Any Takers For This REIT Known As ACRE?
Since that last article, I downgraded ACRE to a HOLD.
Given the increased competition in the commercial mREIT sector, I am becoming more critical as it relates to risk management practices.
It’s my job to dig deeper into the company to determine whether or not the sources of income is sustainable and growing.
It has been over a year since I updated readers on commercial mREIT, Ares Commercial Real Estate Corp. (NYSE:ACRE). I decided that since I was including a detailed update in the upcoming edition of the Forbes Real Estate Investor that I needed to take a closer look at ACRE.
As you may recall, I have written extensively on the commercial mREIT sector, having authored articles on Ladder Capital (LADR), Blackstone Mortgage(BXMT), Starwood Property Trust (STWD), Apollo Commercial (ARI), Hannon Armstrong (HASI), Granite Pointe (GPMT), and TPG RE Finance Trust, Inc.(TRTX).
Similar to these commercial mortgage REITs, ACRE is a specialty finance company that is primarily focused on directly originating, managing and servicing a diversified portfolio of commercial real estate debt-related investments for its own account. ACRE is smaller than many of the peers, as illustrated below:
At the conclusion of my first article on ACRE (July 2016), I explained that I was “not keen with externally-managed REITs but there are exceptions. ACRE’s direct origination business provides an enhanced competitive advantage in that the company can leverage its ARES market presence and relationships to produce a wider funnel of opportunities.” I decided to initiate a BUY on ACRE at a price of $12.67 and dividend yield of 8.2%.
Since that last article, I downgraded ACRE to a HOLD, but as you can see below, the price today is the same as when I wrote on the company over a year and a half ago.
Given the increased competition in the commercial mREIT sector, I am becoming more critical as it relates to risk management practices. What I mean by that is that I am making sure that management teams are aligned with investors and that lending practices are aimed to generate rising profits, not just assets under management.
Many mREIT investors focus on dividend yield, and while that is an important indicator, it’s my job to dig deeper into the company to determine whether or not the sources of income is sustainable and growing. Let’s get started…