Is ACRE’s Dividend Safe? A Review of Its Financials
Is ACRE's dividend safe? Gain insight into its financial foundation, operational strength, and capacity to deliver consistent shareholder payouts.
Ares Commercial Real Estate Corporation (ACRE) is a commercial mortgage real estate investment trust (REIT). REITs own, operate, or finance income-producing real estate. REITs must distribute at least 90% of their taxable income as dividends annually to avoid corporate income tax on distributed profits. This structure makes understanding a REIT’s financial health relevant for evaluating dividend safety.
ACRE’s Core Operations
ACRE generates income by originating and managing senior secured loans for commercial real estate properties across the United States. Its investment strategy focuses on originating middle-market commercial real estate loans. Revenue largely constitutes net interest income, representing the spread between interest earned on its loan portfolio and its borrowing costs. ACRE’s portfolio includes diverse property types such as office, multifamily, industrial, retail, and hospitality properties. ACRE provides financing solutions, often targeting borrowers whose capital needs are not met by traditional lenders.
Assessing ACRE’s Financial Performance
ACRE’s financial performance is evaluated by key metrics impacting its ability to cover dividend payments. For REITs, Distributable Earnings (DE) or Funds From Operations (FFO) are more representative of cash-generating capacity than GAAP net income, as they adjust for non-cash items like depreciation. The dividend payout ratio (dividend per share compared to DE or FFO per share) indicates how well current earnings support the dividend.
In Q1 2025, ACRE reported GAAP net income of $9.3 million ($0.17 per share) and Distributable Earnings of $7.2 million ($0.13 per share). For Q2 2025, the company reported a GAAP net loss of $(11.0) million ($(0.20) per share) and negative Distributable Earnings of $(27.9) million ($(0.51) per share). This included a $33 million realized loss related to the exit of an office life sciences loan, which significantly impacted distributable earnings. Despite these results, ACRE declared a $0.15 per share cash dividend for Q1, Q2, and Q3 2025. A dividend payout ratio exceeding 100% or being negative suggests the current dividend is not fully covered by earnings and may rely on other sources like liquidity.
Examining ACRE’s Balance Sheet Strength
Dividend safety depends on the company’s financial stability. ACRE’s balance sheet strength is assessed through its debt levels, leverage ratios, and liquidity.
As of March 31, 2025, ACRE’s total debt was $0.94 billion. Its net debt-to-equity ratio (excluding CECL reserves) improved to 1.2 times in Q1 2025, down from 1.6 times in Q4 2024. This deleveraging was influenced by $307 million in Q1 2025 loan repayments, which increased liquidity.
As of May 2, 2025, ACRE had $147 million in available capital, including $113 million cash. By June 30, 2025, available capital increased to $178 million, with $94 million cash.
Loan portfolio quality is relevant, including non-accrual loans (those not generating interest income). ACRE collected $2.9 million in cash interest on non-accrual loans in Q1 2025. The CECL (Current Expected Credit Losses) reserve, accounting for potential loan losses, was $119 million in Q2 2025, representing 9% of the total outstanding principal balance.
Market and Portfolio Considerations
Commercial real estate market conditions and ACRE’s loan portfolio influence dividend safety. Commercial mortgage REITs are sensitive to interest rate fluctuations, as changes affect both borrowing costs and investment yields. Rising rates can increase funding costs and reduce existing mortgage values, impacting profit margins. The commercial real estate market’s health, including property valuations and vacancy rates, directly affects ACRE’s loan performance.
Outlooks for 2025 suggest a recovery for the commercial real estate industry, with optimism regarding property prices, transaction activity, and rental growth. ACRE actively managed its portfolio, reducing office loan exposure by 30% year-over-year to 17.9% of the total commercial real estate portfolio as of June 30, 2025. The company shifted towards lower-risk assets and resumed loan originations, including $43 million in senior loan commitments for self-storage properties in Q3 2025.