In a report published Monday, JMP Securities analyst Steven C. DeLaney reiterated a Market Outperform rating on Ares Commercial Real Estate Corp. ACRE, but lowered the price target from $15.00 to $14.50.
In the report, JMP Securities noted, “Net interest income increased by 17%, to $10.1M from $8.6M in 4Q13, but the taxable multifamily subsidiary, ACRE Capital LLC, reported a net loss of $576K, or $0.02 per share. The multi-family unit was acquired in August 2013 and has been restructured and relocated in recent months as 10 new multi-family loan originators have been hired, leading management to suggest on the 1Q14 earnings call that the contribution from this unit would improve in 2H14. Given the near-term drag to earnings from ACRE Capital and slightly lower assumed capital formation activity, we reduce our 2014/2015 core EPS estimates to $0.90/$1.15 from $0.95/$1.20, compared to current consensus estimates reported by SNL Financial of $0.92/$1.18. In addition, we lower our 12-month price target from $15.00 to $14.50 (supported by an implied yield of 7.5% on our projected 1H15 quarterly dividend rate of $0.27) (prior basis 7.75%/2Q15 dividend of $0.29) given our lower earnings forecast and the fact that ACRE shares have declined 6.9% thus far in 2Q14 compared to an average loss of 2.1% for the commercial MREIT peer group and a gain of 0.3% in the S&P 500. We continue to view ACRE shares as one of the best values in the mortgage REIT space and, in our view, a potential 12-month total return opportunity of ~25% comfortably warrants our continued Market Outperform rating.”
Ares Commercial Real Estate Corp. closed on Friday at $12.49.
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