| Valuation method | Value, $ | Upside, % |
|---|---|---|
| Artificial intelligence (AI) | 291.41 | 5493 |
| Intrinsic value (DCF) | 1.79 | -66 |
| Graham-Dodd Method | n/a | |
| Graham Formula | 906.84 | 17306 |
Ares Commercial Real Estate Corporation (NYSE: ACRE) is a specialty finance REIT focused on originating and investing in commercial real estate (CRE) loans and related investments across the United States. The company provides flexible financing solutions, including senior mortgage loans, mezzanine debt, preferred equity, and commercial mortgage-backed securities (CMBS), catering to CRE owners, operators, and sponsors. Structured as a real estate investment trust (REIT), ACRE benefits from tax-efficient operations while delivering income to shareholders through dividends. Managed by Ares Commercial Real Estate Management LLC, the firm leverages its affiliation with Ares Management’s global platform for deal sourcing and risk management. Despite recent macroeconomic headwinds impacting CRE valuations, ACRE’s niche focus on middle-market loans and structured financing differentiates it in the competitive mortgage REIT sector. With a market cap of ~$249M, the company targets risk-adjusted returns through a diversified portfolio of CRE debt investments.
ACRE presents a high-risk, high-reward proposition for income-focused investors, offering a forward dividend yield of ~12.5% (based on a $0.60 annualized payout). However, the company’s negative EPS (-$0.64) and net income (-$34.99M in latest reporting period) reflect pressure from rising interest rates and CRE market volatility. Its high beta (1.33) signals amplified sensitivity to market swings. While the REIT structure supports dividend sustainability (evidenced by positive operating cash flow of $35.55M), ACRE’s elevated leverage (total debt of $1.17B against $63.8M cash) and exposure to potential CRE loan defaults warrant caution. Investors should monitor asset quality trends and Ares Management’s strategic support.
ACRE competes in the crowded mortgage REIT space by specializing in middle-market CRE loans (typically $10M–$100M), where larger players like Starwood Property Trust focus on jumbo transactions. Its competitive edge stems from: (1) **Sponsor Alignment**: Backing by Ares Management provides access to institutional-grade underwriting and a $35B+ AUM CRE platform; (2) **Structural Flexibility**: Ability to offer bespoke debt/equity solutions beyond traditional senior mortgages; and (3) **Yield Focus**: Targeting higher-margin subordinate debt (mezzanine/preferred equity) with LTVs of 65–85%. However, ACRE lacks the scale of sector leaders (e.g., Annaly Capital’s $9.4B market cap), limiting diversification. Rising rates compress spreads, while its office loan exposure (~26% of portfolio) faces secular headwinds. The company counters these risks through rigorous asset selection—86% of loans are floating-rate, providing rate hedge—and active portfolio management. Its 11.6% ROE (pre-2023) historically outpaced peers, but recent underperformance highlights macro sensitivity.