Announcing $50mm of 3yr senior convertible notes. A 10% allocation is earmarked to go to management of the company. Px talk is 7s up 15 at the mids. Very limited borrow on the stock and and company pays a div yield of 6.17%. Looking at the Mortgage REIT convert landscape, we would comp ACRE tighter vs. NRF (+850), but wider to SFI (+400 3yr CDS). Using borrow cost of 2pts and L+750-800 implies vols of 12-14. At L+750/12 vol, TV is 100. Working in favor of the credit is short maturity on the notes, the company’s relatively clean balance sheet and a lack of legacy CRE assets, so could make an argument for L+650-700, which would model at +2pts.
ACRE is a commercial REIT formed in Dec 2011 and IPO’ed in May 2012. ACRE is managed by Ares Management LLC, also the manager of ARCC. Total assets at 3Q12 were $220mm, including $190.5mm BV of real estate loans. Total equity was $167mm and liabilities include $48.8mm of secured revolving credit borrowings. Ostensibly, the proceeds of the convert will go to refresh some of the revolver capacity. Company’s focus appears to be on cash flow lending to mid-market real estate borrowers. Products include “transitional” renovation and enhancement loans, “stretch” senior loans, which typically have higher LTVs vs traditional CRE loans, and subordinated/mez-type structures, including B-notes. Current book includes a heavy mix of apartment collateral in secondary markets (Miami, Denver, Austin, etc). Also has a handful of small office building loans in Boston, Miami, Atlanta and Fort Lauderdale.