Ares Commercial Real Estate Q4 Earnings Call Highlights

Ares Commercial Real Estate (NYSE:ACRE) management highlighted a “year of transition” for commercial real estate in 2025, pointing to weak valuations and transaction activity early in the year followed by improving conditions in the second half as the Federal Reserve began easing monetary policy. On the company’s fourth-quarter earnings call, executives said they used that backdrop to keep leverage moderate, maintain liquidity, work through criticized assets, and return to new loan originations in the back half of the year.

2025 strategy: liquidity, office reduction, and criticized-loan progress

Chief Executive Officer Bryan Donohoe said the company’s deliberate actions in 2025 were aimed at positioning the balance sheet to address risk-rated 4 and 5 loans, reducing exposure to office and OREO (real estate owned) assets, and investing to reshape the portfolio. Donohoe said ACRE maintained “ample liquidity in excess of $100 million” alongside moderate leverage, which he characterized as providing flexibility both to drive outcomes on underperforming loans and to support increased investment activity.

Management also emphasized reduced office exposure. Donohoe said office loans were reduced by 30% since year-end 2024 to $447 million. He added that ACRE restructured two office loans in 2025 that brought in additional equity from borrowers, and that the company exited its one loan collateralized by purpose-built life science properties. Donohoe said ACRE does not anticipate making new commitments to other office properties.

Risk-rated 4 and 5 loans: five remaining, with focus on Chicago and Brooklyn

Management said five risk-rated 4 and 5 loans remain, and that the two largest account for roughly 85% of the risk-rated 4 and 5 balance.

• Chicago office (risk-rated 5): Donohoe said the loan has a carrying value of $140 million (about 44% of the risk-rated 4/5 portfolio) and remains on non-accrual. He said property fundamentals are stable, occupancy is above 90%, and the weighted average lease term is eight years. Discussions with the borrower are ongoing, and one option under consideration is a potential sale of the asset. In Q&A, Donohoe said the company has not provided a specific current debt yield but suggested it could be extrapolated from market rental rates, occupancy, and lease term.
• Brooklyn condominium construction loan (risk-rated 4): Donohoe said the loan has a carrying value of $130 million (about 41% of the risk-rated 4/5 portfolio). He said construction advanced through 2025, with materials procured early to mitigate supply-chain and tariff risks, exterior work completed on time and on budget, and marketing underway. Management anticipates sales to begin in the first half of 2026. In response to an analyst question, Donohoe said there is typically a lag from marketing to contract to sale, and he hoped sales would “smooth” in the second half of 2026. Management also noted that initial proceeds would go first to repay debt on the asset before liquidity returns to the company.

Fourth-quarter results: GAAP loss, distributable earnings supported by OREO gain

Chief Financial Officer Jeff Gonzales reported that for full-year 2025 the company posted a GAAP net loss of $1 million, or $0.02 per diluted common share, and a distributable earnings loss of $7 million, or $0.12 per diluted common share.

For the fourth quarter, Gonzales reported a GAAP net loss of approximately $4 million, or $0.07 per diluted common share. Distributable earnings were approximately $8 million, or $0.15 per diluted common share, which included a realized gain of $2 million (or $0.04 per diluted share) related to the partial sale of a North Carolina office OREO property. Excluding that gain, distributable earnings were about $6 million, or $0.11 per diluted common share.

Gonzales added that ACRE collected $2 million (or $0.04 per diluted common share) of cash interest during the quarter on loans that were on non-accrual; the payment was accounted for as a reduction in loan basis.

Originations and portfolio shift: new commitments drive growth, office share declines

Management said the company returned to investing in the second half of 2025. Donohoe said ACRE closed 13 new loan commitments totaling $486 million during that period, with more than half of the new originations backed by residential and industrial properties.

Gonzales said that in the fourth quarter alone ACRE closed eight new loan commitments totaling $393 million, lifting the portfolio to an outstanding principal balance of $1.6 billion—an increase of 24% versus the third quarter of 2025. He said loans originated in the second half of 2025 now represent about 29% of the total loan portfolio.

Office exposure declined further in the quarter. Gonzales said office loans fell to $447 million, down 10% quarter-over-quarter, driven by repayments (including one full loan repayment) and a strategic restructuring of a risk-rated 4 Arizona office loan. By quarter-end, office represented 28% of the total loan portfolio, down from 38% at the end of the third quarter of 2025 and at year-end 2024.

On the call, management also discussed the role of co-investment alongside other Ares Management affiliated vehicles. Donohoe said more than half of the dollars committed in new loans represented co-investment opportunities, which he said expand access to institutional-scale opportunities, allow ACRE to appropriately size commitments, and improve diversification and capital deployment efficiency.

Credit, reserves, financing, and dividend

Gonzales detailed changes among criticized loans during the quarter, including:

• A restructuring of an $81 million senior risk-rated 4 Arizona office loan into a $65 million senior risk-rated 3 loan and an $8 million risk-rated 4 subordinated loan. Gonzales said the sponsor repaid principal, committed additional equity, and made future capital commitments. He said this was the primary driver of a 13% quarter-over-quarter reduction in risk-rated 4 and 5 loans.
• A $28 million loan collateralized by a Pennsylvania multifamily property was downgraded to risk-rated 5 from risk-rated 4, despite 95% occupancy, due to expectations that a loss may be realized in a potential sale of the underlying property. Gonzales said the company views potential loss severity as limited.

Turning to reserves, Gonzales said the total CECL reserve at year-end 2025 was $127 million, up $10 million from September 30, 2025, with 40% of the increase tied to closing new loans. Year-over-year, he said the CECL reserve decreased by $18 million from December 31, 2024. He said the reserve equaled about 8% of total outstanding principal balance of loans held for investment, with 92% (or $117 million) related to risk-rated 4 and 5 loans, and about half attributed to the risk-rated 5 office loan. Gonzales reported book value of $9.26 per share, which includes the CECL reserve.

On capital and financing, Gonzales said available capital was $110 million at quarter-end. He also said the company increased borrowing capacity by $250 million (subject to future available collateral) and reduced borrowing costs through several actions, including upsizing the Wells Fargo facility to $600 million, exercising an accordion option to upsize the Morgan Stanley facility by $100 million in January 2026, and redeeming the FL4 CLO securitization after quarter-end.

The board declared a regular cash dividend of $0.15 per common share for the first quarter of 2026, payable April 15, 2026, to stockholders of record as of March 31, 2026. Gonzales said that at the company’s stock price on Feb. 5, 2026, the annualized dividend yield based on the first-quarter dividend was approximately 12%.

In Q&A, management said leverage ended the quarter at 1.6x net debt-to-equity excluding CECL, up from 1.1x the prior quarter. Management said it expects leverage to “max out” near 2.0x in the near term and, as risk-rated 4 and 5 loans are resolved, to move toward a long-term target of 3.0x debt-to-equity. Gonzales also offered a framework for portfolio capacity at the 3.0x target, describing about $1.15 billion of debt and roughly a $2 billion loan portfolio size.

Donohoe closed by reiterating the company’s focus on addressing the remaining risk-rated 4 and 5 loans and continuing to reshape the portfolio, while acknowledging the earnings trajectory could be uneven depending on asset-resolution outcomes.

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.