Why Shares of Ares Commercial Real Estate Corp Are Falling Today

What happened

Shares in the special finance company and the real estate investment trust (REIT) Ares Commercial Real Estate Corp. (NYSE: Acre) fell nearly 10% today at 2:45 p.m. EDT. The company announced pricing for a new issue of common stock earlier in the day.

so what

Ares has set a price of 6.5 million common shares for total gross proceeds of approximately $ 102.8 million, with the offering expected to close around June 22nd. Ares also granted the syndicate banks the option to purchase 975,000 more shares for 30 days.

It is common for companies adding equity to see their share prices decline when the announcement is made, as Ares is effectively diluting existing shareholders’ holdings by offering more equity to other shareholders.

Image source: Getty Images.

What now

Ares lends in various commercial real estate sectors across the country, but its portfolio is heavily weighted in apartment buildings, office space and industrial real estate. The largest regional presence is in the Southeast, but the company is also well represented in the Midwest and West.

The company reported net income of $ 16 million for the first quarter, significantly more than in the first quarter of 2020.

That stock could still have room for a reopening game if you think people will flock back to offices and other types of properties that suffered during the pandemic. (Ares has 12% of its loans in the hospitality sector.) But I would take a close look at all of the different loan types and regions in the portfolio to make sure it all fits together in your thesis on what the new world will look like below the pandemic.

This article represents the opinion of the author who may disagree with the “official” recommending position of a world class Motley Fool advisory service. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.