UBS Resumes Ares Commercial (ACRE) at Neutral
UBS analyst Marissa Lobo resumes coverage on Ares Commercial (NYSE: ACRE) with a Neutral rating and a price target of $5.50.
The analyst comments: “We assume coverage of ACRE with a Neutral rating and $5.50 price target. Inclusive of the dividend we see ~23% total return potential. ACRE's earnings power recovery is almost entirely a function of two loans: a Chicago office & Brooklyn condo with a total reserve equating to ~35% of UPB. These two loans represent 93% of the high risk population (4 loans in total). The remaining 31 out of 35 loans are risk rated 1-3 with no negative credit migrations in Q126. ACRE's co-investment alongside Ares-affiliated vehicles is an important structural advantage, allowing a $1.7b portfolio company to access the deal flow and underwriting of a platform committing $10b/year. ACRE currently trades at ~0.55x of Q126 book, reflecting uncertainty on the resolution timeframe for problem assets. At the current price, investors are being paid to wait (~12% yield), but the market is unlikely to re-rate meaningfully until dividend coverage is visible and credit volatility subsides.”
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Shares of Ares Commercial closed at $4.93 yesterday.