, our execution purposeful and our outlook optimistic. Through our deliberate actions, we remain focused on accelerating resolutions on our higher risk assets while not jeopardizing the integrity and strength of our balance sheet as we seek to clarify and demonstrate book value as quickly as possible. Ultimately, these actions and our return to investing in today’s attractive environment should collectively begin to methodically rebuild our earnings in future periods.

And with that, I’ll turn the call over to Jeff, who will provide more details on our second quarter results.

Jeff Gonzalez, Chief Financial Officer, Ares Commercial Real Estate: Thank you, Brian. For the 2025, we reported a GAAP net loss of approximately $11,000,000 or $0.20 per diluted common share. Our distributable earnings for the 2025 was a net loss of approximately $28,000,000 or $0.51 per diluted common share. This includes the impact from the realized loss of $33,000,000 or $0.60 per diluted common share related to the exit of a Massachusetts office life sciences loan. Distributable earnings for the second quarter excluding this loss was approximately 5,000,000 or $09 per diluted common share.

During the quarter, we also collected $3,000,000 or $05 per diluted common share of cash interest on loans that were on nonaccrual and was accounted for as a reduction in our loan basis. In the 2025, we collected an additional $30,000,000 of repayments, bringing the year to date total repayments to $337,000,000 nearly three times the amount of repayments in the 2024. The acceleration of repayments that began in the 2024 and which has continued through the 2025 have bolstered our liquidity position and further strengthened our balance sheet. While these repayments are having an impact on our near term earnings, we believe our strengthened balance sheet provides us the flexibility to accelerate resolutions and opportunistically deploy capital into new loans. Reinforced by the repayments and purposeful execution, we maintained the financial flexibility and balance sheet positioning we achieved in the first quarter.

We maintained our net debt to equity ratio, excluding CECL, at 1.2x at the end of the second quarter, stable quarter over quarter, but down from 1.9x year over year. We reduced our outstanding borrowings further to $889,000,000 at the end of the quarter, a decrease of 6% quarter over quarter and a decrease of 39% year over year. In addition, we reduced our unfunded commitments to $37,000,000 at the end of the second quarter, a decrease of 50% quarter over quarter and a decrease of 58% year over year. Furthermore, we took proactive steps to further optimize our financial flexibility and capital structure. During the second quarter, we amended and extended our Morgan Stanley facility to reduce the current commitment to $150,000,000 but we have a built in $100,000,000 accordion option to increase the commitment to the previous size of $250,000,000 The reduced near term commitment size with consistent terms allows us to more efficiently size our financing for our near term needs, while the accordion supports growth as it comes to fruition.

During the second quarter, we continued to focus on maintaining our liquidity position. As we have discussed in the past, we believe this continued focus on liquidity enables greater optionality to accelerate resolutions and opportunistically invest, both of which will have a positive impact on earnings. Our liquidity position as measured by available capital was $178,000,000 as of 06/30/2025. This includes $94,000,000 of cash. Turning to our CECL reserve.

The total CECL reserve declined to $119,000,000 as of 06/30/2025, a decrease of approximately $20,000,000 from the CECL reserve as of 03/31/2025. This reduction was due to the exit of an office life sciences loan, loan repayments and other loan specific attributes. The total CECL reserve at the end of the second quarter of $119,000,000 represents approximately 9% of the total outstanding principal balance of our loans held for investment. 94% of our total $119,000,000 CECL reserve relates to our risk rated four and five loans or $112,000,000 Overall, the 112,000,000 represent 27% of the outstanding principal balance of risk rated four and five loans held for investment. Our book value of $9.52 per share includes the $119,000,000 CECL reserve.

Our goal is to continue to prove out book value over time and as Brian stated, to enhance earnings and our dividend coverage. To conclude, the Board declared a regular cash dividend of $0.15 per common share for the 2025. Third quarter dividend will be payable on 10/15/2025 to common stockholders of record as of 09/30/2025. At our current stock price on 07/31/2025, the annualized dividend yield on our third quarter dividend is above 13%. With that, I will turn the call back over to Brian for some closing remarks.

Brian Donahoe, CEO, Ares Commercial Real Estate: Thanks, Jeff. As we sit here today halfway through 2025, we are proud of our progress and accomplishments. While we recognize that quarter to quarter earnings results may vary, our conviction remains firm and our strategy remains unchanged. The success and conviction of our strategy is evidenced by record low leverage, high levels of liquidity, double digit decreases in our risk rated four and five loans and office portfolio over the last year and ACRE’s 3Q twenty twenty five return to new loan investing. We believe that this is the first of many investments as we reshape ACRE’s portfolio for future growth.

We believe that the power of the Ares platform and the greater Ares real estate team provides us with the right people, comprehensive capabilities and robust pipeline to continue to execute upon this strategy. Looking ahead, we’re encouraged by the signs of stabilization and gradual improvement of the commercial real estate market, particularly driven by valuation stability due to the lack of new inventory in certain property types and submarkets. Through consistent execution, we are confident that ACRE is on the right track to drive shareholder value and benefit from the secular growth of the non bank commercial real estate lending opportunity. In closing, we would like to take a moment to extend our deepest sympathies to the families of those who lost their lives during last week’s tragedy at 03:45 Park Avenue. In times like these, we are reminded of the importance of standing together as a community with compassion, resilience and support for one another.

We are keeping all who have been affected in our thoughts. As always, we appreciate you joining our call today, and we’d be happy to open the line for questions.

Conference Operator: Thank you, Mr. Donahoe. We go first to Rick Shane of JPMorgan.

Rick Shane, Analyst, JPMorgan: Hey guys, thanks for taking my question. Look, I’m curious, it sounds like from a balance sheet perspective you feel like you’ve reached an inflection point in terms of starting to deploy capital working through the non accruals. On a year over year basis net revenue is down about 25%, net interest income is down even more than that. Is the second quarter the trough or should we expect that because of the timing in the third quarter that it will be sequentially down again and then potentially start to rebuild from there?

Jeff Gonzalez, Chief Financial Officer, Ares Commercial Real Estate: Thanks for the question, Rick. So yes, we did reset our dividend in the first quarter to align with our strategic objectives. As you mentioned, we did reach our balance sheet positioning goals, which is allowing us to maximize some of the resolutions of our foreign five year loans and accelerate those and also begin to start investing in loans. So as Brian mentioned in his prepared remarks, we do expect to have the portfolio twelve months from now be at the level at today or higher. We do continue to source new loan opportunities, And we do expect to originate additional loans moving forward throughout the third quarter and in the fourth quarter that will should absorb any repayment that happen.

Rick Shane, Analyst, JPMorgan: Got it. And so does that imply if the balance sheet is going to be roughly the same size a year from now, but you’re going to have presumably less drag from non accruals that even at a flat balance sheet you would expect to see net interest income start to rebuild from here?

Jeff Gonzalez, Chief Financial Officer, Ares Commercial Real Estate: Yes, that’s correct.

Rick Shane, Analyst, JPMorgan: And remind me, I know I’ve got it and we’ll see it in the transcript, but what was the drag this quarter from non accruals on NII?

Jeff Gonzalez, Chief Financial Officer, Ares Commercial Real Estate: The drag is about $0.17

Rick Shane, Analyst, JPMorgan: Okay. In absolute dollars, I apologize.

Jeff Gonzalez, Chief Financial Officer, Ares Commercial Real Estate: Absolute dollars in the $8.9000000 dollars range.

Rick Shane, Analyst, JPMorgan: Terrific. Thank you so much.

Conference Operator: Thank you. We go next now to Tom Catherwood at BTIG.

Tom Catherwood, Analyst, BTIG: Thanks. Brian, I appreciate your comments on the origination activity increasing going forward and that it’s likely to track repayments and watch list resolutions. Given your low debt levels, you could lever up that equity that comes back from repayments and really ramp originations beyond even past the repayment levels. Is that your plan as you’re looking out through originations for the rest of 2025?

Brian Donahoe, CEO, Ares Commercial Real Estate: Yes. Appreciate the question, Tom. I think certainly and if you look at what Jeff walked through in terms of the accordion feature of the Morgan Stanley facility, I think that represents the fact that, as you know, there is more leverage available than what we have sought to utilize on our balance sheet. So yes, there is the opportunity to lever up as you put it. And I do think the earnings power will be reflective of what we try reflect is a market that we think is constructive for whole loan originations and certainly a constructive market for repo or warehouse line debt against those assets.

So we feel good about both the gross deployment and the net interest margin that we could create based on that borrowing even on a static level or increasing it as you said.

Tom Catherwood, Analyst, BTIG: Got it. Appreciate that. And then if we think of just your origination pipeline as it’s shaping up now, obviously, you put the money to work with the self storage loans thus far in 3Q. But how is that pipeline shaping up for the rest of 2025?

Brian Donahoe, CEO, Ares Commercial Real Estate: We walked through a lot of what we’ve done on a platform basis, and I think that should be reflective of the fact that we feel we are in a strong standing position in this market as we think about nonbank lender participation continuing to increase and our presence in the market has improved over the past five, six years, right? So I think we have a robust market to originate into. One thing I’d note is I think, look, there’s been so much volatility in rates. It’s interesting. If you look at the first half of the year and look at treasuries, we kind of ended up where we started, but with intraday volatility, that was fairly historic.

And I mentioned that because I think the real estate industry is still kind of coming to grips with these higher rates to some degree. I think it’s to the benefit of the lending community over equity to some on some basis. But deal velocity is coming back, but it ebbs and flows. So I just reflect that, but I do think that the pipeline has been consistent for us throughout the year, and that’s a function of being able to refinance versus needing those willing buyers and sellers to consummate that transaction. So long winded answer, Tom, but we feel good about the pipeline as we sit here today.

Tom Catherwood, Analyst, BTIG: Appreciate that, Brian. And last one for me on the Chicago loan. Given that occupancy is above 90% and you received a $3,000,000 pay down in 3Q, is there consideration to extending the loan beyond obviously the what was the July maturity and then putting it back on accrual? Or is there something else that’s keeping that at a five risk rating?

Brian Donahoe, CEO, Ares Commercial Real Estate: Yes. With respect to the asset itself and our business plan, our interaction with the borrowers, certainly we like to keep our borrowers in their seat as the equity owner. But I think you can read through what we described and think about this being a mid to high single digit yield. And I think that cash flow profile provides a lot of different options for us as we attempt to resolve it. And I think we’ve reflected over prior quarters, we’d like to move on from it.

But we want to make sure that market value reflects the intrinsic value that we see in this asset as well. So the cash flow profile provides us those opportunities. I think we mentioned in the prepared remarks the fact that there’s still stress from perspective around office assets generally. So while I don’t see a pathway to returning it to accrual, we do think that the yield from this asset is such that we do have options available to us as we go through the few months.

Tom Catherwood, Analyst, BTIG: Got it. Appreciate all thoughts. Thanks, everyone.

Brian Donahoe, CEO, Ares Commercial Real Estate: Thank you.

Conference Operator: We’ll go next now to Jade Rahmani of KBW.

Jade Rahmani, Analyst, KBW: Thanks very much. There’s a ton of economic noise right now and we’re all trying to assess potential risks due to tariffs and other uncertainties. At the same time, one of your peers characterized the CRE lending market as frothy. I think I saw GSE multifamily quote a spread inside of 100 basis points on stabilized multifamily. So just curious your read of landscape and if what your views are about real estate fundamentals, if you’re seeing any deterioration in performance across the Ares platform, if your view is that things are kind of stable?

And then also a comment on the health of the or competitiveness of the CRE lending markets.

Brian Donahoe, CEO, Ares Commercial Real Estate: Yes. It’s a great question, Jayden. Obviously, one we ponder most days here as investors in the sector. I would say that we’ve seen some relative stability, as I mentioned Tom’s question, on as rates have kind of coalesced where they’ve ended up here. I think you’ve got this you’ve got what’s being printed today in terms of relatively stagnant markets from a leasing and fundamental perspective in certain asset classes.

But with the forward supply demand balance in multifamily and industrial and self storage that are kind of evolving from, I’d say, yellow towards green over the next twenty four to thirty six months. So I think while today we have a little bit of a muted growth story, at least maybe said differently, difficult to predict where the drivers of growth will come from in certain asset classes. I think over the next three to five years, you can make a case for that supply demand imbalance leading to higher rent growth than we’re seeing currently, right? In terms of your question on the debt markets, I think you’ve had a consolidation in the sector where banks have changed the way they participate in the market to some degree. I think you’re seeing the larger participants probably take market share from some of the smaller.

And to the extent you’re referencing a tightening or a frothy lending market, I think it depends on your perspective. I think we’re finding plenty to do with ROEs that would be in keeping with our subject sector from a historical perspective, and I’m sure our peers would say similar. And also something that is a very attractive return on equity from any market participant across debt and equity, right? The current income profile of lending today historically referenced, I find to be still very attractive. And as also seen a reset in asset values, right?

So your attachment point to these properties is lower than it would have been two, three years ago. And I think you have to take that into account as you think about the relative value in our sector versus other real asset type categories. So hopefully that answered your question, but happy to delve further. It’s helpful.

Jade Rahmani, Analyst, KBW: Yes, that’s great. Exactly what I was looking for. And I think what you put forth is well reasoned, balanced as always. Can you comment on multifamily trends you’re seeing? No, I think we’ve seen some mixed reports from the apartment REITs depending on the Sunbelt exposure.

Curious as to your views on the multifamily space.

Brian Donahoe, CEO, Ares Commercial Real Estate: Jade, it’s something that, again, I’d say echoes what I said in terms of the forward supply versus demand being in favor of rent growth. In the immediate case, the data sometimes can be difficult to digest, right? A lot of the CPI data is based on, I’d characterize as more local mom and pop type landlords, in which case there’s probably a lot of loss to lease still in those rent rolls and you’re seeing renewal rents outpace the degree of rent increases for new tenants. And so I think we’re in a digestion phase. I would say that the it is very market to market and asset to asset in terms of underlying performance.

I do feel like we’ve departed the stage where most owners are going to give up their right or their option to continue in their standing, if you will, right? So if you have an asset that might be over levered that you purchased in early twenty twenty three by way of example, I think you’ve kind of made that option payment. You’ve cured a lot of debt service that you didn’t anticipate paying due to higher rates. And at this point, you’re looking over the next twenty four months to a more constructive environment for rents. Obviously, proof will be in where those rents ultimately get.

I don’t think we’re returning to a 5% to 7% rent growth market, but I think CPI plus would be reasonable based on the statistics that we are seeing. And again, I’d echo what I said earlier, the reset of basis for new loans against those assets, I think, is very, very attractive.

Jade Rahmani, Analyst, KBW: Thanks for taking the questions.

Brian Donahoe, CEO, Ares Commercial Real Estate: Thanks, Jade, as always.

Conference Operator: Thank you. We’ll go next now to Doug Harter of UBS.

John Stilmar, Partner of Public Markets Investor Relations, Ares Commercial Real Estate: Thanks. Can you talk about your thought process and whether you considered repurchasing stock at the current discount to book dividend yield versus deploying that into new loans and kind of what you thought about that those trade offs?

Brian Donahoe, CEO, Ares Commercial Real Estate: Yes, absolutely, Doug. And it’s certainly a fair question. And we consider repurchases and the quantitative impact is fairly linear, right? So we certainly get it. Right now, we’re in favor of investing in new loans as we try to reposition this portfolio and bring us back to scale and deployment and really recharacterize the book, which we think over the long term will be rewarding for our shareholders.

But beyond that, I think there’s the practical size of our company, which we have to consider those expense efficiencies. The scale of the portfolio I mentioned and how we finance that portfolio will benefit from parts of that scale. And then other factors come into play like covenants and prospects for our growth. So certainly, it’s a tool that we have access to. We understand the quantitative aspects, but a little bit more goes into it before we would execute there.

John Stilmar, Partner of Public Markets Investor Relations, Ares Commercial Real Estate: Great. That makes sense. Thank you.

Conference Operator: Thank you. We’ll go next now to Chris Muller of Citizens Capital Markets.

Doug Harter, Analyst, UBS: Hey guys, thanks for taking my questions. So can you walk me through the mechanics of the $33,000,000 realized loss and the CECL release? With $33,000,000 loss on a $51,000,000 loan and about a $20,000,000 release. And I think you guys said that you sold or the property was sold below your reserve basis. So I’m just trying to understand how all that fits together.

Jeff Gonzalez, Chief Financial Officer, Ares Commercial Real Estate: Yeah. Thanks for the question, Chris. Yeah, so as you saw, there was a $33,000,000 gross loss. In our earnings presentation, we broke out what the impact was that we had on the reserve there. So $19,000,000 reserve, so the net difference that was affecting book value this quarter and that’s running through GAAP earnings would be $14,000,000

Doug Harter, Analyst, UBS: So is the right way to look at that is that $51,000,000 loan was fully reserved for and then it was sold for like $33,000,000

Jeff Gonzalez, Chief Financial Officer, Ares Commercial Real Estate: It was a $19,000,000 reserve on a $51,000,000 loan.

Doug Harter, Analyst, UBS: Okay. Maybe we can take this offline later and just dig a little bit deeper. So I guess the other question I have here. So you guys talked about how the top two loans, I think you said, were 75% of that problem loan bucket. So should we expect new originations going forward to be smaller in size?

And it looks like the dynamic with third quarter originations is exactly playing out like that. So just curious how you guys are thinking about loan sizing on new originations going forward?

Brian Donahoe, CEO, Ares Commercial Real Estate: Yes. It’s a good question, Chris. I think that a couple of factors to take into account there. One, with respect to the originations post quarter end, self storage assets are generally going to be smaller in nature. I think structurally, we’ve also grown the rest of our platform such that we have a broader array of origination opportunities and capital sources in front of us today.

And we have the potential to maybe split loans between those vehicles. And I think what that should lead to is better diversification while continuing to target the institutional borrower set institutional assets throughout The U. S. So I think the average ticket that goes into ACRE will likely come down to some degree, but we will maintain a bias towards the institutional asset class.

Doug Harter, Analyst, UBS: Got it. That makes a lot of sense. Appreciate you guys taking the questions.

Brian Donahoe, CEO, Ares Commercial Real Estate: Thanks, Chris.

Conference Operator: Thank you. And it appears we have no further questions today. Mr. Donahoe, I’d like to turn things back to you, sir, for any closing comments.

Brian Donahoe, CEO, Ares Commercial Real Estate: Appreciate it, sir. And I just want to thank everybody for their time today. We appreciate your continued support of Ares Commercial Real Estate. We look forward to speaking with you all on our next earnings call. Thank you.

Conference Operator: Thank you, Mr. Donahoe. Ladies and gentlemen, this concludes our call for today. If you missed any part of today’s call, an archived replay of this conference will be available approximately one hour after the end of this call through 09/05/2025 to domestic callers by dialing 7085 and to international callers by dialing

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