# Dear Fellow Stakeholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/real-estate-reit-mortgage/NYSE_ACRE_2020/NYSE_ACRE_2020.mmd` · pages 0-6_

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Dear Fellow Stakeholders:

In 2020, the global pandemic had a severe impact on each of our lives and the global economy as a whole. Despite these challenges, Ares Commercial Real Estate Corporation (NYSE: ACRE) is proud to have delivered solid earnings and consistent dividends throughout the year to shareholders. For the year ended December 31, 2020, we reported GAAP Earnings of \(0.66 per share and Distributable Earnings of \)1.36 per share. \( ^{(1)} \)  We also paid a consistent level of annual dividends of \(1.32 per share, marking the fourth consecutive year that we have more than fully covered our dividend from Distributable Earnings.

We believe our continued performance throughout this volatile year validates our business model, which is designed to be stable and resilient across varying market environments. Our primary playbook is to originate senior loans with covenant protections secured primarily by relatively defensive and stable property types. We seek to lend to experienced and well capitalized real estate sponsors where the business plan is to add value to quality properties in locations with attractive demographic trends. We aim to be highly selective with a credit-first approach to all underwriting decisions. Finally, we overlay our strong underwriting process with proactive portfolio management where we remain in frequent dialogue with our borrowers about the progress of their prospective business plans.

As a result of our business model, we entered 2020 with 96% of our portfolio in senior loans, primarily collateralized by asset types such as multifamily, industrial and office properties. We had limited exposure to hotels and no loans that were collateralized by stand-alone retail centers. We also sought to carefully structure our loans with meaningful covenant protections and to ensure that we were protected with LIBOR floors while interest rates were falling.

Our business model also calls for us to follow a number of core principles in managing our liability structure, which served us well in 2020. First, we attempt to match-fund our assets and liabilities with respect to both interest rate and term. Secondly, we diversify our funding needs across multiple providers and funding vehicles, and we structure our warehouse lines to avoid mark-to-market credit spread risk. We also seek to limit the percentage of indebtedness that is recourse to ACRE. We believe that our funding philosophy enabled us to persevere throughout 2020 with no material margin calls on our warehouse lines. We also had the flexibility to build a strong excess liquidity position and de-leverage the overall portfolio through select asset sales at prices at or near par.

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Throughout the year, we also continued to benefit from the strong sponsorship support of Ares Management Corporation (NYSE: ARES), a leading global investment manager with $197 billion of assets under management, which provides significant scale, access to capital, critical funding relationships, information insights, and other competitive advantages. We also benefited from the Ares Real Estate Group's significant market insights into property segments and markets.

As a result of these strategic decisions to defensively position our loan portfolio, structure LIBOR floors into loans and diversify funding sources, our Distributable Earnings and dividends remained relatively stable during this unprecedented year. \( ^{(1)} \)  In addition, the hard work of our dedicated asset management team was reflected in the strong credit performance of our portfolio which incurred no impairments throughout 2020.

In our view, we ended the year well positioned with a loan portfolio that was highly diversified across 50 loans with an outstanding principal balance of \(1.8 billion, up approximately 8% compared to year-end 2019. We believe that our portfolio continues to be conservatively constructed with 94% in senior loans, with the majority collateralized by multifamily, industrial and office properties.

Our strong performance and position in 2020 allowed us to seek to access the capital markets in a meaningful way in 2021. In January of 2021, we completed our fourth and largest collateralized loan obligation ("CLO") financing transaction that reduced our weighted average cost of funds, further increased our non-recourse financing and allowed us to close on $146 million of new loans. Following our fourth quarter 2020 earnings report, we declared our regular first quarter dividend of $0.33 per share, as well as a supplemental quarterly dividend of $0.02 per share. This supplemental quarterly dividend reflects a portion of the earnings benefit that we expect to generate from LIBOR floors on our loans and the related interest rate protection we put in place on our liabilities. Additionally, in March of 2021, we completed an approximately $100 million follow-on equity capital offering at a premium to book value per share (as of December 31, 2020) with the proceeds to be used to fund new originations and repay existing debt. This additional equity capital further enhances our strategic objective to continue to scale our business by seeking to further diversifying our portfolio with additional attractive investments.

As we look ahead, we believe we are well positioned to pursue new opportunities, supported by our enhanced liquidity and attractive balance sheet positioning. We remain positive on the recovery of the real estate sector and our team is active and seeing a substantial increase in both the quantity and quality of transactions in our pipeline. As always, we will continue our rigorous emphasis on credit quality, loan structure and strong sponsorship. And finally, we will remain focused on optimizing our borrowing costs and our overall expense structure.

We are proud of what we accomplished during these challenging times. On behalf of the management team and our Board, we greatly appreciate your continued support for the Company.

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Sincerely,

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William Benjamin
Chairman of the Board of Directors

Bryan Donohoe
Chief Executive Officer