Earnings Sentiment

Sentiment Analysis of the earnings transcript to help figure out if there are any bullish or bearish sentiments that could be gathered from it. We're doing ML and AI based analysis on the earnings call to get some more insights.

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Sentiment Distribution

   

Earnings Call Transcript Word Cloud

     

Bullish Statements during Earnings call

Statement
Similarly, we are actively managing our remaining four and five rated loans to seek positive outcomes
It gives us tremendous bargaining strength, and we're talking to borrowers about what we are or aren't willing to do
Our liquidity and capital position coupled with our experience across the sector, give us confidence that we can continue to deliver strong risk adjusted returns for our shareholders at attractive levels on the other side of this cycle
So that again, we can have favorable outcomes on some of our underperforming loans
Even with carrying the strong level of capital, we continue to generate ample cash flow to support our dividend, as our loan portfolio benefited from rising short-term interest rates, with a weighted average unlevered effective yield of 8.5% a 300 basis points year-over-year increase
So feel positively about the ultimate value
So clearly, the implication there is we feel good about our bases relative to the value there
Once, we are on the other side of navigating these challenges and opportunities, we expect we will continue to be in a strong capital and financial position, to generate attractive levels of returns and dividends for our shareholders
As many of you know, with respect to the Westchester Marriott investment, we foreclosed and took over management of the asset in 2019 ultimately resulting in a positive outcome for our shareholders
And so, we find having that liquidity as well as low leverage balance sheet to be very, very powerful in managing, the outcomes of our underperforming assets
So, we'll enjoy what we think is going to be a much wider net interest margin as existing loans roll off, and we're able to replace it with higher margin loans
So it's been very, very beneficial to ACRE to have that in place and have, what has now turned out to be a six-year replenishment period, which is terrific
Yet we have great confidence on our experienced asset management team, and our capital and liquidity provides us the opportunity to achieve better outcomes and to play both defense and offence when the time is right
Despite experiencing a maturity default, the property continues to exhibit stable performance underpinned by strong office occupancy from an AAA rated state government tenant with over nine years of lease term remaining
And I think the point you make is, is an excellent one
Importantly, the property overall is 93% waste, and continues to generate sufficient cash flows to fully cover interest payments and we feel good about the basis
The road ahead will present challenges and opportunities and we believe we are well equipped to navigate this cycle
And that's why we'll continue to use cash in low leverage to make sure that again, we have tremendous flexibility and working through our underperforming assets, that we will continue to pay our regular and supplemental dividends and cash on time
Our loan portfolio also continued to exhibit healthy trends in terms of repayments
The retail space is also well occupied with some opportunity to enhance the tenancy and cash flow
Let me close by saying, we are deeply, deeply grateful to our investors for the trust and confidence they've demonstrated in Ares and their support of the company
Given our view of the property and our strong capital position, we believe a compelling option to protect value is to exercise our right to take the property
The one that had the favorable resolution, as Bryan said, had significant land as part of the collateral package and it was really the land and the redevelopment of that land, that we believe led to the - very favorable outcome and resolution
We believe this outcome demonstrates the platform expertise that Ares maintains
Our net debt to equity ratio was 1.9 times at quarter end, and is amongst the lowest of our peer group, providing us additional balance sheet strength and stability
The substantial equity cushion subordinate to our loan, as well as our active asset management enabled us to fully recover our investment despite the office headwinds
During the first quarter, we further strengthened our balance sheet, lowering our net debt to equity ratio to less than two to one, and building our cash level to more than $150 million at quarter end, which represents about 20% of our shareholder equity
We'll be able to enjoy there for a wider net interest margin on new loans that we put in there
Despite a challenging commercial real estate market, we continue to make constructive progress towards many of our goals and objectives during the first quarter
We do think that is a great opportunity to buyback our shares, we would agree
       

Bearish Statements during earnings call

Statement
It will undoubtedly take some time for this to play out in the cycle and we know there will be challenges ahead
Really a situation in which the increase in rates has caused some debt service stress on what's otherwise a performing asset
But I'd be remiss not to mention that I think some of the construction related issues that you've seen over the past three years are causing delays in certain execution
So I saw that after quarter end in April, there was a defaults resulting from one of your sponsors paying partial interest
We also downgraded one hotel and one office loan, with a total unpaid principal balance of $92 million to a risk rating five
For the first quarter of 2023, we reported a GAAP net loss of $6.4 million or $0.12 per common share
But given capital markets and headwinds around that geography, we decided to take the movement that we did
This change primarily reflects the negative migration and maturity default of the $83 million mixed use property loan that Bryan referenced earlier from a risk rating three to a risk rating of four
In terms of our other credit quality metrics, 78% of our loan portfolio at a risk rating of three or better which declined from 80% as of the fourth quarter of 2022
This loss was primarily due to a $21 million net increase in our CECL provision or about $0.38 per common share
This loan was sold, and the loss realized in the first quarter of 2023, impacting distributable earnings
I'm just curious - ability to sell a troubled asset like that
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 filings
Let me provide some further details around the components of our total reserve, which importantly, reduces our book value per common share by about $1.69 to $13.15 as of March 31, 2023
Distributable earnings for the first quarter of 2023, was $15.1 million or $0.27 per common share, which included a $5.6 million or $0.10 per common share realized loss on the resolution of a previously defaulted residential loan
I think the capital markets and the rise in rates is causing some macro changes in behaviors as it relates to repayments and otherwise
Without this $5.6 million realized loss, our distributable earnings would have been $0.37 per common share
When we look at the funding over the last couple quarters, one of the things that I noticed was that the outstanding balance on the 2021 CLO has come down about $80 million over the last two quarters it's about $40 million a quarter? As that's occurred, the funding spreads widened about 14 basis points
   

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