Ares Returns to Profit as Loan Portfolio Expands
Second-quarter revenue rose 14% to $14.4 million.
Ares Commercial Real Estate (ACRE), a commercial real estate lender, returned to profit in the second quarter as its loan portfolio expanded and expenses declined. Net income was $4.4 million, or $0.08 a diluted share, after a first-quarter loss of $9.6 million, or $0.17 a share.
The result extended a recovery from a $3.9 million loss in the fourth quarter of 2024 and brought earnings per share back to the third-quarter level. Distributable Earnings more than doubled sequentially to $6.9 million, or $0.12 a diluted share, from $3.2 million, or $0.06 a share, while remaining below the fourth quarter's $8.5 million and $0.15 a share.
Net interest margin rose 22% from a year earlier to $8.6 million as interest income increased to $27.8 million and interest expense climbed to $19.2 million. Total expenses fell 17% to $9.0 million, helped by a 29% decline in real-estate-owned expenses.
Credit costs provided a tougher comparison. Ares recorded an $865,000 provision for expected credit losses, compared with a $20.2 million reversal a year earlier. The prior-year period also included a $33 million realized loan loss that did not recur.
Loans held for investment increased by $129 million sequentially and $484 million from a year earlier to $1.8 billion. Ares closed three senior loans totaling $130 million across multifamily, self-storage and hotel properties, although quarterly commitments slowed about 56% from $294 million in the first quarter. Commitments over the past 12 months exceeded $900 million.
The company continued to reduce its office exposure, with office-loan principal falling 16% from a year earlier to $442 million and reaching nearly half its second-quarter 2023 level. Four loans remained rated 4 or 5, while a $13 million subordinated California industrial loan was downgraded to rating 5. The credit-loss reserve edged up to $139 million, with 94% tied to loans carrying those two risk ratings.
Net debt to equity excluding the credit-loss reserve increased to 2.0 times from 1.9 times, even as borrowings slipped to $1.263 billion. Ares also sold a $69 million portion of a $144 million senior retail-loan commitment.
Ares kept its third-quarter dividend at $0.15 a share, unchanged from the prior three declared quarters. Second-quarter Distributable Earnings fell $0.03 a share short of the payout, narrowing the first quarter's $0.09 deficit after fourth-quarter earnings had covered the dividend.