Ares Commercial Real Estate Corporation

Good morning and welcome to ARIES Commercial Real Estate Corporation's third quarter earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Friday, November 7th, 2025. I will now turn the call over to the partner of Public Markets Investor Relations.

Great. Thank you and good morning, everybody. We appreciate you for joining us on today's conference call. In addition to our press release and the 10Q that we filed with the SEC, we've posted an earnings presentation under the investor resources section of our website at www.arescre.com. Before we begin, I want to remind everyone that comments made during the course of this conference call and webcast, as well as the accompanying documents, contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, and similar such expressions. These forward-looking statements are based on management's current expectations of market conditions and management's judgment. These statements are not guarantees of future performance, conditions, or results and involve a number of risks and uncertainties. The company's actual results could differ materially from those expressed in the forward-looking statements as a result of a number of factors, including those listed in its SEC filing. ARIES Commercial Real Estate assumes no obligation to update any such forward-looking statements. During this conference call, we'll refer to certain non-GAAP financial measures. We use these as measures of operating performance, and these measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable to like-titled measures used by other companies. Now I'd like to turn the call over to our CEO, Brian Donahoe. Brian? Thanks, John.

Good morning, everyone, and thanks for joining us today. I'm here today with Jeff Gonzalez, our Chief Financial Officer, Taeseok Yoon, our Chief Operating Officer, as well as other members of the management and investor relations teams. In the third quarter, we continued to execute against our strategic objectives of maintaining a strong balance sheet, addressing our risk-rated four and five loans, and further reducing our office loans. Our execution against these goals drove increased sequential quarterly earnings, stable CECL reserves, and consistent book value per share, while reducing our net debt-to-equity ratio as compared to the prior quarter. Supported by the strength of our balance sheet and the progress within our risk-graded four and five loan portfolio, we broaden the company's strategic objectives to include more active capital deployment. We believe the collective execution against these goals will ultimately result in a larger and more diversified loan portfolio and drive long-term earnings growth for our investors. Let me now walk you through the specifics of our progress this quarter and outline the framework for how we expect these initiatives to evolve. Across the office portfolio, we saw improved leasing and market fundamentals supported by a more positive demand environment. During the third quarter, we reduced the office portfolio to $495 million, a decrease of 6% quarter over quarter and 26% year over year. This decrease was driven by both normal course repayments and the strategic restructuring of a risk-rated four loan collateralized by a well-leased New York City office property. At the end of the third quarter, five of our seven remaining office loans were risk-rated three or better. Shifting now towards our progress in addressing our risk-rated four and five loans. During the third quarter, we had one $28 million loan Collateralized by a multifamily property migrate from a risk rating of 3 to a 4, though we expect an expeditious resolution. Discussions are ongoing, but we view the potential loss severity, if any, as low, as the occupancy of the property now exceeds 95%. The other movement across our risk-rated four and five loans in the quarter came from the resolution of an $11 million previously risk-rated four subordinated loan collateralized by an office property in Manhattan. The underlying property has had strong leasing over the past six months, achieving over 80% occupancy. With the progress of the property and a strong borrower relationship, We amended the capital structure to combine a $59 million risk-rated III senior loan and a portion of the $11 million risk-rated IV subordinate loan into a single larger $65 million senior loan secured by the same property. We extended the final maturity of the loan by two years to provide for further market stabilization. Although the restructuring resulted in a realized loss of $1.6 million, the Cecil Reserve was reduced by approximately $7 million. Furthermore, following the end of the quarter, we completed a restructuring of an $81 million senior loan collateralized by an office property in Arizona that was lowered to a risk-rated four during the second crime. We've seen positive leasing momentum at the property, and continued sponsor support in the form of additional equity capital. In response to these positive developments, in the fourth quarter, we restructured the loan to provide greater flexibility for the sponsor to complete the business plan. When looking at our risk-rated four and five loans in aggregate, two loans comprise more than 70% of the outstanding principal balance. The first of these two loans is our risk-rated five Chicago office loan, which has a carrying value of $141 million and remains on non-accrual. This property remains sound with occupancy above 90% and a weighted average lease term of more than eight years. Discussions with the borrower are ongoing, and among the options we are exploring with the borrower is a potential sale of the asset. The second of the two is a risk-rated for Brooklyn, New York residential condominium loan with a carrying value of $120 million. During the quarter, construction continued and we anticipate the formal marketing process for the sale of the underlying condominium units to begin later in the fourth quarter of this year. We're proud of the progress we've made on the risk-rated 4 and 5 loans and remain committed to driving continued improvement in the portfolio. Our risk-rated 1 to 3 loans continue to perform well and are primarily collateralized by multifamily, industrial, and self-storage properties. As we continue to make improvements across the portfolio and collect repayments that further bolster our balance sheet, we are able to accelerate our investment activity into what we see as a creative market opportunity, given the market presence and capabilities of the ARIES Real Estate Group. Through continuous investment, ARIES now operates one of the largest vertically integrated real estate platforms globally, which supports broader sourcing and credit capabilities. The ARIES Real Estate Group has grown to over 740 real estate professionals. Consistent with the expansion of the Aries real estate group, the Aries real estate debt strategy has experienced meaningful growth and incremental scale. In the last 12 months, the real estate debt group has originated more than $6 billion in new loan commitments, a meaningful step function change in terms of scale and capital deployment as compared to five or six years ago. We believe Acre is well positioned to capitalize on this expanded scale of the ARIES real estate platform. During the third quarter, we closed five new loan commitments totaling $93 million across multifamily and self-storage properties. Our investing momentum has continued into the fourth quarter, closing over 270 million dollars of loans across five new loan commitments collateralized by industrial multi-family hotel and self-storage properties one important but maybe less obvious way acre is benefiting from the investing scale of the aries platform is through the ability to co-invest with other aries real estate funds Beginning in the third quarter, more than half of Acres' new commitments were co-investments with other Aries real estate vehicles. We believe the ability for Acres to co-invest results in a more granular and diversified portfolio, while also allowing Acres to transcend its capital base to invest in larger, institutional-quality real estate. An additional benefit from the Aries platform of our recent originations is our ability to obtain accretive financing terms with advance rates between 75% and 80%. Importantly, we believe the types of loans closed in the third and fourth quarter with favorable financing profiles could provide a window into what ACRE's reshaped portfolio and financial profile could look like in the future. As we look ahead, we remain confident in ACRE's long-term earnings potential. We believe the path to achieving earnings growth will ultimately depend on our continued resolutions on our non-accrual loans, which total approximately $170 million of carrying value, net of applicable CECL reserves, as well as reinvesting the proceeds to expand our loan portfolio. Although we expect the current pace of repayments to continue in the near term, we're focused on redeploying the capital from repayments efficiently, to minimize the earnings drag. That being said, our goal is to return to portfolio growth in the first half of 2026. Let me now turn the call over to Jeff, who will provide more details on our third quarter results.