UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Item 8.01 Other Events.
Ares Real Estate Income Trust Inc. (referred to herein as the “Company,” “we,” “our,” or “us”) is filing this Current Report on Form 8-K in order to provide an update regarding our net asset value (“NAV”), our assets and portfolio.
Most Recent Transaction Price and Net Asset Value Per Share
September 1, 2024 Transaction Price
The transaction price for each of our share classes is equal to such share class’s NAV per share as of July 31, 2024. A calculation of the NAV per share is set forth below.
July 31, 2024 NAV Per Share
Our board of directors, including a majority of our independent directors, has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. Our most recent NAV per share for each share class, which is updated as of the last calendar day of each month, is posted on our website at areswmsresources.com/investment-solutions/AREIT and is also available on our toll-free, automated telephone line at (888) 310-9352. With the approval of our board of directors, including a majority of our independent directors, we have engaged Altus Group U.S. Inc., a third-party valuation firm, to serve as our independent valuation advisor (“Altus Group” or the “Independent Valuation Advisor”) with respect to helping us administer the valuation and review process for the real properties in our portfolio, providing monthly real property appraisals and valuations for certain of our debt-related assets, reviewing annual third-party real property appraisals, reviewing the internal valuations of loans (“DST Program Loans”) provided to certain investors in our program to raise capital in private placements exempt from registration pursuant to Rule 506(b) of Regulation D under the Securities Act of 1933, as amended, through the sale of beneficial interests (“DST Interests”) in specific Delaware statutory trusts holding real properties, including properties currently indirectly owned by our operating partnership (the “DST Program”), and debt-related liabilities performed by Ares Commercial Real Estate Management LLC (our “Advisor”), providing quarterly valuations of our properties subject to master lease obligations associated with the DST Program, and assisting in the development and review of our valuation procedures.
As used below, “Fund Interests” means our outstanding shares of common stock, along with the partnership units in our operating partnership (“OP Units”), which may be or were held directly or indirectly by the Advisor, our former sponsor, members or affiliates of our former sponsor, and third parties, and “Aggregate Fund NAV” means the NAV of all the Fund Interests.
The following table sets forth the components of Aggregate Fund NAV as of July 31, 2024 and June 30, 2024:
As of | ||||||
(in thousands) |
| July 31, 2024 |
| June 30, 2024 | ||
Investments in residential properties | $ | 1,930,000 | $ | 1,931,500 | ||
Investments in industrial properties |
| 1,823,150 |
| 1,807,550 | ||
Investments in retail properties |
| 684,650 |
| 685,350 | ||
Investments in office properties |
| 461,350 |
| 458,250 | ||
Investments in other properties (1) | 155,800 | 59,150 | ||||
Total investment in real estate properties | 5,054,950 | 4,941,800 | ||||
Investments in real estate debt and securities | 414,316 | 400,759 | ||||
Investments in unconsolidated joint venture partnerships | 232,651 | 227,772 | ||||
DST Program Loans | 101,634 | 120,097 | ||||
Total investments | 5,803,551 | 5,690,428 | ||||
Cash and cash equivalents |
| 18,316 |
| 37,922 | ||
Restricted cash |
| 6,861 |
| 6,652 | ||
Other assets |
| 62,838 |
| 69,868 | ||
Line of credit, term loans and mortgage notes |
| (2,259,881) |
| (2,149,669) | ||
Financing obligations associated with our DST Program |
| (1,122,646) |
| (1,386,372) | ||
Other liabilities |
| (102,771) |
| (112,506) | ||
Accrued performance participation allocation |
| — |
| — | ||
Accrued advisory fees | (3,309) | (3,339) | ||||
Noncontrolling interests in consolidated joint venture partnerships |
| (6,999) |
| (6,645) | ||
Aggregate Fund NAV | $ | 2,395,960 | $ | 2,146,339 | ||
Total Fund Interests outstanding |
| 319,610 |
| 286,520 | ||
| (1) | Includes self-storage properties. |
The following table sets forth the NAV per Fund Interest as of July 31, 2024 and June 30, 2024:
| Class T-R |
| Class S-R |
| Class D-R |
| Class I-R |
| Class E |
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(in thousands, except per Fund Interest data) | Total | Shares | Shares | Shares | Shares | Shares | OP Units | ||||||||||||||
As of July 31, 2024 | |||||||||||||||||||||
Monthly NAV | $ | 2,395,960 | $ | 210,646 | $ | 342,629 | $ | 48,355 | $ | 463,152 | $ | 338,023 | $ | 993,155 | |||||||
Fund Interests outstanding |
| 319,610 | 28,099 | 45,705 | 6,450 | 61,783 | 45,091 | 132,482 | |||||||||||||
NAV Per Fund Interest | $ | 7.4965 | $ | 7.4965 | $ | 7.4965 | $ | 7.4965 | $ | 7.4965 | $ | 7.4965 | $ | 7.4965 | |||||||
As of June 30, 2024 |
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Monthly NAV | $ | 2,146,339 | $ | 211,199 | $ | 348,474 | $ | 48,625 | $ | 465,279 | $ | 340,631 | $ | 732,131 | |||||||
Fund Interests outstanding |
| 286,520 | 28,193 | 46,519 | 6,491 | 62,111 | 45,472 | 97,734 | |||||||||||||
NAV Per Fund Interest | $ | 7.4911 | $ | 7.4911 | $ | 7.4911 | $ | 7.4911 | $ | 7.4911 | $ | 7.4911 | $ | 7.4911 | |||||||
Under U.S. generally accepted accounting principles (“GAAP”), we record liabilities for ongoing distribution fees that (i) we currently owe and (ii) we estimate we may pay in future periods for the Fund Interests. As of July 31, 2024, we estimated approximately $69.1 million of ongoing distribution fees were potentially payable. We do not deduct the liability for estimated future distribution fees in our calculation of NAV since we intend for our NAV to reflect our estimated value on the date that we determine our NAV. Accordingly, our estimated NAV at any given time does not include consideration of any estimated future distribution fees that may become payable after such date.
We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on our stockholders’ ability to redeem shares under our share redemption program and our ability to modify or suspend our share redemption program at any time. Our NAV generally does not reflect the potential impact of exit costs (e.g. selling costs and commissions related to the sale of a property) that would likely be incurred if our assets and liabilities were liquidated or sold today. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges.
Our NAV is not a representation, warranty or guarantee that: (i) we would fully realize our NAV upon a sale of our assets; (ii) shares of our common stock would trade at our per share NAV on a national securities exchange; and (iii) a stockholder would be able to realize the per share NAV if such stockholder attempted to sell his or her shares to a third party.
The valuations of our real properties as of July 31, 2024, excluding certain newly acquired properties that are currently held at cost which we believe reflects the fair value of such properties, were provided by the Independent Valuation Advisor in accordance with our valuation procedures. Certain key assumptions that were used by the Independent Valuation Advisor in the discounted cash flow analysis are set forth in the following table based on weighted-averages by property type.
| Residential |
| Industrial |
| Retail |
| Office |
| Other | Weighted-Average |
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Exit capitalization rate |
| 5.3 | % | 5.8 | % | 6.6 | % | 7.2 | % | 5.6 | % | 5.8 | % |
Discount rate / internal rate of return |
| 7.0 | % | 7.4 | % | 7.3 | % | 8.6 | % | 7.6 | % | 7.3 | % |
Average holding period (years) |
| 10.0 | 10.0 | 10.0 | 10.0 | 10.0 | 10.0 |
A change in the exit capitalization and discount rates used would impact the calculation of the value of our real property. For example, assuming all other factors remain constant, the changes listed below would result in the following effects on the value of our real properties, excluding certain newly acquired properties that are currently held at cost which we believe reflects the fair value of such properties:
Input |
| Hypothetical |
| Residential |
| Industrial |
| Retail |
| Office |
| Other | Weighted-Average |
| |
Exit capitalization rate (weighted-average) |
| 0.25% decrease |
| 3.1 | % | 3.0 | % | 2.3 | % | 2.5 | % | 2.8 | % | 2.9 | % |
| 0.25% increase |
| (2.8) | % | (2.8) | % | (2.1) | % | (2.4) | % | (2.6) | % | (2.7) | % | |
Discount rate (weighted-average) |
| 0.25% decrease | 2.0 | % | 2.0 | % | 1.9 | % | 2.1 | % | 1.9 | % | 2.0 | % | |
| 0.25% increase | (1.9) | % | (2.0) | % | (1.8) | % | (2.0) | % | (1.9) | % | (1.9) | % |
Distributions
We authorized monthly gross distributions for each class of shares of our common stock in the amount of $0.03333 per share for the month of July 2024. These distributions were paid to all stockholders of record as of the close of business on July 31, 2024, net of, as applicable, distribution fees that are payable monthly with respect to certain classes of shares of our common stock.
Update on Our Assets and Activities
As of July 31, 2024, our consolidated investments include 108 real estate properties totaling approximately 21.2 million square feet located in 33 markets throughout the U.S., which were 94.3% leased.
As of July 31, 2024, our leverage ratio was 39.2% (calculated as outstanding principal balance of our borrowings less cash and cash equivalents, divided by the fair value of our real property, net investments in unconsolidated joint venture partnerships, investments in real estate-related securities and debt-related investments not associated with the DST Program, as determined in accordance with our valuation procedures).
Quarter-to-date through July 31, 2024, we raised gross proceeds of approximately $34.7 million, including proceeds from our distribution reinvestment plan and the sale of DST Interests (including $4.7 million of DST Interests financed by DST Program Loans). The aggregate dollar amount of common stock and OP Unit redemptions requested for July, which were redeemed in full on August 1, 2024, was $15.5 million. During July 2024, we issued 35.1 million OP Units in exchange for DST Interests for a net investment of $266.8 million. In addition, we paid $0.7 million in cash in exchange for DST Interests.
Forward-Looking Statements
This Current Report on Form 8-K includes certain statements that are intended to be deemed “forward-looking statements” within the meaning of, and to be covered by the safe harbor provisions contained in, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “continue,” or other similar words or terms and include, without limitation, statements regarding the estimates and assumptions used in the calculation of our NAV per Fund Interest. These statements are based on certain assumptions and analyses made in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. Such statements are subject to a number of assumptions, risks and uncertainties that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Among the factors that may cause results to vary are the negative impact of increased inflation, changes in interest rates, the conflict between Russia and Ukraine, and/or the ongoing conflict in the Middle East on our financial condition and results of operations being more significant than expected, general economic and business (particularly real estate and capital market) conditions being less favorable than expected, the business opportunities that may be presented to and pursued by us, changes in laws or regulations (including changes to laws governing the taxation of real estate investment trusts (“REITs”)), risk of acquisitions, availability and creditworthiness of prospective customers, availability of capital (debt and equity), interest rate fluctuations, competition, supply and demand for properties in current and any proposed market areas in which we invest, our customers’ ability and willingness to pay rent at current or increased levels, accounting principles, policies and guidelines applicable to REITs, environmental, regulatory and/or safety requirements, customer bankruptcies and defaults, the availability and cost of comprehensive insurance, including coverage for terrorist acts, and other factors, many of which are beyond our control. For a further discussion of these factors and other risk factors that could lead to actual results materially different from those described in the forward-looking statements, see “Risk Factors” under Item 1A of Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2023 and subsequent periodic and current reports filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
* Filed herewith.