Ares Commercial Real Estate : Annual ReportDec 31/2021

April 7, 2022

Dear Fellow Stakeholders,

For Ares Commercial Real Estate Corporation (NYSE: ACRE), 2021 was a year of significant growth and performance across many important financial metrics. We generated our best year of annual originations which drove strong investment portfolio growth and earnings to new record levels. During 2021, we originated $1.4 billion of new investment commitments, while focusing on our highest conviction property sectors. For the year ended December 31, 2021, we continued to grow our GAAP Earnings to $1.42 per share and reported Distributable Earnings of $1.55 per share, well in excess of our combined regular and supplemental annual dividends of $1.40 per share.(1) For the fifth year in a row, we out-earned our dividends on a per share basis. We are also pleased to report our credit quality remained strong as loans on non-accrual decreased and no impairments were recorded during 2021. Our strong performance resulted in a rewarding year for our shareholders as we generated a total stockholder return of 34%, which outperformed our benchmark indices.(2)

We continue to benefit from our sponsorship of Ares Management Corporation (NYSE: ARES), one of the largest global alternative investment managers with $314 billion of assets under management.(3) Ares manages one of the largest global real estate platforms with $41 billion of assets under management, including $10 billion of real estate debt assets. As ACRE is managed within the Ares real estate platform, we believe ACRE benefits from Ares's consistent presence in the market, buying, selling, borrowing, and lending against high quality real estate throughout the top MSAs in the U.S. and Europe. The expansion of Ares's real estate platform resulted in broader and deeper relationships in our target markets extending our pipeline of investment opportunities and providing greater market insights. We believe the end result is further enhancement of our investment selectivity via a broader funnel of opportunities and greater market intelligence that we can leverage in our underwriting as markets evolve.

With the growth of the Ares real estate debt platform, we have become an even more attractive partner to our borrower clients. In 2021, we leveraged Ares's national direct origination platform to source attractive investment opportunities with high quality institutional sponsors. We added many new institutional borrowers to our portfolio, while remaining a trusted partner to our repeat clients, all of whom value our ability to customize solutions as well as our certainty of capital execution.

We ended the year with a diversified portfolio of 72 loans, up from 50 at the end of 2020, and with an outstanding principal balance of $2.4 billion, up 33% year-over-year. Our portfolio was conservatively constructed with 99% of our portfolio in senior loans. At year-end, our portfolio remained focused on multifamily, industrial, and self-storage properties which compromised 51% of 2021 commitments. Additionally, we believe our portfolio is well positioned to benefit from changes in short term interest rates. As of year-end, 98% of our portfolio as measured by unpaid principal balance was comprised of floating-rate loans which will pay higher coupons as interest rates increase once they reach certain levels. At the same time, we have hedged a significant portion of our floating rate liabilities and fixed the interest rate on our $150 million term loan so that increases in interest rates would not have a basis point by basis point increase in our overall liability funding costs. The net result is that our earnings are set to benefit should short term interest rates increase.

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The hard work of our dedicated asset management team was reflected in the strong credit performance of our investment portfolio as credit quality remained relatively stable with improvement in our risk ratings throughout the year. Additionally, we recently sold our only real estate owned property, the Westchester Marriott hotel.(4) We believe our ability to deliver on the strategic plan that we outlined when we took over the property in 2019 demonstrates both our hospitality expertise and our ability to work through more difficult credit situations.

During 2021, we continued to strengthen our capital structure by increasing our access to non-recourse debt, extending the maturities on certain credit facilities, and reducing our overall cost of capital. We further enhanced our corporate borrowings by increasing the capacity on our term loan to $150 million. We also accretively scaled our common equity capital base by more than $200 million, primarily through two follow-on equity capital raises, both of which were done at premiums to book value in the first half of 2021. We have also moderately increased our overall leverage, ending 2021 with a debt-to-equity ratio of 2.7x.(5)

On our fourth quarter 2021 earnings release, we declared that we would distribute a regular first quarter dividend of $0.33 per share and continue a supplemental quarterly dividend of $0.02 per share. The supplemental quarterly dividend was implemented starting in early 2021 to share a portion of the excess earnings benefit that we expect to generate from the LIBOR floors on our loans and the related interest rate protection we put in place on our liabilities.

As we look further ahead in 2022, we believe that ACRE is in the strongest position that it has been in our history as a public company. We expect to continue to source attractive investments, benefit should interest rates increase and pursue opportunities to further enhance our balance sheet efficiency and funding costs. We believe we are well positioned to continue to grow and reward our shareholders from the many benefits of greater scale.

On behalf of the management team and our Board, we greatly appreciate your continued support for the company.

Sincerely,

William Benjamin

Bryan Donohoe

Chairman of the Board of Directors

Chief Executive Officer

All data as of December 31, 2021 unless otherwise indicated. Past performance is not indicative of future results.

1. Distributable Earnings is an adjusted non-GAAP measure that helps the Company evaluate its financial performance excluding the effects of certain transactions and GAAP adjustments that it believes are not necessarily indicative of its current loan origination portfolio and operations. Beginning in Q4 2020, the non-GAAP financial measure of Core Earnings was renamed to Distributable Earnings to more appropriately reflect the principal purpose of the measure. For a reconciliation of net income attributable to common stockholders, the most directly comparable GAAP financial measure, to Distributable Earnings, please refer to the reconciliation table in Schedule I, at the end of this annual report.

• 2. Total return includes stock price appreciation and dividends.

• 3. Ares had $306 billion of AUM as of December 31, 2021. Unless otherwise specified, all AUM numbers and other information are provided as of December 31, 2021 for Credit, Private Equity, Real Assets, Secondary Solutions and Strategic Initiatives, as adjusted for Ares Management's acquisition of AMP Capital's Infrastructure Debt platform ("Infrastructure Debt"), which closed on February 10, 2022. Following this acquisition, Ares has combined its Real Estate Group with its expanded infrastructure debt and equity activities into the Real Assets Group. Real Assets consists of four strategies: Real Estate Debt and Real Estate Equity (collectively, $41.2 billion of AUM), Infrastructure Debt ($7.9 billion of AUM) and Infrastructure Opportunities ($4.8 billion of AUM). Infrastructure Opportunities was previously categorized as part of the Private Equity Group as Infrastructure and Power. AUM amounts include funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of Ares Capital Corporation and registered investment adviser. AUM managed by Ares Insurance Solutions excludes assets which are sub-advised by other Ares investment groups or invested in Ares funds and investment vehicles.

• 4. Sale of the hotel closed in the first quarter of 2022.

• 5. Excludes CECL reserve.

Ref:RE-02554

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 ____________________________________________________________________________

FORM 10-K

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

  For the fiscal year ended December 31, 2021

  OR

• ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 001-35517 __________________________________________________________________________

ARES COMMERCIAL REAL ESTATE CORPORATION

(Exact name of registrant as specified in its charter)

Maryland	45-3148087
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
245 Park Avenue, 42nd Floor, New York, NY 10167
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)

[phone]

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

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 (Section §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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

• o Accelerated filer

ý

Non-accelerated filer

• o Smaller reporting company

☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No ý

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2021, based on the closing price on that date of $14.63 on the New York Stock Exchange, was approximately $637,185,924. As of February 14, 2022, there were 47,222,067 shares of the registrant's common stock outstanding.

Portions of the registrant's Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the fiscal year covered by this annual report on Form 10-K are incorporated by reference into Part III of this Form 10-K.

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