A
res Commercial Real Estate (ACRE) navigated a moderate recovery in commercial real estate with a fourth-quarter net loss of $10.7 million, or 20 cents per share. The company's efforts to reduce risk exposure and bolster liquidity are paying off, but challenges persist in the office sector. CEO Bryan Donohoe notes rising transaction volumes and steadying property fundamentals.

    In 2024, ACRE took steps to de-risk its portfolio by shedding $182 million in risk-rated 4 and 5 loans (34% reduction) and lowering office real estate-owned assets by 18%. The company also reduced borrowings by $444 million, improving its net debt-to-equity ratio to 1.6 times.

    The firm's focus on liquidity is evident in its decision to cut the quarterly dividend to 15 cents per share from 25 cents. ACRE plans to use its accessible capital of $200 million for risk management, aiming to reduce exposure to underperforming loans and office properties.

    For full-year 2024, Ares Commercial reported 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. However, the company earned $350 million in repayments, nearly double the amount for 2023.

    ACRE's estimated credit loss reserve stands at $145 million (8.5% of total loans), with 91% allocated to risk-rated 4 and 5 loans. The company also sold a California office building for $15 million, generating an 8% cash return and reducing its overall office real estate-owned exposure to $139 million.

    Analysts praise ACRE's progress in risk management and liquidity but note that the company's plans to de-risk further in 2025 are challenged by office market uncertainties and earnings volatility related to its significant cash reserve.