UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Item 8.01 Other Events.
Ares Industrial 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 disclose the most recent transaction price and net asset value (“NAV”) per share, as determined in accordance with the Company’s valuation procedures, for each of our classes of common stock and to provide an update on our assets.
Most Recent Transaction Price and Net Asset Value Per Share
February 1, 2024 Transaction Price
The transaction price for each share class of our common stock for subscriptions to be accepted as of February 1, 2024 (and distribution reinvestment plan issuances following the close of business on January 31, 2024 and share redemptions as of January 31, 2024) is as follows:
| Transaction Price | ||
Share Class | (per share) | ||
Class T | $ | 13.2259 | |
Class D | $ | 13.2259 | |
Class I | $ | 13.2259 | |
The transaction price for each of our share classes is equal to such class’s net asset value (“NAV”) per share as of December 31, 2023. A calculation of the NAV per share is set forth below. The purchase price of our common stock for each share class equals the transaction price of such class, plus applicable upfront selling commissions and dealer manager fees.
December 31, 2023 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 www.areswmsresources.com/investment-solutions/AIREIT 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, reviewing annual third-party real property appraisals, providing monthly valuations of our debt-related assets (excluding DST Program Loans), reviewing the internal valuations of DST Program Loans 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 part of this process, our Advisor reviews the estimates of the values of our real property portfolio, real estate-related assets, and other assets and liabilities within our portfolio for consistency with our valuation guidelines and the overall reasonableness of the valuation conclusions, and informs our board of directors of its conclusions. Although third-party appraisal firms, the Independent Valuation Advisor, or other pricing sources may consider any comments received from us or our Advisor or other valuation sources for their individual valuations, the final estimated fair values of our real properties are determined by the Independent Valuation Advisor in their appraisals and the final estimates of fair values of our real estate-related assets, our other assets, and our liabilities are determined by the applicable pricing source (which may, in certain instances be our Advisor or an affiliate of Ares), subject to the oversight of our board of directors. With respect to the valuation of our real properties, the Independent Valuation Advisor provides our board of directors with periodic valuation reports and is available to meet with our board of directors to review valuation information, as well as our valuation guidelines and the operation and results of the valuation and review process generally. Excluding investments that are bought or sold during a given calendar year, unconsolidated investments held through joint ventures or partnerships are valued by an independent appraiser at least once per calendar year. For valuations during interim periods, not less than quarterly, either (1) our Advisor or a qualified third party that we engage will determine the estimated fair value of the investments owned by unconsolidated affiliates or (2) we will utilize interim valuations determined pursuant to valuation policies and procedures for such joint ventures or partnerships. All parties engaged by us in connection with our valuation procedures, including the Independent Valuation Advisor, ALPS Fund Services Inc. (“ALPS”), and our Advisor, are subject to the oversight of our board of directors. Our board of directors has the right to engage additional valuation firms and pricing sources to review the valuation process or valuations, if deemed appropriate. At least once each calendar year our board of directors, including
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a majority of our independent directors, reviews the appropriateness of our valuation procedures with input from the Independent Valuation Advisor. From time to time our board of directors, including a majority of our independent directors, may adopt changes to the valuation procedures if it: (1) determines that such changes are likely to result in a more accurate reflection of NAV or a more efficient or less costly procedure for the determination of NAV without having a material adverse effect on the accuracy of such determination; or (2) otherwise reasonably believes a change is appropriate for the determination of NAV. We will publicly announce material changes to our valuation procedures. Please see our valuation procedures filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 15, 2023 for a more detailed description of our valuation procedures, including important disclosure regarding real property valuations provided by the Independent Valuation Advisor.
Our valuation procedures, which address specifically each category of our assets and liabilities and are applied separately from the preparation of our financial statements in accordance with generally accepted accounting principles (“GAAP”), involve adjustments from historical cost. There are certain factors which cause NAV to be different from total equity or stockholders’ equity on a GAAP basis. Most significantly, the valuation of our real assets, which is the largest component of our NAV calculation, is provided to us by the Independent Valuation Advisor. For GAAP purposes, these assets are generally recorded at depreciated or amortized cost. Another example that will cause our NAV to differ from our GAAP total equity or stockholders’ equity is the straight-lining of rent, which results in a receivable for GAAP purposes that is not included in the determination of our NAV. The fair values of our assets and certain liabilities are determined using widely accepted methodologies and, as appropriate, the GAAP principles within the FASB Accounting Standards Codification under Topic 820, Fair Value Measurements and Disclosures and are used by ALPS in calculating our NAV per share. However, our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit. We did not develop our valuation procedures with the intention of complying with fair value concepts under GAAP and, therefore, there could be differences between our fair values and the fair values derived from the principal market or most advantageous market concepts of establishing fair value under GAAP.
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 December 31, 2023 and November 30, 2023:
As of | ||||||
(in thousands) | December 31, 2023 | November 30, 2023 | ||||
Investments in industrial properties |
| $ | 8,632,800 |
| $ | 8,672,500 |
Investment in unconsolidated joint venture partnership | 19,277 | 23,813 | ||||
Investments in real estate debt and securities | 184,755 | 175,739 | ||||
DST Program Loans | 199,154 | 192,782 | ||||
Cash and cash equivalents |
| 14,322 |
| 17,292 | ||
Other assets |
| 75,828 |
| 72,622 | ||
Line of credit, term loans and mortgage notes |
| (3,442,540) |
| (3,406,899) | ||
Secured financings on investments in real estate-related securities | (42,298) | (42,298) | ||||
Financing obligations associated with our DST Program | (1,569,545) | (1,541,379) | ||||
Other liabilities |
| (144,286) |
| (141,466) | ||
Accrued performance participation allocation |
| — |
| — | ||
Accrued fixed component of advisory fee |
| (5,813) |
| (5,883) | ||
Aggregate Fund NAV | $ | 3,921,654 | $ | 4,016,823 | ||
Total Fund Interests outstanding |
| 296,513 |
| 298,893 | ||
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The following table sets forth the NAV per Fund Interest as of December 31, 2023 and November 30, 2023:
|
| Class T |
| Class D |
| Class I |
| ||||||||
(in thousands, except per Fund Interest data) | Total | Shares | Shares | Shares | OP Units | ||||||||||
As of December 31, 2023 | |||||||||||||||
Monthly NAV | $ | 3,921,654 | $ | 2,153,675 | $ | 269,946 | $ | 1,387,649 | $ | 110,384 | |||||
Fund Interests outstanding |
| 296,513 |
| 162,838 |
| 20,410 |
| 104,919 |
| 8,346 | |||||
NAV Per Fund Interest | $ | 13.2259 | $ | 13.2259 | $ | 13.2259 | $ | 13.2259 | $ | 13.2259 | |||||
As of November 30, 2023 |
|
|
|
|
|
| |||||||||
Monthly NAV | $ | 4,016,823 | $ | 2,398,478 | $ | 276,609 | $ | 1,227,606 | $ | 114,130 | |||||
Fund Interests outstanding |
| 298,893 |
| 178,472 |
| 20,583 |
| 91,346 |
| 8,492 | |||||
NAV Per Fund Interest | $ | 13.4390 | $ | 13.4390 | $ | 13.4390 | $ | 13.4390 | $ | 13.4390 | |||||
Under GAAP, we record liabilities for ongoing distribution fees that (i) we currently owe the Dealer Manager under the terms of the dealer manager agreement and (ii) we estimate we may pay to the Dealer Manager in future periods for the Fund Interests. As of December 31, 2023, we estimated approximately $66.1 million of ongoing distribution fees were potentially payable to the Dealer Manager. 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 December 31, 2023, 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:
|
| Weighted- |
|
Average Basis | |||
Exit capitalization rate |
| 5.7 | % |
Discount rate / internal rate of return |
| 7.0 | % |
Average holding period (years) |
| 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:
|
| Increase |
| |||
(Decrease) to |
| |||||
Hypothetical | the Fair Value of Real |
| ||||
Input | Change | Properties |
| |||
Exit capitalization rate (weighted-average) | 0.25 | % decrease | 3.1 | % | ||
0.25 | % increase | (2.8) | % | |||
Discount rate (weighted-average) | 0.25 | % decrease | 2.0 | % | ||
0.25 | % increase | (2.0) | % | |||
Prior to January 31, 2020, we valued our debt-related investments and real estate-related liabilities generally in accordance with fair value standards under GAAP. Beginning with our valuation for February 29, 2020, our property-level mortgages, corporate-level
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credit facilities, and other secured and unsecured debt that are intended to be held to maturity (which for fixed rate debt not subject to interest rate hedges may be the date near maturity at which time the debt will be eligible for prepayment at par for purposes herein), including those subject to interest rate hedges, were valued at par (i.e. at their respective outstanding balances). In addition, because we utilize interest rate hedges to stabilize interest payments (i.e. to fix all-in interest rates through interest rate swaps or to limit interest rate exposure through interest rate caps) on individual loans, each loan and associated interest rate hedge is treated as one financial instrument which is valued at par if intended to be held to maturity. This policy of valuing at par applies regardless of whether any given interest rate hedge is considered as an asset or liability for GAAP purposes. Notwithstanding, if we acquire an investment and assume associated in-place debt from the seller that is above or below market, then consistent with how we recognize assumed debt for GAAP purposes when acquiring an asset with pre-existing debt in place, the liabilities used in the determination of our NAV will include the market value of such debt based on market value as of the closing date. The associated premium or discount on such debt as of closing that is reflected in our liabilities will then be amortized through loan maturity. Per our valuation policy, the corresponding investment is valued on an unlevered basis for purposes of determining NAV. Accordingly, all else equal, we would not recognize an immediate gain or loss to our NAV upon acquisition of an investment whereby we assume associated pre-existing debt that is above or below market. As of December 31, 2023, we classified all of our debt as intended to be held to maturity, and our liabilities included mark-to-market adjustments for pre-existing debt that we assumed upon acquisition.
December 2023 Distributions
We have declared monthly distributions for each class of our common stock. To date, each class of our common stock has received the same gross distribution per share. Monthly gross distributions were $0.05 per share for each share class for the month of December 2023 and were paid to all stockholders of record as of the close of business on December 29, 2023. The net distribution per share is calculated as the gross distribution per share less any distribution fees that are payable monthly with respect to Class T shares and Class D shares. Since distribution fees are not paid with respect to Class I shares, the net distributions payable with respect to Class I shares are equal to the gross distributions payable with respect to Class I shares. The table below details the net distributions for each class of our common stock for the period presented:
Net Distributions per Share | |||||||||||
Class T | Class D | Class I | |||||||||
Month | Pay Date | Share | Share | Share | |||||||
December 2023 |
| 1/2/2024 |
| $ | 0.041 |
| $ | 0.047 |
| $ | 0.050 |
Update on Assets and Performance
As of December 31, 2023, our leverage ratio was approximately 39.3% (calculated as outstanding principal balance of our borrowings, including secured financings on investments in real estate-related securities, less cash and cash equivalents, divided by the fair value of our real property, our net investment in an unconsolidated joint venture partnership, investments in real estate-related securities and debt-related investments not associated with the DST Program, as determined in accordance with our valuation procedures) and the weighted-average interest rate of our consolidated borrowings was 4.17%.
As of December 31, 2023, we directly owned and managed a real estate portfolio that included 256 industrial buildings totaling approximately 54.0 million square feet located in 29 markets throughout the U.S., with 429 customers, and was 93.5% occupied (93.9% leased) with a weighted-average remaining lease term (based on square feet) of 4.1 years. The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced. During the three months ended December 31, 2023, we transacted approximately 1.4 million square feet of new and renewal leases, and rent growth on comparable leases averaged 54.4%, calculated using cash basis rental rates (58.7% when calculated using GAAP basis rental rates). As of December 31, 2023, rents across our portfolio are estimated to be 26.2% below market (on a weighted-average basis), providing the opportunity for meaningful net operating income growth. Industrial market fundamentals remain favorable and management continues to evaluate acquisition opportunities within the industrial market to effectively execute our business strategy.
During the three months ended December 31, 2023, we raised gross proceeds of approximately $136.9 million, including proceeds from our distribution reinvestment plan and the sale of DST Interests (including $4.1 million of DST Interests financed by DST Program Loans). The aggregate dollar amount of common stock and OP Unit redemptions requested for October, November and December, which were redeemed in full on November 1, 2023, December 1, 2023 and January 1, 2024, respectively, was $128.7 million.
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The following table sets forth the top ten geographic allocations of our real estate portfolio based on fair value as of December 31, 2023:
($ in thousands) |
| Number of |
| Fair Value of Real Property (2) |
| % of Fair Value | ||
Southern California | 18 | $ | 976,300 | 11.4 | % | |||
New Jersey | 17 | 889,750 | 10.4 | |||||
Atlanta | 21 | 607,850 | 7.0 | |||||
Dallas | 17 | 596,300 | 6.9 | |||||
Chicago | 26 | 580,600 | 6.7 | |||||
Seattle | 14 | 528,900 | 6.1 | |||||
Pennsylvania | 17 | 521,700 | 6.0 | |||||
South Florida | 11 | 444,950 | 5.2 | |||||
Central Valley | 9 | 323,400 | 3.7 | |||||
Central Florida | 11 | 279,300 | 3.2 | |||||
Other | 95 | 2,883,750 | 33.4 | |||||
Total Portfolio | 256 | $ | 8,632,800 | 100.0 | % | |||
(1) Excludes two buildings that are either under construction or in the pre-construction phase.
(2) Comprised of $8.4 billion of real property in our operating portfolio, which includes stabilized properties, $249.2 million of real property in our value-add portfolio, which includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet reached stabilization, and $27.7 million of real property in our development portfolio, which includes buildings that are either under construction or in the pre-construction phase. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building’s shell completion or a building achieving 90% occupancy.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit |
| Description |
99.1 | ||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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, rising 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, 2022 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.
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