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☒       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended September 30, 2021

Maryland						45-3148087
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification Number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common stock, $0.01 par value per share			ACRE			New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes ý  No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ý  No o

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Class						Outstanding at November 2, 2021
Common stock, $0.01 par value						47,001,821

						Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020						5
Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)						6
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)						7
Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 (unaudited) and the year ended December 31, 2020						8
Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)						9
Notes to Consolidated Financial Statements (unaudited)						10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						39
Item 3. Quantitative and Qualitative Disclosures About Market Risk						49
Item 4. Controls and Procedures						52
Part II. Other Information
Item 1. Legal Proceedings						52
Item 1A. Risk Factors						52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						54
Item 3. Defaults Upon Senior Securities						54
Item 4. Mine Safety Disclosures						54
Item 5. Other Information						54
Item 6. Exhibits						55
Signatures						56

•our business and investment strategy;

•our projected operating results;

•the return or impact of current and future investments;

•the severity and duration of the novel coronavirus (“COVID-19”) pandemic;

•the impact of the COVID-19 pandemic, on our business and the United States and global economies;

•the impact of the COVID-19 pandemic on the real estate industry and our borrowers, the performance of the properties securing our loans that may cause deterioration in the performance of our investments and, potentially, principal losses to us;

•whether, or how much, we or our borrowers have benefited or may benefit from government stimulus programs in response to the COVID-19 pandemic;

•the length of the economic slowdown resulting from the COVID-19 pandemic as well as the rate and extent of economic recovery;

•management’s current estimate of expected credit losses and current expected credit loss reserve;

•the collectability and timing of cash flows, if any, from our investments;

•estimates relating to our ability to make distributions to our stockholders in the future;

•defaults by borrowers in paying amounts due on outstanding indebtedness and our ability to collect all amounts due according to the contractual terms of our investments;

•our ability to obtain, maintain, repay or refinance financing arrangements, including securitizations;

•market conditions and our ability to access alternative debt markets and additional debt and equity capital;

•the amount of commercial mortgage loans requiring refinancing;

•the demand for commercial real estate loans;

•our expected investment capacity and available capital;

•financing and advance rates for our target investments;

•our expected leverage;

•changes in interest rates, credit spreads and the market value of our investments;

•the impact of the replacement of the London Interbank Offered Rate (“LIBOR”) on our operating results;

•effects of hedging instruments on our target investments;

•rates of default or decreased recovery rates on our target investments;

•rates of prepayments on our mortgage loans and the effect on our business of such prepayments;

•the degree to which our hedging strategies may or may not protect us from interest rate volatility;

•availability of investment opportunities in mortgage-related and real estate-related investments and securities;

•the ability of Ares Commercial Real Estate Management LLC (“ACREM” or our “Manager”) to locate suitable investments for us, monitor, service and administer our investments and execute our investment strategy;

•allocation of investment opportunities to us by our Manager;

•our ability to successfully identify, complete and integrate any acquisitions;

•our ability to maintain our qualification as a real estate investment trust (“REIT”) for United States federal income tax purposes;

•our ability to maintain our exemption from registration under the Investment Company Act of 1940 (the “1940 Act”);

•our understanding of our competition;

•general volatility of the securities markets in which we may invest;

•adverse changes in the real estate, real estate capital and credit markets and the impact of a protracted decline in the liquidity of credit markets on our business;

•changes in governmental regulations, tax law and rates, and similar matters (including interpretation thereof);

•authoritative or policy changes from standard-setting bodies such as the Financial Accounting Standards Board, the Securities and Exchange Commission, the Internal Revenue Service, the stock exchange where we list our common stock, and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business;

•actions and initiatives of the United States Government or governments outside of the United States, and changes to United States Government policies;

•the state of the United States, European Union and Asian economies generally or in specific geographic regions;

•global economic trends and economic conditions; and

•market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy.

We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. Our actual results and condition could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and the other information included in our annual report on Form 10-K and elsewhere in this quarterly report on Form 10-Q.

We have based the forward-looking statements included in this quarterly report on information available to us on the date of this quarterly report, and we assume no obligation to update any such forward-looking statements. Although we

			As of
			September 30, 2021						December 31, 2020
			(unaudited)
ASSETS
Cash and cash equivalents			$	15,787					$	74,776
Loans held for investment ($1,135,660 and $550,590 related to consolidated VIEs, respectively)			2,363,499						1,815,219
Current expected credit loss reserve			(22,691)						(23,604)
Loans held for investment, net of current expected credit loss reserve			2,340,808						1,791,615
Real estate owned, net			36,695						37,283
Other assets ($2,524 and $1,079 of interest receivable related to consolidated VIEs, respectively; $47,618 and $6,410 of other receivables related to consolidated VIEs, respectively)			73,395						25,823
Total assets			$	2,466,685					$	1,929,497
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Secured funding agreements			$	656,014					$	755,552
Notes payable			47,381						61,837
Secured term loan			60,000						110,000
Collateralized loan obligation securitization debt (consolidated VIEs)			940,133						443,871
Secured borrowings			59,962						59,790
Due to affiliate			3,947						3,150
Dividends payable			16,523						11,124
Other liabilities ($549 and $391 of interest payable related to consolidated VIEs, respectively)			9,982						11,158
Total liabilities			1,793,942						1,456,482
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share, 450,000,000 shares authorized at September 30, 2021 and December 31, 2020 and 47,001,821 and 33,442,332 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively			464						329
Additional paid-in capital			701,370						497,803
Accumulated other comprehensive income			19						—
Accumulated earnings (deficit)			(29,110)						(25,117)
Total stockholders' equity			672,743						473,015
Total liabilities and stockholders' equity			$	2,466,685					$	1,929,497

			For the three months ended September 30,												For the nine months ended September 30,
			2021						2020						2021						2020
			(unaudited)						(unaudited)						(unaudited)						(unaudited)
Revenue:
Interest income			$	34,023					$	30,626					$	95,587					$	91,908
Interest expense			(12,669)						(11,875)						(35,900)						(40,450)
Net interest margin			21,354						18,751						59,687						51,458
Revenue from real estate owned			5,850						3,623						12,271						10,032
Total revenue			27,204						22,374						71,958						61,490
Expenses:
Management and incentive fees to affiliate			3,175						1,847						8,693						5,771
Professional fees			480						639						1,880						2,202
General and administrative expenses			1,119						969						3,470						2,797
General and administrative expenses reimbursed to affiliate			773						802						2,313						2,890
Expenses from real estate owned			5,339						4,046						12,458						13,976
Total expenses			10,886						8,303						28,814						27,636
Provision for current expected credit losses			6,367						(1,048)						(756)						22,063
Realized losses on loans sold			—						4,008						—						4,008
Change in unrealized losses on loans held for sale			—						(3,998)						—						—
Income before income taxes			9,951						15,109						43,900						7,783
Income tax expense, including excise tax			—						181						593						350
Net income attributable to common stockholders			$	9,951					$	14,928					$	43,307					$	7,433
Earnings per common share:
Basic earnings per common share			$	0.21					$	0.45					$	1.06					$	0.23
Diluted earnings per common share			$	0.21					$	0.44					$	1.05					$	0.22
Weighted average number of common shares outstanding:
Basic weighted average shares of common stock outstanding			46,957,339						33,337,445						40,840,453						32,852,553
Diluted weighted average shares of common stock outstanding			47,209,469						33,550,444						41,120,751						33,072,085
Dividends declared per share of common stock			$	0.35					$	0.33					$	1.05					$	0.99

			For the three months ended September 30,												For the nine months ended September 30,
			2021						2020						2021						2020
			(unaudited)						(unaudited)						(unaudited)						(unaudited)
Net income attributable to common stockholders			$	9,951					$	14,928					$	43,307					$	7,433
Other comprehensive income:
Unrealized gains (losses) on derivative financial instruments			(98)						—						19						—
Comprehensive income			$	9,853					$	14,928					$	43,326					$	7,433

			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Income						Accumulated Earnings (Deficit)						Total Stockholders’ Equity
			Shares						Amount
Balance at December 31, 2019			28,865,610						$	283					$	423,619					$	—					$	2,437					$	426,339
Sale of common stock			4,600,000						46						73,186						—						—						73,232
Offering costs			—						—						(341)						—						—						(341)
Stock-based compensation			(66,658)						—						225						—						—						225
Net loss			—						—						—						—						(17,263)						(17,263)
Dividends declared			—						—						—						—						(11,076)						(11,076)
Impact of adoption of CECL (Note 2)			—						—						—						—						(5,051)						(5,051)
Balance at March 31, 2020			33,398,952						$	329					$	496,689					$	—					$	(30,953)					$	466,065
Stock-based compensation			42,985						—						365						—						—						365
Net income			—						—						—						—						9,768						9,768
Dividends declared			—						—						—						—						(11,072)						(11,072)
Balance at June 30, 2020			33,441,937						$	329					$	497,054					$	—					$	(32,257)					$	465,126
Stock-based compensation			—						—						367						—						—						367
Net income			—						—						—						—						14,928						14,928
Dividends declared			—						—						—						—						(11,072)						(11,072)
Balance at September 30, 2020			33,441,937						$	329					$	497,421					$	—					$	(28,401)					$	469,349
Stock-based compensation			395						—						382						—						—						382
Net income			—						—						—						—						14,407						14,407
Dividends declared			—						—						—						—						(11,123)						(11,123)
Balance at December 31, 2020			33,442,332						$	329					$	497,803					$	—					$	(25,117)					$	473,015
Sale of common stock			7,000,000						70						100,800						—						—						100,870
Offering costs			—						—						(188)						—						—						(188)
Stock-based compensation			35,509						—						521						—						—						521
Other comprehensive income			—						—						—						263						—						263
Net income			—						—						—						—						15,740						15,740
Dividends declared			—						—						—						—						(14,248)						(14,248)
Balance at March 31, 2021			40,477,841						$	399					$	598,936					$	263					$	(23,625)					$	575,973
Sale of common stock			6,500,000						65						101,725						—						—						101,790
Offering costs			—						—						(164)						—						—						(164)
Stock-based compensation			23,280						—						497						—						—						497
Other comprehensive income			—						—						—						(146)						—						(146)
Net income			—						—						—						—						17,615						17,615
Dividends declared			—						—						—						—						(16,528)						(16,528)
Balance at June 30, 2021			47,001,121						$	464					$	700,994					$	117					$	(22,538)					$	679,037
Offering costs			—						—						(52)						—						—						(52)
Stock-based compensation			700						—						428						—						—						428
Other comprehensive income			—						—						—						(98)						—						(98)
Net income			—						—						—						—						9,951						9,951
Dividends declared			—						—						—						—						(16,523)						(16,523)
Balance at September 30, 2021			47,001,821						$	464					$	701,370					$	19					$	(29,110)					$	672,743

			For the nine months ended September 30,
			2021						2020
			(unaudited)						(unaudited)
Operating activities:
Net income			$	43,307					$	7,433
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of deferred financing costs			7,111						4,906
Accretion of deferred loan origination fees and costs			(5,979)						(5,732)
Stock-based compensation			1,446						956
Depreciation of real estate owned			674						668
Provision for current expected credit losses			(756)						22,063
Realized losses on loans sold			—						4,008
Changes in operating assets and liabilities:
Other assets			(16,728)						(9,302)
Due to affiliate			797						(91)
Other liabilities			408						(2,165)
Net cash provided by (used in) operating activities			30,280						22,744
Investing activities:
Issuance of and fundings on loans held for investment			(877,950)						(485,913)
Principal repayment of loans held for investment			299,021						280,318
Proceeds from sale of loans held for sale			—						96,597
Receipt of origination fees			4,636						3,978
Purchases of capitalized additions to real estate owned			(86)						(243)
Payments under derivative financial instruments			(700)						—
Net cash provided by (used in) investing activities			(575,079)						(105,263)
Financing activities:
Proceeds from secured funding agreements			611,515						466,778
Repayments of secured funding agreements			(711,054)						(404,231)
Proceeds from notes payable			13,008						3,000
Repayments of notes payable			(27,880)						—
Repayments of secured term loan			(50,000)						—
Proceeds from secured borrowings			—						55,095
Payment of secured funding costs			(9,734)						(3,700)
Proceeds from issuance of debt of consolidated VIEs			540,471						—
Repayments of debt of consolidated VIEs			(40,982)						—
Dividends paid			(41,901)						(31,694)
Proceeds from sale of common stock			202,660						73,232
Payment of offering costs			(293)						(301)
Net cash provided by (used in) financing activities			485,810						158,179
Change in cash and cash equivalents			(58,989)						75,660
Cash and cash equivalents, beginning of period			74,776						5,635
Cash and cash equivalents, end of period			$	15,787					$	81,295

The Company evaluates all of its interests in VIEs for consolidation. When the Company’s interests are determined to be variable interests, the Company assesses whether it is deemed to be the primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, defines the primary beneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) the obligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. The Company considers its variable interests, as well as any variable interests of its related parties in making this determination. Where both of these factors are present, the Company is deemed to be the primary beneficiary and it consolidates the VIE. Where either one of these factors is not present, the Company is not the primary beneficiary and it does not consolidate the VIE.

Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requires the Company to reflect current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broad range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”). ASU No. 2016-13 was effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. ASU No. 2016-13 was adopted by the Company on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of January 1, 2020. Subsequent period increases and decreases to expected credit losses impact earnings and are recorded within provision for current expected credit losses in the Company’s consolidated statements of operations. The CECL Reserve related to outstanding balances on loans held for investment required under ASU No. 2016-13 is a valuation account that is deducted from the amortized cost basis of the Company’s loans held for investment in the Company’s consolidated balance sheets. The CECL Reserve related to unfunded commitments on loans held for investment is recorded within other liabilities in the Company's consolidated balance sheets. See Note 4 included in these consolidated financial statements for CECL related disclosures.

    Interest income is accrued based on the outstanding principal amount and the contractual terms of each loan. For loans held for investment, the origination fees, contractual exit fees and direct loan origination costs are also recognized in interest income over the initial loan term as a yield adjustment using the effective interest method.

    Revenue from real estate owned represents revenue associated with the operations of a hotel property classified as real estate owned. Revenue from the operation of the hotel property is recognized when guestrooms are occupied, services have been rendered or fees have been earned. Revenues are recorded net of any discounts and sales and other taxes collected from customers. Revenues consist of room sales, food and beverage sales and other hotel revenues.

			For the three months ended September 30,												For the nine months ended September 30,
			2021						2020						2021						2020
Secured funding agreements			$	4,308					$	6,000					$	11,327					$	22,447
Notes payable (1)			368						337						1,841						952
Securitization debt			5,414						2,518						14,858						9,879
Secured term loan			844						1,668						2,982						5,469
Secured borrowings			1,469						1,352						4,350						1,703
Other (2)			266						—						542						—
Interest expense			$	12,669					$	11,875					$	35,900					$	40,450

____________________________

(1)    Excludes interest expense on the $28.3 million note payable, which is secured by a hotel property that is recognized as real estate owned in the Company’s consolidated balance sheets (see Note 6 included in these consolidated financial statements for additional information on the note payable). Interest expense on the $28.3 million note payable is included within expenses from real estate owned in the Company’s consolidated statements of operations.

(2)    Represents the net interest expense recognized from the Company’s derivative financial instruments upon periodic settlement.

    In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. ASU No. 2020-04 and ASU No. 2021-01 are effective for all entities and may be adopted retrospectively as of any date from the beginning of any interim period that includes or is subsequent to March 12, 2020 or prospectively to new modifications through December 31, 2022. The Company is currently evaluating the impact of adopting these ASUs on its consolidated financial statements.

			As of September 30, 2021
			Carrying Amount (1)						Outstanding Principal (1)						Weighted Average Unleveraged Effective Yield															Weighted Average Remaining Life (Years)
Senior mortgage loans			$	2,332,686					$	2,345,569					5.6		%	(2)			5.7		%	(3)						1.4
Subordinated debt and preferred equity investments			30,813						31,511						15.3		%	(2)			15.3		%	(3)						2.3
Total loans held for investment portfolio			$	2,363,499					$	2,377,080					5.7		%	(2)			5.8		%	(3)						1.4

			As of December 31, 2020
			Carrying Amount (1)						Outstanding Principal (1)						Weighted Average Unleveraged Effective Yield															Weighted Average Remaining Life (Years)
Senior mortgage loans			$	1,713,601					$	1,723,638					5.9%			(2)			6.2		%	(3)						1.2
Subordinated debt and preferred equity investments			101,618						102,603						13.4%			(2)			13.4		%	(3)						1.9
Total loans held for investment portfolio			$	1,815,219					$	1,826,241					6.3%			(2)			6.6		%	(3)						1.2

(1)The difference between the Carrying Amount and the Outstanding Principal amount of the loans held for investment consists of unamortized purchase discount, deferred loan fees and loan origination costs.

(2)Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults. The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by the Company as of September 30, 2021 and December 31, 2020 as weighted by the outstanding principal balance of each loan.

(3)Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults. The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all interest accruing loans held by the Company as of September 30, 2021 and December 31, 2020 as weighted by the total outstanding principal balance of each interest accruing loan (excludes loans on non-accrual status as of September 30, 2021 and December 31, 2020).

Loan Type

Location

Outstanding Principal (1)

Carrying Amount (1)

Interest Rate

Unleveraged Effective Yield (2)

Maturity Date (3)

Payment Terms (4)

Senior Mortgage Loans:

Office

IL

$150.5

$149.8

L+3.61%

5.5%

Mar 2023

I/O

Office

Diversified

112.5

112.2

L+3.65%

5.7%

Jan 2023

I/O

Multifamily

FL

91.3

91.0

L+5.00%

6.7%

Jun 2022

I/O

Mixed-use

FL

84.0

84.0

L+4.25%

5.7%

Feb 2023

(5)

I/O

Office

AZ

77.4

76.5

L+3.50%

4.0%

Oct 2024

I/O

Mixed-use

NY

75.0

74.3

L+3.65%

4.1%

Jul 2024

I/O

Multifamily

TX

75.0

74.8

L+3.25%

3.5%

Oct 2024

I/O

Industrial

IL

70.1

69.4

L+4.55%

5.2%

May 2024

I/O

Industrial

NY

69.4

69.2

L+5.00%

7.1%

Feb 2022

(7)

I/O

Hotel

OR/WA

68.1

67.3

L+3.45%

7.4%

May 2022

(6)

I/O

Office

IL

67.8

67.8

L+3.75%

5.3%

Dec 2021

I/O

Residential Condominium

FL

65.7

65.1

L+5.25%

5.9%

Jul 2023

I/O

Office

NC

64.6

63.8

L+3.55%

4.2%

Aug 2024

I/O

Office

NC

63.5

63.5

L+4.25%

6.7%

Mar 2022

(8)

I/O

Hotel

Diversified

60.8

60.6

L+3.60%

6.0%

Sep 2022

(9)

I/O

Office

NY

60.4

59.7

L+3.85%

4.3%

Aug 2025

I/O

Office

IL

57.4

57.3

L+3.95%

6.2%

Jun 2022

(10)

P/I

(14)

Mixed-use

CA

56.8

56.6

(11)

5.4%

Jan 2024

I/O

Self Storage

NJ

55.5

55.6

L+3.80%

4.1%

Feb 2024

I/O

Residential Condominium

NY

53.6

53.6

(12)

10.9%

May 2021

(12)

I/O

Office

GA

46.3

46.1

L+3.05%

5.7%

Dec 2022

I/O

Multifamily

FL

46.2

46.1

L+5.00%

6.6%

Jun 2022

I/O

Hotel

CA

40.0

40.0

L+4.12%

5.8%

Jan 2022

I/O

Student Housing

TX

39.5

39.5

L+4.75%

5.5%

Jan 2022

(13)

P/I

(14)

Multifamily

SC

37.5

37.2

L+2.75%

3.4%

Jun 2023

I/O

Student Housing

CA

36.5

36.5

L+3.95%

4.3%

Jul 2022

I/O

Mixed-use

TX

35.8

35.6

(15)

4.7%

Sep 2022

I/O

Mixed-use

CA

35.2

34.9

L+4.10%

6.3%

Mar 2023

I/O

Hotel

MI

33.2

33.2

L+3.95%

4.3%

Jul 2022

I/O

Hotel

IL

32.9

31.0

L+4.40%

—%

(16)

May 2022

(16)

I/O

Office

CA

32.2

32.1

L+3.35%

6.0%

Nov 2022

I/O

Multifamily

SC

30.9

30.7

L+6.50%

10.2%

Sep 2022

I/O

Student Housing

NC

30.0

30.0

L+3.15%

5.9%

Feb 2022

I/O

Multifamily

PA

29.4

29.3

L+3.00%

5.9%

Dec 2021

I/O

Office

IL

28.5

28.4

L+3.80%

6.2%

Jan 2023

I/O

Office

NC

28.5

28.1

L+3.53%

6.8%

May 2023

I/O

Student Housing

TX

24.6

24.4

L+3.45%

5.5%

Feb 2023

I/O

Industrial

NJ

23.2

22.9

L+3.75%

4.5%

May 2024

I/O

Office

CA

22.9

22.8

L+3.40%

6.2%

Nov 2022

(17)

I/O

Industrial

CA

23.0

23.0

L+4.50%

7.4%

Dec 2021

I/O

Student Housing

FL

22.0

21.9

L+3.25%

5.9%

Aug 2022

I/O

Industrial

CO

20.8

20.6

L+6.75%

7.7%

Feb 2023

I/O

Student Housing

AL

19.5

19.3

L+3.85%

4.3%

May 2024

I/O

Self Storage

FL

19.5

19.5

L+3.50%

6.0%

Mar 2022

I/O

Multifamily

WA

18.7

18.6

L+3.00%

5.1%

Mar 2023

I/O

Industrial

CA

16.7

16.6

L+3.75%

6.3%

Mar 2023

I/O

Residential

CA

14.3

14.3

13.00%

—%

(18)

May 2021

(18)

I/O

Self Storage

FL

10.8

10.7

L+2.90%

4.4%

Dec 2023

I/O

Office

NC

9.4

9.4

L+4.00%

6.6%

Nov 2022

I/O

Self Storage

AZ

8.3

8.3

L+2.90%

4.0%

May 2024

I/O

Self Storage

AZ

7.4

7.3

L+2.90%

4.1%

May 2024

I/O

Self Storage

FL

7.0

6.9

L+2.90%

4.3%

Dec 2023

I/O

Self Storage

FL

6.4

6.4

L+2.90%

4.3%

Dec 2023

I/O

Self Storage

MO

6.1

6.1

L+3.00%

4.4%

Dec 2023

I/O

Self Storage

IL

5.5

5.5

L+3.00%

4.3%

Dec 2023

I/O

Self Storage

FL

4.4

4.4

L+2.90%

4.2%

Dec 2023

I/O

Self Storage

CO

3.2

3.2

L+2.90%

3.8%

Apr 2024

I/O

Industrial						PA						3.0						2.9						L+5.50%						6.1%						Sep 2024						I/O
Industrial						CO						2.9						2.9						L+6.25%						6.9%						Sep 2024						I/O
Industrial						AZ						2.7						2.7						L+5.90%						6.5%						Oct 2024						I/O
Industrial						GA						1.3						1.3						L+5.25%						5.9%						Sep 2024						I/O
Subordinated Debt and Preferred Equity Investments:
Office						NJ						17.0						16.3						12.00%						13.7%						Jan 2026						I/O
Residential Condominium						HI						11.5						11.5						14.00%						19.0%						Aug 2021			(19)			I/O
Office						CA						3.0						3.0						L+8.25%						9.7%						Nov 2021						I/O
Total/Weighted Average												$2,377.1						$2,363.5												5.7%

(1)The difference between the Carrying Amount and the Outstanding Principal amount of the loans held for investment consists of unamortized purchase discount, deferred loan fees and loan origination costs. For the loans held for investment that represent co-investments with other investment vehicles managed by Ares Management (see Note 14 included in these consolidated financial statements for additional information on co-investments), only the portion of Carrying Amount and Outstanding Principal held by the Company is reflected.

(2)Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults. Unleveraged Effective Yield for each loan is calculated based on LIBOR as of September 30, 2021 or the LIBOR floor, as applicable. The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by the Company as of September 30, 2021 as weighted by the outstanding principal balance of each loan.

(3)Certain loans are subject to contractual extension options that generally vary between one and two 12-month extensions and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.

(4)I/O = interest only, P/I = principal and interest.

(5)In March 2021, the Company and the borrower entered into a modification and extension agreement to, among other things, extend the maturity date on the senior Florida loan to February 2023.

(6)In March 2021, the borrower exercised a one-year extension option in accordance with the loan agreement, which extended the maturity date on the Oregon/Washington loan to May 2022. At origination, the Oregon/Washington loan was structured as both a senior and mezzanine loan with the Company holding both positions. The mezzanine position of this loan, which had an outstanding principal balance of $13.1 million as of September 30, 2021, was previously on non-accrual status. During the three months ended June 30, 2021, the mezzanine position was restored to accrual status as, based on management's judgment, there is no longer reasonable doubt that principal or interest will be collected in full.

(7)In August 2021, the borrower exercised a six-month extension option in accordance with the loan agreement, which extended the maturity date on the senior New York loan to February 2022.

(8)In February 2021, the borrower exercised a one-year extension option in accordance with the loan agreement, which extended the maturity date on the senior North Carolina loan to March 2022.

(9)In September 2021, the borrower exercised a one-year extension option in accordance with the loan agreement, which extended the maturity date on the senior diversified loan to September 2022.

(10)In April 2021, the borrower exercised a one-year extension option in accordance with the loan agreement, which extended the maturity date on the senior Illinois loan to June 2022.

(11)At origination, the California loan was structured as both a senior and mezzanine loan with the Company holding both positions. The senior loan, which had an outstanding principal balance of $45.0 million as of September 30, 2021, accrues interest at a per annum rate of L + 3.80% and the mezzanine loan, which had an outstanding principal balance of $11.8 million as of September 30, 2021, accrues interest at a per annum rate of 10.00%.

(12)At origination, the New York loan was structured as both a senior and mezzanine loan with the Company holding the mezzanine loan and a third party holding the senior loan. In April 2021, the Company purchased the senior loan from the third party at par. The senior loan, which had an outstanding principal balance of $35.0 million as of September 30, 2021, accrues interest at a per annum rate of L + 6.00% and the mezzanine loan, which had an outstanding principal balance of $15.9 million as of September 30, 2021, accrues interest at a per annum rate of L + 14.00%. The mezzanine loan includes a $2.6 million loan to the borrower, for which such amount accrues interest at a per annum rate of 20.00%. As of September 30, 2021, the New York loan, which is collateralized by a residential condominium property located in New York, is in maturity default due to the failure of the borrower to repay the outstanding principal balance

(13)In January 2021, the borrower exercised a one-year extension option in accordance with the loan agreement, which extended the maturity date on the senior Texas loan to January 2022.

(14)Amortization began on the senior Texas loan, which had an outstanding principal balance of $39.5 million as of September 30, 2021 and the senior Illinois loan, which had an outstanding principal balance of $57.4 million as of September 30, 2021, in February 2021 and July 2021, respectively. The remainder of the loans in the Company’s portfolio are non-amortizing through their primary terms.

(15)In March 2021, the Company and the borrower entered into a modification agreement to, among other things, split the original senior Texas loan into two separate notes. Note A, which had an outstanding principal balance of $35.3 million as of September 30, 2021, accrues interest at a per annum rate of L + 3.75% and Note B, which had an outstanding principal balance of $0.4 million as of September 30, 2021, accrues interest at a per annum rate of L+10.00%.

(16)Loan was on non-accrual status as of September 30, 2021 and therefore, there is no Unleveraged Effective Yield as the loan is non-interest accruing. In May 2021, the borrower exercised a one-year extension option in accordance with the loan agreement, which extended the maturity date on the senior Illinois loan to May 2022.

(17)In September 2021, the borrower exercised a one-year extension option in accordance with the loan agreement, which

(18)Loan was on non-accrual status as of September 30, 2021 and therefore, there is no Unleveraged Effective Yield as the loan is non-interest accruing. As of September 30, 2021, the senior California loan, which is collateralized by a residential property, is in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the May 2021 maturity date. The Company evaluated this loan for impairment and concluded that no impairment charge should be recognized as of September 30, 2021. This conclusion was based in part on: (1) the current estimated fair market value of the underlying collateral property, (2) the estimated value of the contractual right to residual proceeds from the sale of a second residential property and (3) the recourse payment guarantee from two individuals that are the owners of the underlying collateral. The estimated fair market value of the underlying collateral property was determined using the comparable market sales approach.

(19)As of September 30, 2021, the subordinated Hawaii loan, which is collateralized by a residential condominium property, is in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the August 2021 maturity date. The Company evaluated this loan for impairment and concluded that no impairment charge should be recognized as of September 30, 2021 and that this loan should not be placed on non-accrual status as of September 30, 2021. This conclusion was based in part on the current estimated fair market value of the underlying collateral property, which was determined using the comparable market sales approach and land residual method.

The Company has made, and may continue to make, modifications to loans, including loans that are in default. Loan terms that may be modified include interest rates, required prepayments, asset release prices, maturity dates, covenants, principal amounts and other loan terms. The terms and conditions of each modification vary based on individual circumstances and will be determined on a case by case basis. The Company’s Manager monitors and evaluates each of the Company’s loans held for investment and has maintained regular communications with borrowers and sponsors regarding the potential impacts of the COVID-19 pandemic on the Company’s loans. Some of the Company’s borrowers, in particular, borrowers with properties exposed to the hospitality, student housing and retail industries, have indicated that due to the impact of the COVID-19 pandemic, they may be unable to timely execute their business plans, are experiencing cash flow pressure, have had to temporarily close their businesses or have experienced other negative business consequences. Certain borrowers have requested temporary interest deferral or forbearance or other modifications of their loans. Based on these discussions with borrowers, the Company has made three loan modifications, representing an aggregate principal balance of $110.7 million, during the three months ended September 30, 2021. These modifications included deferrals or capitalization of interest, amendments in extension, future funding or performance tests, extension of the maturity date, repurposing of reserves or covenant waivers on loans secured by properties directly or indirectly impacted by the COVID-19 pandemic. Loan modifications during the period were conducted pursuant to the relief granted via the Coronavirus Aid, Relief, and Economic Security Act and therefore are not evaluated for or accounted for as troubled debt restructurings.

Balance at December 31, 2020			$	1,815,219
Initial funding			822,684
Origination fees and discounts, net of costs			(8,851)
Additional funding			68,581
Amortizing payments			(1,848)
Loan payoffs			(338,265)
Origination fee accretion			5,979
Balance at September 30, 2021			$	2,363,499

Balance at June 30, 2021 (1)			$	16,892
Provision for current expected credit losses			5,799
Write-offs			—
Recoveries			—
Balance at September 30, 2021 (1)			$	22,691
Balance at December 31, 2020 (1)			$	23,604
Provision for current expected credit losses			(913)
Write-offs			—
Recoveries			—
Balance at September 30, 2021 (1)			$	22,691

(1)     The CECL Reserve related to outstanding balances on loans held for investment is recorded within current expected credit loss reserve in the Company's consolidated balance sheets.

Balance at June 30, 2021 (1)			$	1,221
Provision for current expected credit losses			568
Write-offs			—
Recoveries			—
Balance at September 30, 2021 (1)			$	1,789
Balance at December 31, 2020 (1)			$	1,632
Provision for current expected credit losses			157
Write-offs			—
Recoveries			—
Balance at September 30, 2021 (1)			$	1,789

__________________________

(1)     The CECL Reserve related to unfunded commitments on loans held for investment is recorded within other liabilities in the Company's consolidated balance sheets.

Ratings						Definition
1						Very Low Risk
2						Low Risk
3						Medium Risk
4						High Risk/Potential for Loss: Asset performance is trailing underwritten expectations. Loan at risk of impairment without material improvement to performance
5						Impaired/Loss Likely: A loan that has a significantly increased probability of default and principal loss

			2021						2020						2019						2018						2017						Prior						Total
Risk rating:
1			$	28,436					$	—					$	—					$	9,374					$	—					$	—					$	37,810
2			312,909						—						104,805						—						39,528						—						457,242
3			348,175						521,897						429,477						191,642						171,586						16,307						1,679,084
4			35,025						—						2,649						118,525						—						33,164						189,363
5			—						—						—						—						—						—						—
Total			$	724,545					$	521,897					$	536,931					$	319,541					$	211,114					$	49,471					$	2,363,499

			As of
			September 30, 2021						December 31, 2020
Land			$	10,200					$	10,200
Buildings and improvements			24,281						24,281
Furniture, fixtures and equipment			4,448						4,362
			38,929						38,843
Less: Accumulated depreciation			(2,234)						(1,560)
Real estate owned, net			$	36,695					$	37,283

			September 30, 2021												December 31, 2020
			Outstanding Balance						Total Commitment						Outstanding Balance						Total Commitment
Secured Funding Agreements:
Wells Fargo Facility			$	281,150					$	350,000		(1)			$	336,001					$	350,000		(1)
Citibank Facility			147,982						325,000						117,506						325,000
CNB Facility			—						50,000			(2)			50,000						50,000			(2)
MetLife Facility			20,648						180,000						104,124						180,000
Morgan Stanley Facility			206,234						250,000						147,921						150,000
Subtotal			$	656,014					$	1,155,000					$	755,552					$	1,055,000
Notes Payable			$	48,250					$	51,755					$	63,122					$	84,155
Secured Term Loan			$	60,000					$	60,000					$	110,000					$	110,000
Total			$	764,264					$	1,266,755					$	928,674					$	1,249,155