ARES COMMERCIAL REAL ESTATE CORPORATION Q3 2026 EARNINGS - ARES COMMERCIAL REAL ESTATE CORP

Explicit Guidance:

• Dividends: The Board declared a regular cash dividend of $0.15 per common share for Q4 2026, payable January 15, 2027, to stockholders of record as of December 31, 2026.
• Earnings Expectations: Management expects that executing the current strategy (resolving non-accrual investments and diversifying the portfolio) will drive EPS growth and support earnings that meet or exceed the current dividend over time.
• Dividend Coverage Timeline: No specific quantitative timeline or target date for achieving full dividend coverage was provided; management reiterated the sequence remains focused on resolving risk-rated 4 and 5 loans and REO assets as the primary catalysts.
• Capital Deployment: Target to deploy available capital (approx. $116 million as of Q3 2026) in a disciplined manner to drive portfolio growth using cost-efficient leverage, contingent on market conditions and opportunity sets.

Business-Segment Outlook:

• Risk-Rated 4 and 5 Loans (Resolution Focus):
  • Chicago Office Loan: Goal is to accelerate resolution by acquiring title to the property immediately to gain control of the sales process and capture cash flow; no significant CapEx expected post-acquisition.
  • Brooklyn Residential Condo: Construction is complete; management expects continued pickup in sales activity post-Labor Day with losses recognized proportionally as individual units close.
  • Aggregate Status: The four risk-rated 4 and 5 loans represent 10% of carrying value net of CECL reserves ($160 million gross carrying value net of CECL); resolution of these non-accrual investments is expected to be a significant driver of earnings growth by redeploying capital into new earning assets.
• Risk-Rated 1-3 Loans (Stability Focus):
  • Multifamily Portfolio: Six loans remaining (four originated in 2025/2026, two pre-2025 vintage). Two pre-2025 loans secured extensions via sponsor equity contributions or performance tests; management expects these to continue performing in line with original underwriting.
  • Office Loans: Seven remaining loans, five of which are risk-rated 1-3 with stable/improving performance and sponsor support; fundamentals remain stable with occupancy >90% and weighted average lease terms >7 years for the Chicago asset.
• New Originations: Pace of portfolio growth will reflect management of liquidity, asset resolutions, and market assessments; recent activity includes closing a $35 million senior co-investment loan on industrial properties (Q3 2026).
• Portfolio Composition: Expect a growing mix of newer vintage loans alongside the continued repositioning of the portfolio; 90% of the loan portfolio carrying value net of CECL remains risk-rated 1-3.

Market and Competitive Outlook:

• Demand Trends: Commercial real estate market remains moderately constructive; multifamily and office fundamentals are described as generally healthy despite higher interest rates.
• Pricing and Valuation: Interest rates are viewed as a negative directional force on values, with an estimated impact of 2% to 6% on most products over the past period; however, inflation limiting supply is expected to cap rate expansion in real-time.
• Supply/Inventory: Fewer new supply constraints anticipated due to the inflation story; market is in a "period of digestion" post-rate hikes.
• Competitive Positioning: Leveraging the ARIES platform's scale ($10 billion in new loan commitments over the past 12 months) allows ACRE to access institutional-quality loans and maintain a "highly selective" investment approach with differentiated market insights.

Macro / Industry Outlook:

• Interest Rates: Management views rates as "gravity for values"; portfolio is 100% floating rate financed with floating rate debt, with 94% of risk-rated 1-3 loans having interest rate caps (avg SOFR strike 4.3%) that generally align with loan immaturities.
• Economic Environment: Expecting a continued period of market digestion and adjustment to macro drivers; inflation is expected to further limit new supply.
• Liquidity/Financing: Strategy to align liability structure with asset composition by moving toward a predominantly floating rate senior loan portfolio using efficient structures (e.g., repo financing) to maximize flexibility.

Strategic Initiatives:

• Asset Acquisitions (REO): Proceeding with acquiring title to the Chicago office property to control resolution; previously completed sale of Charlotte office REO in Q3 2026.
• Balance Sheet Optimization: Completed full repayment of a secured term loan post-quarter end without extension to optimize leverage and funding efficiency; aiming to maintain a "flexible balance sheet" to support resolutions and selective deployment.
• Capital Allocation: Utilizing short-term origination of loans (held for sale) as an efficient method to deploy excess liquidity while preserving balance sheet flexibility for long-term investments.
• Portfolio Growth: Targeting a 40% increase in the portfolio over the past 12 months (already achieved) and continuing to selectively add to the portfolio where risk-adjusted returns are attractive.

Risks and Headwinds to Outlook:

• Interest Rate Sensitivity: Higher rates continue to negatively impact real estate values and borrower behavior, though structural protections are in place.
• Resolution Timing: Earnings growth is contingent on the timing of resolutions for risk-rated 4 and 5 loans and REO assets; delays could impact the redeployment of capital.
• Realization of Losses: For the Brooklyn condo loan, losses will be recognized progressively as individual unit sales close; timing of these sales remains subject to market activity and seasonality.
• Macroeconomic Forecasts: Changes in macroeconomic forecasts could impact CECL reserves and the timing/size of asset impairments.

Management Tone on the Future:

• Confidence Level: Cautiously optimistic; management expresses confidence in the "strength and health" of the overall portfolio and the "merits" of their active management approach.
• Strategic Stance: Tone is "highly selective" and "patient," emphasizing discipline in capital deployment over aggressive expansion.
• Forward Outlook: Expresses belief that the repositioning strategy will drive "long-term value for shareholders" and "earnings growth over time."

Miscellaneous:

• CECL Reserves: Total reserve of $141 million (approx. 8% of outstanding principal); 94% relates to risk-rated 4 and 5 loans, with nearly half attributed to the Chicago office loan.
• Non-Interest Income: Collection of $1.7 million in cash interest on non-accrual loans in Q3 2026, recognized as a reduction in loan basis.
• Book Value: Remained relatively stable at $8.86 per share as of Q3 2026.