Shares of the specialty finance company and real estate investment trust (REIT) Ares Commercial Real Estate Corp (NYSE:ACRE) have fallen nearly 10% today as of 2:45 p.m. EDT. The company earlier in the day announced the pricing on a new issuance of common stock.
Ares priced 6.5 million shares of common stock for total gross proceeds of roughly $102.8 million, with the offering expected to close around June 22. Ares also granted the underwriters the option to purchase 975,000 more shares for 30 days.
It is common for companies raising equity to see their share prices decline on the announcement because by offering more equity to other shareholders, Ares is effectively diluting the ownership of existing stock holders.
Ares originates loans in different commercial real estate sectors all over the country, but its portfolio is heavily weighted toward multifamily properties, office space, and industrial properties. Its largest regional presence is in the Southeast, but the company also has a big presence in the Midwest and West as well.
The company reported first-quarter net income of $16 million, up significantly from the loss it reported in the first quarter of 2020.
This stock could still have room to run as a reopening play if you think people are going to flock back into offices and other types of real estate that suffered during the pandemic. (Ares has 12% of its loans in the hotel sector.) But I would take a close look at all the different loan types and geographies in the portfolio to make sure everything adds up in your thesis about what the new world will look like following the pandemic.
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