# Dear Fellow Stakeholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_ACRE_2021/NYSE_ACRE_2021.mmd` · pages 0-6_

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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,

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William Benjamin

Chairman of the Board of Directors

Bryan Donohoe

Chief Executive Officer