Ares Commercial Real Estate (ACRE, Financials) reported a fourth-quarter net loss of $10.7 million, or 20 cents per share, as the company continued efforts to reduce risk exposure and bolster liquidity amid a moderate recovery in commercial real estate.
Though issues still exist in the office sector, CEO Bryan Donohoe said transaction volumes are rising and property fundamentals are steadying. In 2024 the firm dropped risk-rated 4 and 5 loans by 34%, or $182 million; it also lowered its office real estate-owned assets by $151 million, an 18% annual decrease year over year.
Ares Commercial cut borrowings by $444 million, therefore improving its net debt-to-equity ratio to 1.6 times, a 16% annual change. Loan repayments of $ 166 million contributed $100 million in cash, or 40% of the company's market value in early 2025.
Reflecting its emphasis on liquidity and long-term financial stability, the corporation decreased its quarterly dividend to 15 cents per share from 25 cents. It intends to use its $200 million in accessible capital for risk management, hence lowering exposure to underperforming loans and office properties.
The firm had a distributable profits loss of $44.6 million, or 82 cents per share, and a GAAP net loss of $35 million, or 64 cents per share for full-year 2024. But with $147 million in the fourth quarter alone, the business earned $350 million in repaymentsnearly double the sum for 2023.
With 91% allocated to risk-rated 4 and 5 loans, Ares Commercial's current estimated credit loss reserve, at $145 million, or 8.5% of total loans, stands. With an 8% cash return, the corporation also sold a $15 million California office building, therefore reducing its overall office real estate-owned exposure to $139 million.
Although analysts had doubts about the company's capacity to address failing assets, they praised development in risk management and liquidity. Before going for fresh investments, management gave fixing troubled loans top priority.
Other important subjects covered were a Boston life research property moving to conventional office usage in response to market circumstances and the company's inclination for warehouse lending over CLO issuing for finance.
Ares Commercial wants to keep de-risking in 2025, but office market uncertainties and significant cash reserve-related earnings volatility challenge its plans. Although its $200 million in capital gives flexibility, the dividend drop shows a cautious attitude.
Management is still focused on improving the balance sheet and positioned for long-term stability even if this year is challenging.
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