Ares' CRE Arm Cuts Dividends By 40% As It Addresses Underperforming Loans

Ares Commercial Real Estate Corp., the publicly traded subsidiary of Ares Management Corp., dropped its quarterly dividend from 25 cents to 15 cents per share in the first quarter, reflecting a $35M annual loss and an almost $11M loss in Q4 2024 as it works to resolve high-risk loans. 

The specialty finance company said it has reduced the outstanding principal of its higher-risk loans — those rated 4 and 5 in its internal risk framework, indicating loans with elevated credit concerns — by $182M in the 2024 fiscal year, a 34% decline since the end of 2023.

However, the total balance of these loans increased quarter-over-quarter by $37M, or 12%.

“As discussed throughout 2024, our primary objective was to address our underperforming 4- and 5-risk-rated loans and to reduce our overall office exposure,” said Ares CEO Bryan Donohoe on the company's quarterly earnings call Wednesday. “We made solid progress in this area and acknowledge there is still more work to do.”

In Q4, the company elevated a $51M senior loan backed by a life sciences and office property in Massachusetts to a higher risk rating.

The company modified and restructured a $20M senior loan collateralized by an industrial property in California previously risk rated as a 5 into two separate loans — a $7M senior note with a risk rating of 3 and a $13M subordinate note with a risk rating of 4. 

Ares also wrote off an $18M subordinated loan collateralized by an office property in New Jersey with a high-risk rating. As of year-end, the company had five loans risk-rated 4 and 5 remaining in its portfolio, totaling $357M of outstanding principal balance, Donohoe said.

“As we work through the remaining smaller number of risk-weighted 4 and 5 assets, alongside [a] very strong cash position and more moderate leverage than the industry as a whole, I think those two things together will be the prompts for further deployment and getting back to portfolio growth,” Donohoe said. 

The company reported quarterly loss of 15 cents per share, missing consensus estimates of $0.06 earnings per share by a wide margin.

Ares' stock price dropped by over 12% Wednesday as of the time of publication.