UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, ~~2022~~2023

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File No. 000-52596

ARES REAL ESTATE INCOME TRUST INC.

(Exact name of registrant as specified in its charter)


Maryland	30-0309068
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

~~518~~One Tabor Center, 1200 Seventeenth Street, ~~17th Floor~~Suite 2900 , Denver, CO	80202
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (303) 228-2200

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐	Smaller reporting company	☐
Non-accelerated filer	☒			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 5, ~~2022,~~2023, there were ~~21,149,457~~28,858,446 shares of the registrant’s Class T common stock, ~~44,032,365~~49,988,280 shares of the registrant’s Class S common stock, ~~7,983,831~~7,276,706 shares of the registrant’s Class D common stock, ~~63,404,729~~68,800,867 shares of the registrant’s Class I common stock and ~~54,796,873~~51,613,024 shares of the registrant’s Class E common stock outstanding.

Table of ~~Contents~~contents

ARES REAL ESTATE INCOME TRUST INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, ~~2022~~2023 (unaudited) and December 31, ~~202~~20221	3
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022 (unaudited)	5
	Condensed Consolidated Statements of Equity for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2326
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3946
Item 4.	Controls and Procedures	3947
PART II. OTHER INFORMATION
Item 1A.	Risk Factors	4047
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4047
Item 5.	Other Information	4249
Item 6.	Exhibits	4351

Table of ~~Contents~~contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	As of
	March 31,		December 31,		As of
(in thousands, except per share data)	2022		2021		March 31, 2023		December 31, 2022
	(Unaudited)				(Unaudited)
ASSETS
Net investment in real estate properties	$	2,921,987	$	2,589,826	$	3,585,078	$	3,605,578
Investment in unconsolidated joint venture partnerships		91,240		57,425
Investments in unconsolidated joint venture partnerships						125,166		120,372
Debt-related investments, net		106,669		105,752		254,201		260,439
Investment in available-for-sale securities, at fair value						14,979		14,896
Cash and cash equivalents		22,626		10,605		36,894		13,336
Restricted cash		4,021		3,747		3,859		3,850
DST Program Loans		73,501		62,123		95,909		81,897
Other assets		58,589		56,397		72,217		74,356
Assets held for sale		0		105,096
Total assets	$	3,278,633	$	2,990,971	$	4,188,303	$	4,174,724
LIABILITIES AND EQUITY
Liabilities
Accounts payable and accrued expenses	$	43,348	$	38,182	$	54,627	$	58,097
Debt, net		1,269,344		1,363,234		1,589,120		1,616,475
Intangible lease liabilities, net		50,782		47,499		40,233		42,444
Financing obligations, net		890,033		661,075		1,232,129		1,130,810
Other liabilities		85,329		89,817		92,660		114,901
Liabilities related to assets held for sale		0		5,744
Total liabilities		2,338,836		2,205,551		3,008,769		2,962,727
Commitments and contingencies (Note 14)
Redeemable noncontrolling interest		17,284		8,994		17,791		18,130
Equity
Stockholders’ equity:
Preferred stock, $0.01 par value—200,000 shares authorized, NaN issued and outstanding		—		—
Class T common stock, $0.01 par value—500,000 shares authorized, 19,007 shares and 16,425 shares issued and outstanding, respectively		190		164
Class S common stock, $0.01 par value—500,000 shares authorized, 40,489 shares and 35,757 shares issued and outstanding, respectively		405		358
Class D common stock, $0.01 par value—500,000 shares authorized, 7,662 shares and 6,749 shares issued and outstanding, respectively		77		67
Class I common stock, $0.01 par value—500,000 shares authorized, 59,433 shares and 54,406 shares issued and outstanding, respectively		594		544
Class E common stock, $0.01 par value—500,000 shares authorized, 55,451 shares and 56,328 shares issued and outstanding, respectively		554		563
Preferred stock, $0.01 par value—200,000 shares authorized, none issued and outstanding						—		—
Class T common stock, $0.01 par value—500,000 shares authorized, 28,173 shares and 26,884 shares issued and outstanding, respectively						282		269
Class S common stock, $0.01 par value—500,000 shares authorized, 49,899 shares and 49,237 shares issued and outstanding, respectively						499		492
Class D common stock, $0.01 par value—500,000 shares authorized, 7,439 shares and 7,871 shares issued and outstanding, respectively						74		79
Class I common stock, $0.01 par value—500,000 shares authorized, 69,387 shares and 69,142 shares issued and outstanding, respectively						694		691
Class E common stock, $0.01 par value—500,000 shares authorized, 52,550 shares and 52,974 shares issued and outstanding, respectively						526		530
Additional paid-in capital		1,551,814		1,457,296		1,751,993		1,744,022
Distributions in excess of earnings		(860,546)		(865,844)		(993,320)		(973,395)
Accumulated other comprehensive loss		(3,266)		(13,418)
Accumulated other comprehensive income						7,897		13,148
Total stockholders’ equity		689,822		579,730		768,645		785,836
Noncontrolling interests		232,691		196,696		393,098		408,031
Total equity		922,513		776,426		1,161,743		1,193,867
Total liabilities and equity	$	3,278,633	$	2,990,971	$	4,188,303	$	4,174,724

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~Contents~~contents

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months Ended

March 31,

(in thousands, except per share data)

2022

2021

Revenues:





Rental revenues

$
62,505

$
50,432

Debt-related income

3,468

2,124

Total revenues

65,973

52,556

Operating expenses:



Rental expenses

21,314

17,562

Real estate-related depreciation and amortization

27,451

16,733

General and administrative expenses

2,037

2,218

Advisory fees

7,144

4,824

Performance participation allocation

12,192

1,749

Acquisition costs and reimbursements

1,629

367

Impairment of real estate property

—

758

Total operating expenses

71,767

44,211

Other expenses (income):



Equity in loss from unconsolidated joint venture partnerships

1,010

—

Interest expense

24,410

16,563

Gain on sale of real estate property

(53,881)

(27,342)

Other income

(2,127)

(274)

Total other expenses (income)

(30,588)

(11,053)

Net income

24,794

19,398

Net income attributable to redeemable noncontrolling interests

(246)

(134)

Net income attributable to noncontrolling interests

(3,537)

(1,699)

Net income attributable to common stockholders

$
21,011

$
17,565

Weighted-average shares outstanding—basic

178,528

145,861

Weighted-average shares outstanding—diluted

210,676

161,089

Net income attributable to common stockholders per common share—basic and diluted

$
0.12

$
0.12


	For the Three Months Ended
	March 31,
(in thousands, except per share data)	2023		2022
Revenues:
Rental revenues	$	77,960	$	62,505
Debt-related income		5,761		3,468
Total revenues		83,721		65,973
Operating expenses:
Rental expenses		28,300		21,314
Real estate-related depreciation and amortization		33,197		27,451
General and administrative expenses		3,044		2,037
Advisory fees		9,538		7,144
Performance participation allocation		—		12,192
Acquisition costs and reimbursements		1,169		1,629
Impairment loss on debt-related investment held for sale		2,520		—
Total operating expenses		77,768		71,767
Other expenses (income):
Equity in loss from unconsolidated joint venture partnerships		2,446		1,010
Interest expense		37,545		24,410
Gain on sale of real estate property		(36,884)		(53,881)
Loss on extinguishment of debt and financing commitments, net		700		—
Loss (gain) on derivative instruments		103		(1,550)
Provision for current expected credit losses		5,630		—
Other income		(1,016)		(577)
Total other expenses (income)		8,524		(30,588)
Net (loss) income		(2,571)		24,794
Net loss (income) attributable to redeemable noncontrolling interests		18		(246)
Net loss (income) attributable to noncontrolling interests		549		(3,537)
Net (loss) income attributable to common stockholders	$	(2,004)	$	21,011
Weighted-average shares outstanding—basic		206,774		178,528
Weighted-average shares outstanding—diluted		263,026		210,676
Net (loss) income attributable to common stockholders per common share—basic and diluted	$	(0.01)	$	0.12

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~Contents~~contents

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

For the Three Months Ended

March 31,

(in thousands)

2022

2021

Net income

$
24,794

$
19,398

Change from cash flow hedging activities

11,994

5,915

Comprehensive income

36,788

25,313

Comprehensive income attributable to redeemable noncontrolling interests

(365)

(175)

Comprehensive income attributable to noncontrolling interests

(5,260)

(2,238)

Comprehensive income attributable to common stockholders

$
31,163

$
22,900


	For the Three Months Ended
	March 31,
(in thousands)	2023		2022
Net (loss) income	$	(2,571)	$	24,794
Change from cash flow hedging activities		(7,056)		11,994
Change from activities related to available-for-sale securities		77		—
Comprehensive (loss) income		(9,550)		36,788
Comprehensive loss (income) attributable to redeemable noncontrolling interests		73		(365)
Comprehensive loss (income) attributable to noncontrolling interests		2,222		(5,260)
Comprehensive (loss) income attributable to common stockholders	$	(7,255)	$	31,163

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~Contents~~contents

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

Stockholders’ Equity

Accumulated

Additional

Distributions

Other

Common Stock

Paid-in

in Excess of

Comprehensive

Noncontrolling

Total
(in thousands)

Shares

Amount

Capital

Earnings

Income (Loss)

Interests

Equity
FOR THE THREE MONTHS ENDED MARCH 31, 2021

Balance as of December 31, 2020

143,041

$
1,430

$
1,269,146

$
(841,496)

$
(27,431)

$
96,242

$
497,891
Net income (excluding $134 attributable to redeemable noncontrolling interest)

—

—

—

17,565

—

1,699

19,264
Change from cash flow hedging activities (excluding $41 attributable to redeemable noncontrolling interest)

—

—

—

—

5,335

539

5,874
Issuance of common stock

6,487

65

49,289

—

—

—

49,354
Share-based compensation

8

—

47

—

—

—

47
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs

—

—

(1,031)

—

—

—

(1,031)
Trailing distribution fees

—

—

(2,182)

—

—

(2,409)

(4,591)
Redemptions of common stock

(2,244)

(22)

(16,907)

—

—

—

(16,929)
Issuances of OP Units for DST Interests

—

—

—

—

—

25,941

25,941
Distributions declared on common stock and noncontrolling interests, net of distribution fees (excludes $103 attributable to redeemable noncontrolling interest)

—

—

—

(13,088)

—

(1,302)

(14,390)
Redemption value allocation adjustment to redeemable noncontrolling interest

—

—

48

—

—

—

48
Redemptions of noncontrolling interests

—

—

(82)

—

—

(1,045)

(1,127)
Balance as of March 31, 2021

147,292

$
1,473

$
1,298,328

$
(837,019)

$
(22,096)

$
119,665

$
560,351
FOR THE THREE MONTHS ENDED MARCH 31, 2022

Balance as of December 31, 2021

169,665

$
1,696

$
1,457,296

$
(865,844)

$
(13,418)

$
196,696

$
776,426
Net gain (excluding $246 attributable to redeemable noncontrolling interest)

—

—

—

21,011

—

3,537

24,548
Change from cash flow hedging activities (excluding $119 attributable to redeemable noncontrolling interest)

—

—

—

—

10,152

1,723

11,875
Issuance of common stock

14,165

142

116,368

—

—

—

116,510
Share-based compensation

—

—

50

—

—

—

50
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs

—

—

(1,580)

—

—

—

(1,580)
Trailing distribution fees

—

—

(5,037)

—

—

(4,091)

(9,128)
Redemptions of common stock

(1,788)

(18)

(14,537)

—

—

—

(14,555)
Issuances of OP Units for DST Interests

—

—

—

—

—

39,441

39,441
Other noncontrolling interests contributions

—

—

—

—

—

17

17
Distributions declared on common stock and noncontrolling interests (excludes $160 attributable to redeemable noncontrolling interest)

—

—

—

(15,713)

—

(2,591)

(18,304)
Redemption value allocation adjustment to redeemable noncontrolling interest

—

—

(482)

—

—

—

(482)
Redemptions of noncontrolling interests

—

—

(264)

—

—

(2,041)

(2,305)
Balance as of March 31, 2022

182,042

$
1,820

$
1,551,814

$
(860,546)

$
(3,266)

$
232,691

$
922,513


	Stockholders’ Equity
								Accumulated
				Additional		Distributions		Other
	Common Stock			Paid-in		in Excess of		Comprehensive		Noncontrolling		Total
(in thousands)	Shares	Amount		Capital		Earnings		Income (Loss)		Interests		Equity
FOR THE THREE MONTHS ENDED MARCH 31, 2022
Balance as of December 31, 2021	169,665	$	1,696	$	1,457,296	$	(865,844)	$	(13,418)	$	196,696	$	776,426
Net income (excluding $246 attributable to redeemable noncontrolling interest)	—		—		—		21,011		—		3,537		24,548
Change from cash flow hedging activities (excluding $119 attributable to redeemable noncontrolling interest)	—		—		—		—		10,152		1,723		11,875
Issuance of common stock	14,165		142		116,368		—		—		—		116,510
Share-based compensation	—		—		50		—		—		—		50
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs	—		—		(1,580)		—		—		—		(1,580)
Trailing distribution fees	—		—		(5,037)		1,030		—		(3,824)		(7,831)
Redemptions of common stock	(1,788)		(18)		(14,537)		—		—		—		(14,555)
Issuances of OP Units for DST Interests	—		—		—		—		—		39,441		39,441
Other noncontrolling interests net contributions	—		—		—		—		—		17		17
Distributions declared on common stock and noncontrolling interests (excludes $160 attributable to redeemable noncontrolling interest)	—		—		—		(16,743)		—		(2,858)		(19,601)
Redemption value allocation adjustment to redeemable noncontrolling interest	—		—		(482)		—		—		—		(482)
Redemptions of noncontrolling interests	—		—		(264)		—		—		(2,041)		(2,305)
Balance as of March 31, 2022	182,042	$	1,820	$	1,551,814	$	(860,546)	$	(3,266)	$	232,691	$	922,513
FOR THE THREE MONTHS ENDED MARCH 31, 2023
Balance as of December 31, 2022	206,108	$	2,061	$	1,744,022	$	(973,395)	$	13,148	$	408,031	$	1,193,867
Net loss (excluding $18 attributable to redeemable noncontrolling interest)	—		—		—		(2,004)		—		(549)		(2,553)
Change from securities and cash flow hedging activities (excluding $55 attributable to redeemable noncontrolling interest)	—		—		—		—		(5,251)		(1,673)		(6,924)
Issuance of common stock	5,366		54		47,637		—		—		—		47,691
Share-based compensation	—		—		75		—		—		—		75
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs	—		—		(1,437)		—		—		—		(1,437)
Trailing distribution fees	—		—		(793)		1,461		—		1,132		1,800
Redemptions of common stock	(4,026)		(40)		(35,415)		—		—		—		(35,455)
Issuances of OP Units for DST Interests	—		—		—		—		—		—		—
Other noncontrolling interests net distributions	—		—		—		—		—		(4)		(4)
Distributions declared on common stock and noncontrolling interests (excludes $192 attributable to redeemable noncontrolling interest)	—		—		—		(19,382)		—		(5,079)		(24,461)
Redemption value allocation adjustment to redeemable noncontrolling interest	—		—		74		—		—		—		74
Redemptions of noncontrolling interests	—		—		(2,170)		—		—		(8,760)		(10,930)
Balance as of March 31, 2023	207,448	$	2,075	$	1,751,993	$	(993,320)	$	7,897	$	393,098	$	1,161,743

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~Contents~~contents

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Three Months Ended March 31,
(in thousands)

2022

2021
Operating activities:




Net income

$
24,794

$
19,398
Adjustments to reconcile net income to net cash provided by operating activities:

Real estate-related depreciation and amortization

27,451

16,733
Straight-line rent and amortization of above- and below-market leases

(1,753)

(1,825)
Gain on sale of real estate property

(53,881)

(27,342)
Performance participation allocation

12,192

1,749
Equity in loss of unconsolidated joint venture partnership

1,010

0
Impairment of real estate property

0

758
Amortization of debt and financing obligation costs

3,722

2,882
Other

1,419

200
Changes in operating assets and liabilities

9,449

(4,894)
Net cash provided by operating activities

24,403

7,659
Investing activities:


Real estate acquisitions

(367,274)

(49,053)
Capital expenditures

(6,488)

(7,916)
Proceeds from disposition of real estate property

169,421

48,960
Principal collections on debt-related investments

0

2,405
Investment in unconsolidated joint venture partnerships

(35,058)

0
Investment in debt-related investments

(840)

(402)
Other

(927)

(1,698)
Net cash used in investing activities

(241,166)

(7,704)
Financing activities:


Repayments of mortgage notes

(413)

(786)
Net repayments of line of credit

(94,000)

(52,000)
Redemptions of common stock

(14,555)

(16,929)
Distributions paid to common stockholders, redeemable noncontrolling interest holders and noncontrolling interest holders

(11,251)

(8,820)
Proceeds from issuance of common stock

109,767

43,895
Proceeds from financing obligations, net

252,943

46,824
Offering costs for issuance of common stock and private placements

(3,462)

(2,687)
Redemption of noncontrolling interests

(2,305)

(1,127)
Redemption of redeemable noncontrolling interests

(7,724)

0
Deferred financing costs paid

(92)

0
Other

150

(2,457)
Net cash provided by financing activities

229,058

5,913
Net increase in cash, cash equivalents and restricted cash

12,295

5,868
Cash, cash equivalents and restricted cash, at beginning of period

14,352

21,734
Cash, cash equivalents and restricted cash, at end of period

$
26,647

$
27,602


	For the Three Months Ended March 31,
(in thousands)	2023		2022
Operating activities:
Net income (loss)	$	(2,571)	$	24,794
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Real estate-related depreciation and amortization		33,197		27,451
Straight-line rent and amortization of above- and below-market leases		(1,896)		(1,753)
Gain on sale of real estate property		(36,884)		(53,881)
Performance participation allocation		—		12,192
Impairment loss on debt-related investment held for sale		2,520		—
Equity in income of unconsolidated joint venture partnership		2,446		1,010
Loss on extinguishment of debt and financing commitments, net		700		—
Provision for current expected credit losses		5,630		—
Amortization of deferred financing costs		1,960		1,780
Financing obligation liability appreciation		2,862		4,007
Other		1,659		(646)
Changes in operating assets and liabilities
Other assets, accounts payable and accrued expenses and other liabilities		(1,649)		9,449
Cash settlement of accrued performance participation allocation		(23,747)		—
Net cash (used in) provided by operating activities		(15,773)		24,403
Investing activities:
Real estate acquisitions		(14,697)		(368,234)
Capital expenditures		(12,837)		(6,488)
Proceeds from disposition of real estate property		53,735		169,421
Investments in debt-related investments		(615)		(840)
Investments in unconsolidated joint venture partnerships		(7,673)		(35,058)
Other		1,257		33
Net cash provided by (used) in investing activities		19,170		(241,166)
Financing activities:
Repayments of mortgage notes		(70,932)		(413)
Net proceeds from (repayments of) line of credit		42,000		(94,000)
Redemptions of common stock		(35,455)		(14,555)
Distributions paid to common stockholders, redeemable noncontrolling interest holders and noncontrolling interest holders		(14,505)		(11,251)
Proceeds from issuance of common stock		39,700		109,767
Proceeds from financing obligations, net		83,834		253,093
Offering costs for issuance of common stock and private placements		(4,157)		(3,462)
Redemption of noncontrolling interests		(10,930)		(2,305)
Redemption of redeemable noncontrolling interests		—		(7,724)
Deferred financing costs paid		(45)		(92)
Interest rate cap premium		(9,340)		—
Net cash provided by financing activities		20,170		229,058
Net increase in cash, cash equivalents and restricted cash		23,567		12,295
Cash, cash equivalents and restricted cash, at beginning of period		17,186		14,352
Cash, cash equivalents and restricted cash, at end of period	$	40,753	$	26,647

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of ~~Contents~~contents

ARES REAL ESTATE INCOME TRUST INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Unless the context otherwise requires, the “Company,” “we,” “our” or “us” refers to Ares Real Estate Income Trust Inc. and its consolidated subsidiaries. ~~The Company is~~We are externally managed by ~~its~~our advisor. On July 1, 2021, Ares Management Corporation (“Ares”) closed on the acquisition of the U.S. real estate investment advisory and distribution business of Black Creek Group, including the Company’s former advisor, Black Creek Diversified Property Advisors LLC (the “Former Advisor”). As a result of the closing of this transaction, Ares Commercial Real Estate Management LLC became the Company’s new advisor (the “New Advisor”). Ares did not acquire the Company’s former sponsor, Black Creek Diversified Property Advisors Group LLC (the “Former Sponsor”), and the Company now considers the Ares real estate group (“AREG”) to be its Sponsor. References to the “Advisor” throughout this report mean Black Creek Diversified Property Advisors LLC for periods prior to July 1, 2021 and Ares Commercial Real Estate Management LLC for periods thereafter.

The accompanying unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain disclosures normally included in the annual audited financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been omitted. As such, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on March ~~14,~~ 20, 2023 (“2022 ~~(“2021~~ Form 10-K”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Global macroeconomic conditions, including heightened inflation, changes to fiscal and monetary policy, higher interest rates and challenges in the supply chain, coupled with the war in Ukraine and the ongoing effects of the novel coronavirus pandemic, have the potential to negatively impact us. These current macroeconomic conditions may continue or aggravate and could cause the United States to experience an economic slowdown or recession. We anticipate our business and operations could be materially adversely affected by a prolonged recession in the United States.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with GAAP.

As used herein, the term “commercial” refers to our office, retail and industrial properties or customers, as applicable.

Reclassifications

Certain items in our condensed consolidated statements of operations, condensed consolidated statements of equity and condensed consolidated statements of cash flows for the three months ended March 31, ~~2021~~2022 have been reclassified to conform to the ~~2022~~2023 presentation.

Table of contents

2. INVESTMENTS IN REAL ESTATE PROPERTIES

The following table summarizes our consolidated investments in real estate ~~properties and excludes properties classified as held for sale. Refer to “Note 3” for detail relating to our real estate properties held for sale.~~properties.


	As of,				As of
(in thousands)	March 31, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Land	$	624,308	$	583,728	$	689,142	$	694,998
Buildings and improvements		2,477,200		2,180,358		3,166,233		3,152,553
Intangible lease assets		297,979		284,128		313,324		317,141
Right of use asset		13,637		13,637		13,637		13,637
Investment in real estate properties		3,413,124		3,061,851		4,182,336		4,178,329
Accumulated depreciation and amortization		(491,137)		(472,025)		(597,258)		(572,751)
Net investment in real estate properties	$	2,921,987	$	2,589,826	$	3,585,078	$	3,605,578

Acquisitions

During the three months ended March 31, 2023, we acquired 100% of the following properties through asset acquisitions:


($ in thousands)	Property Type	Acquisition Date	Total Purchase Price (1)
2023 Acquisitions:
VM8 Logistics Center	Industrial	1/19/2023	$	17,511
Total 2023 acquisitions			$	17,511

(1)	Total purchase price is equal to the total consideration paid plus any debt assumed at fair value. There was no debt assumed in connection with the 2023 acquisitions.

During the three months ended March 31, 2023, we allocated the purchase price of our acquisitions to land and building and improvements as follows:


	For the Three Months Ended
($ in thousands)	March 31, 2023
Land	$	2,166
Building and improvements		15,345
Total purchase price (1)	$	17,511

(1)

Total purchase price is equal to the total consideration paid plus any debt assumed at fair value. There was no debt assumed in connection with the 2023 acquisitions. There were no intangible lease assets or liabilities acquired in connection with our acquisition during the three months ended March 31, 2023.

Dispositions

During the three months ended March 31, 2023, we sold one partial retail property for net proceeds of approximately $53.7 million. We recorded a net gain on sale of approximately $36.9 million.

During the three months ended March 31, 2022, we sold two retail properties, one office property and one retail land parcel for net proceeds of approximately $169.4 million. We recorded a net gain on sale of approximately $53.9 million.

Table of ~~Contents~~contents

~~Acquisitions~~

~~During the three months ended March 31, 2022, we acquired 100% of the following properties, all of which were determined to be asset acquisitions:~~

($ in thousands)

Property Type

Acquisition Date

Total Purchase Price (1)
2022 Acquisitions:

Skye 750

Residential

1/5/2022

$
92,845
General Washington IC

Industrial

1/7/2022

11,051
Western Foods Center

Industrial

1/14/2022

39,298
Orlando I & II LC

Industrial

2/17/2022

94,759
Orlando III & IV LC

Industrial

2/17/2022

42,347
Orlando V LC

Industrial

2/17/2022

34,828
Orlando VI LC

Industrial

2/17/2022

28,694
Orlando VII LC

Industrial

2/17/2022

23,532
Total 2022 acquisitions





$
367,354

~~(1)~~

~~Total purchase price is equal to the total consideration paid plus any debt assumed at fair value. There was 0 debt assumed in connection with the 2022 acquisitions.~~

~~During the three months ended March 31, 2022, we allocated the purchase price of our acquisitions to land, building and intangible lease assets and liabilities as follows:~~

For the Three Months Ended
($ in thousands)

March 31, 2022
Land

$
46,060
Building

310,016
Intangible lease assets

15,376
Above-market lease assets

696
Below-market lease liabilities

(4,794)
Total purchase price (1)

$
367,354

~~(1)~~

~~There was 0 debt assumed in connection with the 2022 acquisitions.~~

The weighted-average amortization period for the intangible lease assets and liabilities acquired in connection with our acquisitions during the three months ended March 31, 2022, as of the respective date of each acquisition, was 6.4 years.

~~Dispositions~~

During the three months ended March 31, 2022, we sold 2 retail properties, 1 office property and 1 retail land parcel for net proceeds of approximately $169.4 million. We recorded a net gain on sale of approximately $53.9 million.

During the three months ended March 31, 2021, we sold 1 retail property and 1 industrial property for net proceeds of approximately $49.0 million. We recorded a net gain on sale of approximately $27.3 million.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities ~~excluding properties classified as held for sale,~~ as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 include the following:

As of March 31, 2022

As of December 31, 2021

Accumulated


Accumulated

(in thousands)

Gross

Amortization

Net

Gross

Amortization

Net
Intangible lease assets

$
274,556

$
(192,056)

$
82,500

$
261,401

$
(186,820)

$
74,581
Above-market lease assets

23,423

(19,676)

3,747

22,727

(19,507)

3,220
Below-market lease liabilities

(83,653)

32,871

(50,782)

(80,206)

32,707

(47,499)


	As of March 31, 2023						As of December 31, 2022
			Accumulated						Accumulated
(in thousands)	Gross		Amortization		Net		Gross		Amortization		Net
Intangible lease assets (1)	$	290,391	$	(217,141)	$	73,250	$	294,208	$	(214,201)	$	80,007
Above-market lease assets (1)		22,933		(19,892)		3,041		22,933		(19,707)		3,226
Below-market lease liabilities		(73,331)		33,098		(40,233)		(76,033)		33,589		(42,444)

(1)	Included in net investment in real estate properties on the condensed consolidated balance sheets.

~~Table of Contents~~

Rental Revenue Adjustments and Depreciation and Amortization Expense

The following table summarizes straight-line rent adjustments, amortization recognized as an increase (decrease) to rental revenues from above- and below-market lease assets and liabilities and real estate-related depreciation and amortization expense:


	For the Three Months Ended March 31,				For the Three Months Ended March 31,
(in thousands)	2022		2021		2023		2022
Increase (decrease) to rental revenue:
Straight-line rent adjustments	$	726	$	1,176	$	1,068	$	726
Above-market lease amortization		(169)		(102)		(186)		(169)
Below-market lease amortization		1,196		751		1,014		1,196
Real estate-related depreciation and amortization:
Depreciation expense	$	20,198	$	13,354	$	26,417	$	20,198
Intangible lease asset amortization		7,253		3,379		6,780		7,253

~~Real Estate Property Impairment~~

During the three months ended March 31, 2021, we recorded non-cash impairment charges of $0.8 million related to a retail property located in the Greater Boston market, which was disposed of in March 2021. Prior to the disposition, we reevaluated the fair value of the property and determined that the net book value of the property exceeded the respective contract sales price less costs to sell the property, resulting in the impairment.

3. ~~ASSETS HELD FOR SALE~~INVESTMENTS IN UNCONSOLIDATED JOINT VENTURE PARTNERSHIPS

We ~~classify a property as held~~have acquired interests in joint venture partnerships for ~~sale when certain criteria are met,~~purposes of investing in ~~accordance with GAAP. Assets classified as held for sale are expected to be sold to a third party. At such time~~properties across the ~~property meets~~U.S. We record our investments in AREIT-McDowell Vue Parent LLC (“Vue 1400 JV”), Pathfinder Core AREIT JV NNN Holdings, LLC (“Net Lease JV I”), Pathfinder Core AREIT Net Lease Aggregator LLC (“Net Lease JV II”) and Pathfinder Core AREIT Net Lease TRS Aggregator LLC (“Net Lease JV III”) under the ~~held for sale criteria, the respective assets and liabilities are presented separately in the~~equity method on our condensed consolidated balance sheets as we have the ability to exercise significant influence in each partnership but do not have control of the entities. Other partners in Net Lease JV I, Net Lease JV II and ~~depreciation is no longer recognized. Assets held for sale~~Net Lease JV III are ~~reported at the lower~~affiliates of ~~their carrying amount or their estimated fair value less the costs to sell the assets.~~our Advisor.

~~As of December 31, 2021, we had 1 retail property (Bandera Road) and 1 office property (1~~^st ~~Avenue) that met the criteria to be classified as held for sale. Both properties were sold in the first quarter of 2022.~~ The following table summarizes ~~the amounts held for sale~~our investments in unconsolidated joint venture partnerships as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022:


		As of March 31, 2023		As of December 31, 2022		Investments in Unconsolidated
	Property	Ownership	Number of	Ownership	Number of	Joint Venture Partnerships as of
($ in thousands)	Type	Percentage	Properties	Percentage	Properties	As of March 31, 2023		As of December 31, 2022
Vue 1400 JV	Residential	85%	1	85%	1	$	25,574	$	25,984
Net Lease JV I	Net Lease	50%	15	50%	15		16,371		16,393
Net Lease JV II	Net Lease	50%	120	50%	117		66,314		65,763
Net Lease JV III	Net Lease	50%	23	50%	23		16,907		12,232
Total investments in unconsolidated joint venture partnerships			159		156	$	125,166	$	120,372

As of
(in thousands)

March 31, 2022

December 31, 2021
Net investment in real estate properties

$
—

$
101,690
Other assets

—

3,406
Assets held for sale

$
—

$
105,096
Accounts payable and accrued expenses

$
—

$
3,172
Intangible lease liabilities, net

—

995
Other liabilities

—

1,577
Liabilities related to assets held for sale

$
—

$
5,744

Table of ~~Contents~~contents

4. REAL ESTATE DEBT INVESTMENTS ~~IN UNCONSOLIDATED JOINT VENTURE PARTNERSHIPS~~

Debt-Related Investments

The following table summarizes our debt-related investments as of March 31, 2023 and December 31, 2022:


					Weighted-Average			Weighted-Average
($ in thousands)	Carrying Amount (1)		Outstanding Principal (1)		Interest Rate			Remaining Life (Years)
As of March 31, 2023
Senior loans (2)	$	147,795	$	155,555		8.9	%		1.8
Mezzanine loans		106,406		108,500		10.9			1.6
Total debt-related investments (2)	$	254,201	$	264,055		9.9	%		1.7
As of December 31, 2022
Senior loans (2)	$	151,645	$	154,622		8.5	%		2.1
Mezzanine loans		108,794		108,500		10.4			1.9
Total debt-related investments (2)	$	260,439	$	263,122		9.5	%		2.0

(1)	The difference between the carrying amount and the outstanding principal amount of the debt-related investments consists of unamortized purchase discount, deferred financing costs, loan origination costs, and any recorded credit loss reserves, if applicable.

(2)

As of March 31, 2023 and December 31, 2022, carrying amounts include $39.5 million and $42.0 million, respectively, related to one senior loan debt-related investment that was in default and on non-accrual status. Outstanding principal includes $43.8 million related to this senior loan as of March 31, 2023 and December 31, 2022. We recorded an impairment loss of $2.5 million related to this senior loan during the three months ended March 31, 2023 and included the impairment loss in impairment loss on debt-related investment held for sale on the condensed consolidated statements of operations. This senior loan is held-for-sale and therefore the carrying amount has been reduced to its fair value as of both March 31, 2023 and December 31, 2022. Weighted-average interest rate and weighted-average remaining life excludes this senior loan from its calculations.

Current Expected Credit Losses

Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, requires us to reflect current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broad range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”). ASU No. 2016-13 was effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. ASU No. 2016-13 was adopted by us as of January 1, 2020. Increases and decreases to expected credit losses impact earnings and are recorded within the provision for current expected credit losses in our condensed consolidated statements of operations. The CECL Reserve related to outstanding balances on loans held for investment required under ASU No. 2016-13 is a valuation account that is deducted from the amortized cost basis of our loans held for investment in our condensed consolidated balance sheets. The CECL Reserve related to unfunded commitments on loans held for investment is recorded within other liabilities in our condensed consolidated balance sheets.

We estimate our CECL Reserve primarily using a probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan. Calculation of the CECL Reserve requires loan specific data, which includes capital senior to us when we are the subordinate lender, changes in net operating income, debt service coverage ratio, loan-to-value, occupancy, property type and geographic location. Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of our floating rate loan portfolio and (iv) our current and future view of the macroeconomic environment. We may consider loan-specific qualitative factors on certain loans to estimate our CECL Reserve. In order to estimate the future expected loan losses relevant to our portfolio, we utilize historical market loan loss data licensed from a third-party data service. For periods beyond the reasonable and supportable forecast period, we revert back to historical loss data.

Loan balances that are deemed to be uncollectible are written off as a realized loss and are deducted from our CECL Reserve. The write-offs are recorded in the period in which the loan balance is deemed uncollectible based on management’s judgment.

Table of contents

As of March 31, 2023, our CECL Reserve for our debt-related investment portfolio is $5.6 million or 1.6% of our debt- related investment commitment balance of $358.3 million recognized as an increase in provision for loan loss during the three months ended March 31, 2023. The debt-related investment commitment balance is comprised of $220.4 million of funded commitments and $137.9 million of unfunded commitments with associated CECL Reserves of $3.5 million and $2.1 million, respectively. The CECL Reserve for unfunded commitments is based on the unfunded portion of the loan commitment over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit and is recorded as an other liability on the condensed consolidated balance sheets. The calculation of the CECL Reserve excludes one debt-related investment that is currently held for sale. There have been no write-offs or recoveries related to any of our existing debt-related investments. CECL Reserves were immaterial in prior periods.

Available-for-Sale Debt Securities

We acquire debt securities that are primarily collateralized by mortgages on commercial real estate properties primarily for cash management and investment purposes. On ~~November 30, 2021,~~the acquisition date, we acquired interests in 2 joint venture partnerships, Pathfinder Core AREIT JV NNN Holdings, LLC (“Net Lease JV I”) and Pathfinder Core AREIT Net Lease Aggregator LLC (“Net Lease JV II”), for purposes of investing in properties across the U.S. with triple net lease agreements. On December 21, 2021, we also acquired interests in another joint venture partnership, AREIT-McDowell Vue Parent LLC (“Vue 1400 JV”), with third party investors for purposes of acquiring a 316 unit residential property in West Palm Beach, Florida. We record ourdesignate investments in ~~these joint venture partnerships under~~commercial real estate debt securities as available-for-sale. Investments in debt securities that are classified as available-for-sale are carried at fair value. These assets are valued on a recurring basis and any unrealized holding gains and losses other than those associated with a credit loss are recorded each period in other comprehensive income. There were no credit losses associated with our available-for-sale debt securities as of and for the ~~equity method~~period ended March 31 2023.

As of March 31, 2023 and December 31, 2022, we had one debt security investment designated as available-for-sale debt securities. The weighted-average remaining term of our available-for-sale debt security, which is based on ~~our consolidated balance sheets as we have~~ the ~~ability to exercise significant influence in each partnership but do not have control~~estimated fully extended maturity dates of the ~~entities.~~underlying loans of the debt security, was approximately 3.8 years as of March 31, 2023.

The following table summarizes our investments in ~~unconsolidated joint venture partnerships~~available-for-sale debt securities as of March 31, 2023 and December 31, 2022:

Investment in Unconsolidated Joint

Ownership

Venture Partnerships as of
($ in thousands)

Segment

Percentage


March 31, 2022

December 31, 2021
Vue 1400 JV

Residential

85%

$
24,863

$
26,117
Net Lease JV I

Net Lease

50%

16,445

16,267
Net Lease JV II

Net Lease

50%

49,932

15,041
Total investment in unconsolidated joint venture partnerships





$
91,240

$
57,425


($ in thousands)	Face Amount		Amortized Cost		Unamortized Discount		Unrealized Gain, Net (1)		Fair Value
As of March 31, 2023
Available-for-sale debt securities	$	14,979	$	14,876	$	103	$	103	$	14,979
As of December 31, 2022
Available-for-sale debt securities	$	14,979	$	14,870	$	109	$	26	$	14,896

(1)	Represents cumulative unrealized gain beginning from acquisition date.

Table of contents

5. DEBT

A summary of our consolidated debt is as follows:


	Weighted-Average									Weighted-Average
	Effective Interest Rate as of					Balance as of				Effective Interest Rate as of					Balance as of
	March 31,		December 31,			March 31,		December 31,		March 31,		December 31,			March 31,		December 31,
($ in thousands)	2022		2021		Current Maturity Date	2022		2021		2023		2022		Current Maturity Date	2023		2022
Line of credit (1)	1.80	%	1.35	%	November 2025	$	162,000	$	256,000	6.17	%	5.72	%	November 2025	$	277,000	$	235,000
Term loan (2)	3.24		3.16		November 2026		325,000		325,000	3.31		3.90		November 2026		400,000		400,000
Term loan (3)	1.70		3.19		January 2027		200,000		200,000	4.26		4.56		January 2027		400,000		400,000
Fixed-rate mortgage notes	3.49		3.49		October 2022 - May 2031		381,541		381,954	3.40		3.48		January 2027 - May 2031		310,084		380,316
Floating-rate mortgage note (4)	2.58		2.26		October 2024 - October 2026		207,600		207,600
Floating-rate mortgage notes (4)										4.52		4.52		October 2024 - October 2026		207,600		207,600
Total principal amount / weighted-average (5)	2.78	%	2.78	%		$	1,276,141	$	1,370,554	4.22	%	4.31	%		$	1,594,684	$	1,622,916
Less: unamortized debt issuance costs						$	(15,981)	$	(16,762)						$	(13,711)	$	(14,849)
Add: unamortized mark-to-market adjustment on assumed debt							9,184		9,442							8,147		8,408
Total debt, net						$	1,269,344	$	1,363,234						$	1,589,120	$	1,616,475
Gross book value of properties encumbered by debt						$	983,686	$	981,927						$	907,741	$	970,310

(1)

The effective interest rate is calculated based on the ~~London Interbank Offered~~Term Secured Overnight Financing Rate plus an 11.448 basis point adjustment (“~~LIBOR”~~Adjusted Term SOFR”), plus a margin ranging from 1.25% to 2.00%, depending on our consolidated leverage ratio. As of March 31, ~~2022,~~2023, the unused and available portions under the line of credit were approximately ~~$538.0~~$623.0 million and ~~$447.4~~$565.6 million, respectively. The line of credit is available for general business purposes including, but not limited to, refinancing of existing indebtedness and financing the acquisition of permitted investments, including commercial properties.

(2)

The effective interest rate is calculated based on ~~LIBOR,~~Adjusted Term SOFR, plus a margin ranging from 1.20% to 1.90%, depending on our consolidated leverage ratio. Total commitments for this term loan are $400.0 million. As of March 31, 2022, the unused and available portion of this term loan was $75.0 million. Any additional amount drawn on this term loan would reduce the amount available under the line of credit in the same amount. The weighted-average interest rate is the all-in interest rate, including the effects of interest rate swap agreements relating to ~~approximately~~ $300.0 million in borrowings under this term loan and an interest rate cap agreement relating to $100.0 million in borrowings under this term loan.

(3)

The effective interest rate is calculated based on ~~LIBOR,~~Adjusted Term SOFR, plus a margin ranging from 1.20% to 1.90%, depending on our consolidated leverage ratio. Total commitments for this term loan are $400.0 million. ~~As of March 31, 2022, the unused and available portion of this term loan was $200.0~~ ~~million. Any additional amounts drawn on this term loan would reduce the amount available under the line of credit in the same amount. As of December 30, 2021, the~~The weighted-average interest rate is the all-in interest rate, including the effects of interest rate swap agreements relating to $350.0 million in borrowings under this term loan and ~~is fixed through~~an interest ~~swap agreements.~~rate cap agreement relating to $50.0 million in borrowings under this term loan.

(4)

The effective interest rate is calculated based on the London Interbank Offered Rate (“LIBOR”) plus a margin. As of both March 31, 2023 and December 31, 2022, our floating-rate mortgage notes were subject to interest rate spreads ranging from 1.55% to 2.50%. The weighted-average interest rate is the all-in interest rate, including the effects of interest rate cap agreements which capped the effective interest rates of our two floating-rate mortgage notes at 4.50% and 4.55%, respectively, as of March 31, 2023.

(5)	The weighted-average remaining term of our consolidated borrowings was approximately 3.7 years as of March 31, 2023, excluding the impact of certain extension options.

For the three months ended March 31, 2023 and 2022, the amount of interest incurred related to our consolidated indebtedness, excluding amortization of debt issuance costs, was $19.6 million and $9.7 million, respectively. See “Note 6” for the amount of interest incurred related to the DST Program (as defined below).

1113

Table of ~~Contents~~contents

~~(4)~~

The effective interest rate is calculated based on LIBOR plus a margin. As of both March 31, 2022 and December 31, 2021, our floating-rate mortgage notes were subject to interest rate spreads ranging from 1.55% to 2.50%.

~~(5)~~

~~The weighted-average remaining term of our consolidated borrowings was approximately 4.7 years as of March 31, 2022, excluding the impact of certain extension options.~~

As of March 31, ~~2022,~~2023, the principal payments due on our consolidated debt during each of the next five years and thereafter were as follows:


(in thousands)	Line of Credit (1)		Term Loans		Mortgage Notes		Total		Line of Credit (1)		Term Loans		Mortgage Notes		Total
Remainder of 2022	$	0	$	0	$	1,199	$	1,199
2023		0		0		1,463		1,463		—		—		1,205		1,205
2024		0		0		129,265		129,265		—		—		129,265		129,265
2025		162,000		0		72,360		234,360		277,000		—		2,360		279,360
2026		0		325,000		84,214		409,214		—		400,000		84,214		484,214
2027										—		400,000		175,787		575,787
Thereafter		0		200,000		300,640		500,640		—		—		124,853		124,853
Total principal payments	$	162,000	$	525,000	$	589,141	$	1,276,141	$	277,000	$	800,000	$	517,684	$	1,594,684

(1)	The term of the line of credit may be extended pursuant to 2two six-month extension options, subject to certain conditions.

In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (“ARRC”), which identified the Secured Overnight Financing Rate ~~(“SOFR”)~~ as its preferred alternative rate for LIBOR in derivatives and other financial contracts. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

LIBOR is expected to be phased out or modified by June 2023. As of March 31, ~~2022, our line of credit, term loans and~~2023, certain of our mortgage notes have initial or extended maturity dates beyond 2023 with exposure to LIBOR. The agreements governing these loans provide procedures for determining a replacement or alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the phasing out of LIBOR after June 2023 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.

Debt Covenants

Our line of credit, term loans and mortgage note agreements contain various property-level covenants, including customary affirmative and negative covenants. In addition, the line of credit and term loan agreements contain certain corporate-level financial covenants, including leverage ratio, fixed charge coverage ratio and tangible net worth thresholds. We were in compliance with our debt covenants as of March 31, ~~2022.~~2023.

Derivative Instruments

To manage interest rate risk for certain of our variable-rate debt, we use interest rate derivative instruments as part of our risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by either providing a fixed interest rate or capping the variable interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the interest rate swap agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable amounts from a counterparty at the end of each period in which the interest rate exceeds the agreed fixed price. ~~Interest rate caps are not designated as hedges.~~ Certain of our variable-rate borrowings are not hedged, and therefore, to an extent, we have ongoing exposure to interest rate movements.

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss is recorded as a component of accumulated other comprehensive income (loss) (“AOCI”) on the condensed consolidated balance sheets and is reclassified into earnings as interest expense for the same period that the hedged transaction affects earnings, which is when the interest expense is recognized on the related debt. During the next 12 months, we estimate that approximately ~~$1.0~~$13.2 million will be reclassified as ana decrease to interest expense related to active effective hedges of existing floating-rate debt.

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~~increase to interest expense related to active effective hedges~~As of ~~existing floating-rate debt. Our~~March 31, 2023, we have two interest rate cap derivative instruments that are not designated as cash flow hedges and therefore, changes in fair value ~~must be~~are recognized through income. As a result, in periods with high interest rate volatility, we may experience significant fluctuations in our net income (loss).

The following table summarizes the location and fair value of our consolidated derivative instruments on our condensed consolidated balance sheets:

Number of

Fair Value
($ in thousands)

Contracts

Notional Amount


Other Assets

Other Liabilities
As of March 31, 2022

Interest rate swaps

7

$
300,000

$
2,819

$
1,909
Interest rate caps

2

207,600

1,709

0
Total derivative instruments

9

$
507,600

$
4,528

$
1,909
As of December 31, 2021

Interest rate swaps

13

$
500,000

$
164

$
11,236
Interest rate caps

2

207,600

159

0
Total derivative instruments

15

$
707,600

$
323

$
11,236


	Number of			Fair Value
($ in thousands)	Contracts	Notional Amount			Other Assets	Other Liabilities
As of March 31, 2023
Interest rate swaps designated as cash flow hedges	12	$	650,000	$	14,339	$	—
Interest rate caps designated as cash flow hedges	1		150,000		7,806
Interest rate caps not designated as cash flow hedges	2		207,600		2,889		—
Total derivative instruments	15	$	1,007,600	$	25,034	$	—
As of December 31, 2022
Interest rate swaps designated as cash flow hedges	12	$	650,000	$	20,279	$	—
Interest rate caps not designated as cash flow hedges	2		207,600		4,169		—
Total derivative instruments	14	$	857,600	$	24,448	$	—

The following table presents the effect of our consolidated derivative instruments on our condensed consolidated financial statements:


	For the Three Months Ended				For the Three Months Ended
	March 31,				March 31,
(in thousands)	2022		2021		2023		2022
Derivative instruments designated as cash flow hedges:
Gain recognized in AOCI	$	10,075	$	3,343
Amount reclassified from AOCI into interest expense		1,919		2,572
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded		24,410		16,563
(Loss) gain recognized in AOCI					$	(4,000)	$	10,075
Amount reclassified from AOCI (out of) into interest expense						(3,056)		1,919
Total interest expense presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded						37,545		24,410
Derivative instruments not designated as cash flow hedges:
Gain (loss) recognized in income	$	1,550	$	(13)
Unrealized (loss) gain on derivative instruments recognized in other income (expenses) (1)					$	(1,224)	$	1,550
Realized gain on derivative instruments recognized in other income (expenses) (2)						1,121		—

(1)	Unrealized (loss) gain on changes in fair value of derivative instruments relates to mark-to-market changes on our derivatives not designated as cash flow hedges.

(2)	Realized gain on derivative instruments relates to interim cash settlements for our derivatives not designated as cash flow hedges.

6. DST PROGRAM

We have a program to raise capital through private placement offerings by selling beneficial interests ~~(the “DST~~(“DST Interests”) in specific Delaware statutory trusts holding real properties (the “DST Program”). ~~During the three months ended March 31, 2022 and 2021, we sold approximately $280.8 million and $51.8 million, respectively, in gross interests related to~~Under the DST Program, ~~including~~each private placement offers interests ~~financed~~in one or more real properties placed into one or more Delaware statutory trusts by the DST Program Loans (as defined below), and incurred rent obligations of approximately $9.3 million and $6.5 million, respectively, under our master lease agreements, included in interest expense on our condensed consolidated statements of operations, with investors who are participating in the DST Program. Additionally, during the three months ended March 31, 2022 and 2021, 4.8 million partnership units (“OP Units”) in our operating partnership, AREIT Operating Partnership ~~LP (the “Operating Partnership”) and 3.4 million OP Units, respectively were issued in exchange for~~ or its affiliates (“DST ~~Interests, for a net investment of $39.4 million and $25.9 million, respectively, in accordance with our Umbrella Partnership Real Estate Investment Trust (“UPREIT”~~Properties”) ~~structure.~~.

In order to facilitate additional capital raise through the DST Program, we have made and may continue to offer loans (“DST Program Loans”) to finance a portion of the sale of DST Interests in the trusts holding DST Properties to potential investors. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, there were approximately ~~$73.5~~$95.9 million and ~~$62.1~~$81.9 million, respectively, of outstanding DST Program Loans that we have made to partially finance the sale of DST Interests. Of the $280.8 million and $51.8 million, respectively, of gross interests sold during the three months ended March 31, 2022 and 2021, $14.8 million and $5.0 million, respectively, were financed by DST Program Loans. We include our investments in DST Program Loans separately on our condensed consolidated balance sheets in the DST Program Loans line item and we include income earned from DST Program Loans in other income on our condensed consolidated statements of operations.

~~We do not have a significant credit concentration with any individual purchaser as a result~~Table of contents

The following table presents our DST Program ~~Loans.~~activity for the three months ended March 31, 2023 and 2022:


		For the Three Months Ended
		March 31,
(in thousands)		2023		2022
DST Interests sold	$	101,795	$	280,802
DST Interests financed by DST Program Loans		14,015		14,827
Income earned from DST Program Loans (1)		1,017		669
Financing obligation liability appreciation (2)		2,862		4,007
Rent obligation incurred under master lease agreements (2)		13,583		9,253

(1)	Included in other income and expenses on the condensed consolidated statements of operations.

(2)	Included in interest expense on the condensed consolidated statements of operations.

Additionally, during the three months ended March 31, 2022, 4.8 million partnership units (“OP Units”) in our operating partnership, AREIT Operating Partnership LP (the “Operating Partnership”) were issued in exchange for DST Interests, for a net investment of $39.4 million in accordance with our Umbrella Partnership Real Estate Investment Trust (“UPREIT”) structure. There have been no OP Units issued in accordance with our UPREIT structure during the three months ended March 31, 2023.

7. FAIR VALUE

We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of the amounts that we would realize upon ~~disposition.~~

~~Table~~disposition of ~~Contents~~our financial instruments.

Fair Value Measurements on a Recurring Basis

The following table presents our financial instruments measured at fair value on a recurring basis:


							Total								Total
(in thousands)	Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value
As of March 31, 2022
As of March 31, 2023
Assets:
Derivative instruments	$	0	$	4,528	$	0	$	4,528	$	—	$	25,034	$	—	$	25,034
Available-for-sale debt securities										—		14,979		—		14,979
Total assets measured at fair value	$	0	$	4,528	$	0	$	4,528	$	—	$	40,013	$	—	$	40,013
Liabilities:
Derivative instruments	$	0	$	1,909	$	0	$	1,909
Total liabilities measured at fair value	$	0	$	1,909	$	0	$	1,909
As of December 31, 2021
As of December 31, 2022
Assets:
Derivative instruments	$	0	$	323	$	0	$	323	$	—	$	24,448	$	—	$	24,448
Available-for-sale debt securities										—		14,896		—		14,896
Total assets measured at fair value	$	0	$	323	$	0	$	323	$	—	$	39,344	$	—	$	39,344
Liabilities:
Derivative instruments	$	0	$	11,236	$	0	$	11,236
Total liabilities measured at fair value	$	0	$	11,236	$	0	$	11,236

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Derivative Instruments. The derivative instruments are interest rate swaps and interest rate caps whose fair value is estimated using market-standard valuation models. Such models involve using market-based observable inputs, including interest rate curves. We incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are not material to the valuation. Due to these derivative instruments being unique and not actively traded, the fair value is classified as Level 2. See ~~Item 3 below~~“Note 5” above for further discussion of our derivative instruments.

Table of contents

Available-for-Sale Debt Securities. The available-for-sale debt securities are debt securities primarily collateralized by mortgages on commercial real estate properties whose fair value is estimated using third-party broker quotes, which provide valuation estimates based upon contractual cash flows, observable inputs comprising credit spreads and market liquidity. We incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are not material to the valuation. Due to the available-for-sale debt securities being unique and not actively traded, the fair value is classified as Level 2.

Nonrecurring Fair Value Measurements

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the fair values of cash and cash equivalents, restricted cash, tenant receivables, accounts payable and accrued expenses and distributions payable approximate their carrying values because of the short-term nature of these instruments. The table below includes fair values for certain of our financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:


	As of March 31, 2022				As of December 31, 2021				As of March 31, 2023				As of December 31, 2022
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
(in thousands)	Value (1)		Value		Value (1)		Value		Value (1)		Value		Value (1)		Value
Assets:
Debt-related investments	$	107,303	$	107,303	$	106,463	$	106,463	$	264,055	$	259,305	$	263,122	$	260,841
DST Program Loans		73,501		73,369		62,123		62,123		95,909		93,621		81,897		79,049
Liabilities:
Line of credit	$	162,000	$	162,000	$	256,000	$	256,000	$	277,000	$	277,000	$	235,000	$	235,000
Term loans		525,000		525,000		525,000		525,000		800,000		800,000		800,000		800,000
Mortgage notes		589,141		569,838		589,554		600,467		517,684		482,992		587,916		541,558

(1)	The carrying value reflects the principal amount outstanding.

8. EQUITY

Public Offerings

We intend to conduct a continuous public offering that will not have a predetermined duration, subject to continued compliance with the rules and regulations of the SEC and applicable state laws. On May 3, 2022, the SEC declared our registration statement on Form S-11 with respect to our fourth public offering of up to $10.0 billion of shares of its common stock effective, and the fourth public offering commenced the same day. We ceased selling shares of our common stock under our third public offering of up to $3.0 billion of shares immediately upon the effectiveness of the registration statement for the fourth public offering. Under the fourth public offering, we are offering up to $8.5 billion of shares of our common stock in the primary offering and up to $1.5 billion of shares of our common stock pursuant to our distribution reinvestment plan, in any combination of Class T shares, Class D shares, Class S shares and Class I shares. We may reallocate amounts between the primary offering and distribution reinvestment plan.

Pursuant to our public offerings, we offered and continue to offer shares of our common stock at the “transaction price,” plus applicable upfront selling commissions and dealer manager fees. The “transaction price” generally is equal to the net asset value (“NAV”) per share of our common stock most recently disclosed. Our NAV per share is calculated as of the last calendar day of each month for each of our outstanding classes of stock, and will be available generally within 15 calendar days after the end of the applicable month. Shares issued pursuant to our distribution reinvestment plan are offered at the transaction price, as indicated above, in effect on the distribution date. We may update a previously disclosed transaction price in cases where we believe there has been a material change (positive or negative) to our NAV per share relative to the most recently disclosed monthly NAV per share.

During the three months ended March 31, 2023, we raised gross proceeds of approximately $47.7 million from the sale of approximately 5.4 million shares of our common stock in our ongoing public offerings, including proceeds from our distribution reinvestment plan of approximately $8.0 million.

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~~8. STOCKHOLDERS’ EQUITY~~

~~Public Offering~~

~~A summary of our public offerings (including shares sold through the primary offering and distribution reinvestment plan (“DRIP”)) for the three months ended March 31, 2022 is as follows:~~

(in thousands)

Class T

Class S

Class D

Class I

Class E

Total
Amount of gross proceeds raised:

Primary offering

$
21,456

$
38,506

$
9,014

$
40,791

$
0

$
109,767
DRIP

751

1,579

301

2,463

1,649

6,743
Total offering

$
22,207

$
40,085

$
9,315

$
43,254

$
1,649

$
116,510
Number of shares sold:












Primary offering

2,555

4,661

1,104

5,019

0

13,339
DRIP

92

193

37

302

202

826
Total offering

2,647

4,854

1,141

5,321

202

14,165

Common Stock

The following table describes the changes in each class of common shares during the periods presented below:


	Class T	Class S	Class D	Class I	Class E	Total	Class T	Class S	Class D	Class I	Class E	Total
(in thousands)	Shares	Shares	Shares	Shares	Shares	Shares	Shares	Shares	Shares	Shares	Shares	Shares
FOR THE THREE MONTHS ENDED MARCH 31, 2021
Balance as of December 31, 2020	9,831	23,516	4,098	44,723	60,873	143,041
Issuance of common stock:
Primary shares	538	2,909	816	1,501	0	5,764
Distribution reinvestment plan	58	135	25	265	240	723
Share-based compensation	0	0	0	8	0	8
Redemptions of common stock	(43)	(117)	(40)	(343)	(1,701)	(2,244)
Conversions	(15)	0	0	15	0	0
Balance as of March 31, 2021	10,369	26,443	4,899	46,169	59,412	147,292
FOR THE THREE MONTHS ENDED MARCH 31, 2022
Balance as of December 31, 2021	16,425	35,757	6,749	54,406	56,328	169,665	16,425	35,757	6,749	54,406	56,328	169,665
Issuance of common stock:
Primary shares	2,555	4,661	1,104	5,019	0	13,339	2,555	4,661	1,104	5,019	—	13,339
Distribution reinvestment plan	92	193	37	302	202	826	92	193	37	302	202	826
Share-based compensation	0	0	0	0	0	0
Redemptions of common stock	(3)	(122)	(228)	(356)	(1,079)	(1,788)	(3)	(122)	(228)	(356)	(1,079)	(1,788)
Conversions	(62)	0	0	62	0	0	(62)	—	—	62	—	—
Balance as of March 31, 2022	19,007	40,489	7,662	59,433	55,451	182,042	19,007	40,489	7,662	59,433	55,451	182,042
FOR THE THREE MONTHS ENDED MARCH 31, 2023
Balance as of December 31, 2022							26,884	49,237	7,871	69,142	52,974	206,108
Issuance of common stock:
Primary shares							1,325	972	45	2,117	—	4,459
Distribution reinvestment plan							134	227	40	331	175	907
Redemptions of common stock							(69)	(561)	(240)	(2,557)	(599)	(4,026)
Conversions							(101)	24	(277)	354	—	—
Balance as of March 31, 2023							28,173	49,899	7,439	69,387	52,550	207,448

~~Table of Contents~~

Distributions

The following table summarizes our distribution activity (including distributions to noncontrolling interests and distributions reinvested in shares of our common stock) for the periods below:


	Amount										Amount
			Common Stock										Common Stock
	Declared per		Distributions		Other Cash		Reinvested in		Total		Declared per		Distributions		Other Cash		Reinvested in		Distribution		Gross
(in thousands, except per share data)	Common Share (1)		Paid in Cash (2)		Distributions (3)		Shares		Distributions		Common Share (1)		Paid in Cash		Distributions (2)		Shares		Fees (3)		Distributions (4)
2022
2023
March 31	$	0.09375	$	8,837	$	4,048	$	6,876	$	19,761	$	0.09375	$	9,912	$	5,271	$	8,009	$	1,461	$	24,653
Total	$	0.09375	$	8,837	$	4,048	$	6,876	$	19,761	$	0.09375	$	9,912	$	5,271	$	8,009	$	1,461	$	24,653
2021
2022
March 31	$	0.09375	$	7,562	$	2,010	$	5,526	$	15,098	$	0.09375	$	8,837	$	3,018	$	6,876	$	1,030	$	19,761
June 30		0.09375		7,696		2,266		5,723		15,685		0.09375		9,299		3,157		7,362		1,259		21,077
September 30		0.09375		7,984		2,613		5,985		16,582		0.09375		9,684		3,972		7,732		1,399		22,787
December 31		0.09375		8,265		3,331		6,361		17,957		0.09375		9,859		4,559		7,923		1,478		23,819
Total	$	0.37500	$	31,507	$	10,220	$	23,595	$	65,322	$	0.37500	$	37,679	$	14,706	$	29,893	$	5,166	$	87,444

(1)

Amount reflects the total gross quarterly distribution rate ~~subject~~authorized by our board of directors per Class T share, per Class S share, per Class D share, per Class I share and per Class E share of common stock. Distributions were declared and paid as of monthly record dates. These monthly distributions have been aggregated and presented on a quarterly basis. The distributions on Class T shares, Class S shares and Class D shares of common stock are reduced by the respective distribution fees that are payable with respect to ~~adjustment for class-specific fees.~~Class T shares, Class S shares and Class D shares.

(2)	~~Amount reflects distributions paid in cash to common stockholders, net~~Consists of ~~class specific fees.~~

~~(3)~~

~~Includes other cash distributions consisting of (i) distributions paid to holders of OP Units in the Operating Partnership; and (ii) ongoing~~ distribution fees paid to ~~the dealer manager for our public offerings,~~ Ares Wealth Management Solutions, LLC (the “Dealer Manager”), with respect to ~~certain classes~~OP Units and distributions paid to holders of OP Units and other noncontrolling interest holders.

(3)

Distribution fees are paid monthly to the Dealer Manager, with respect to Class T shares, Class S shares and Class D shares issued in the primary portion of our ~~shares.~~public offerings only. All or a portion of these amounts will be retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers.

(4)	Gross distributions are total distributions before the deduction of any distribution fees relating to Class T shares, Class S shares and Class D shares issued in the primary portion of our public offerings.

Table of contents

Redemptions and Repurchases

Below is a summary of redemptions and repurchases pursuant to our share redemption program for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. All eligible redemption requests were fulfilled for the periods presented. Our board of directors may modify or suspend our current share redemption programs if it deems such action to be in the best interest of our stockholders.


	For the Three Months Ended March 31,						For the Three Months Ended March 31,
(in thousands, except for per share data)	2022			2021			2023		2022
Number of shares requested for redemption or repurchase		1,788			2,244
Number of shares redeemed or repurchased		1,788			2,244			4,026		1,788
% of shares requested that were redeemed or repurchased		100.0	%		100.0	%
Aggregate dollar amount of shares redeemed or repurchased							$	35,455	$	14,555
Average redemption or repurchase price per share	$	8.15		$	7.55		$	8.81	$	8.15

~~Table of Contents~~

9. REDEEMABLE NONCONTROLLING INTERESTS

The Operating Partnership’s net income and loss will generally be allocated to the general partner and the limited partners in accordance with the respective percentage interest in the OP Units issued by the Operating Partnership.

The Operating Partnership issued OP Units to the Advisor and Former Sponsor as payment of the performance participation allocation (also referred to as the performance component of the advisory fee) pursuant to the ~~amended and restated~~ advisory ~~agreement, by and among the Company, the Operating Partnership and our Advisor.~~agreement. The Advisor and Former Sponsor subsequently transferred these OP Units to its members or their affiliates or redeemed for cash. We have classified these OP Units as redeemable noncontrolling interests in mezzanine equity on the condensed consolidated balance sheets due to the fact that, as provided in the agreement of limited partnership of the Operating Partnership (the “Partnership Agreement”), the limited partners who hold these OP Units have the ability to tender the OP Units at any time irrespective of the period that they have held such OP Units, and the Operating Partnership is required to satisfy such redemption for cash unless such cash redemption would be prohibited by applicable law or the Partnership Agreement, in which case such OP Units will be redeemed for shares of the Company’s common stock of the class corresponding to the class of such OP Units.sheets. The redeemable noncontrolling interests are recorded at the greater of the carrying amount, adjusted for its share of the allocation of income or loss and dividends, or the redemption value, which is equivalent to fair value, of such OP Units at the end of each measurement period. As of both March 31, 2023 and December 31, 2022, we had 2.0 million redeemable OP Units outstanding.

The following table summarizes the redeemable noncontrolling interests activity for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


	For the Three Months Ended March 31,				For the Three Months Ended March 31,
($ in thousands)	2022		2021		2023		2022
Balance at beginning of the quarter	$	8,994	$	3,798
Balance at beginning of the year					$	18,130	$	8,994
Settlement of prior year performance participation allocation (1)		15,327		4,608		—		15,327
Distributions to redeemable noncontrolling interests		(160)		(103)		(192)		(160)
Redemptions to redeemable noncontrolling interests (2)		(7,724)		0		—		(7,724)
Net income attributable to redeemable noncontrolling interests		246		134
Change from cash flow hedging activities attributable to redeemable noncontrolling interests		119		41
Net (loss) income attributable to redeemable noncontrolling interests						(18)		246
Change from securities and cash flow hedging activities attributable to redeemable noncontrolling interests						(55)		119
Redemption value allocation adjustment to redeemable noncontrolling interests(3)		482		(48)		(74)		482
Ending balance	$	17,284	$	8,430	$	17,791	$	17,284

(1)

There were no OP Units issued related to the 2022 performance participation allocation, as the $23.7 million payable as of December 31, 2022 was, at the election of the Advisor, settled in cash in January 2023. The 2021 performance participation allocation in the amount of $15.3 million became payable on December 31, 2021, and was issued as 1.9 million Class I OP Units in January 2022. At the direction of the Advisor and in light of our Former Sponsor having been the holder of a separate series of partnership interests in the Operating Partnership with special distribution rights (the “Special Units”) for the first six months of 2021, the holder of the Special Units designated 465,000 of these Class I OP Units to an entity owned indirectly by our Chairman at the time, Mr. Mulvihill, and 465,000 of these Class I OP Units to an entity owned indirectly by a member of our Former Sponsor. The holder of the Special Units transferred 945,000 Class I OP Units to the Advisor thereafter. The 2020 performance participation allocation in the amount of $4.6 million became payable to the Former Sponsor, as the former holder of the Special Units, on December 31, 2020. At the Former Advisor’s election, it was paid in the form of Class I OP Units valued at $4.6 million (based on the NAV per unit as of December 31, 2020), which were issued to the Former Sponsor in January 2021 and subsequently transferred to its members or their affiliates.

(2)	At the request of the Advisor, the Operating Partnership redeemed all Class I OP Units issued to the Advisor in January 2022 for $7.7 million.

(3)	Represents the adjustment recorded in order to mark to the redemption value, which is equivalent to fair value, at the end of the measurement period.

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10. NONCONTROLLING INTERESTS

OP Units

The following table summarizes the number of OP Units issued and outstanding to third-party investors (excludes interests held by redeemable noncontrolling interest holders):


	For the Three Months Ended March 31,
(in thousands)	2023		2022
Balance at beginning of period		55,079		27,180
Issuance of units		—		4,825
Redemption of units		(1,240)		(286)
Balance at end of period		53,839		31,719

~~Table~~Subject to certain restrictions and limitations, the holders of ~~Contents~~OP Units may redeem all or a portion of their OP Units for either: shares of the equivalent class of common stock, cash or a combination of both. If we elect to redeem OP Units for shares of our common stock, we will generally deliver one share of our common stock for each such OP Unit redeemed (subject to any redemption fees withheld), and such shares may, subsequently, only be redeemed for cash in accordance with the terms of our share redemption program. If we elect to redeem OP Units for cash, the cash delivered per unit will equal the then-current NAV per unit of the applicable class of OP Units (subject to any redemption fees withheld), which will equal the then-current NAV per share of our corresponding class of shares. During the three months ended March 31, 2023 and 2022, the aggregate amount of OP Units redeemed was $10.9 million and $2.3 million, respectively. The estimated maximum redemption value (unaudited) as of March 31, 2023 and December 31, 2022 was $468.4 million and $488.3 million, respectively.

~~10.~~11. RELATED PARTY TRANSACTIONS

Summary of Fees and Expenses

The table below summarizes the fees and expenses incurred by us for services provided by the Advisor and its affiliates, and by the Dealer Manager related to the services the Dealer Manager provided in connection with our public offerings and any related amounts payable:



	For the Three Months Ended March 31,				Payable as of				For the Three Months Ended March 31,				Payable as of
(in thousands)	2022		2021		March 31, 2022		December 31, 2021		2023		2022		March 31, 2023		December 31, 2022
Selling commissions and dealer manager fees (1)	$	1,310	$	406	$	—	$	—	$	512	$	1,042	$	—	$	—
Ongoing distribution fees (1)(2)		1,059		603		486		394		2,154		1,298		741		748
Advisory fees—fixed component		7,144		4,824		2,540		2,094		9,538		7,144		2,905		2,868
Performance participation allocation(3)		12,192		1,749		12,192		15,327		—		12,192		—		23,747
Other expense reimbursements—Advisor ~~(4)~~(5)		2,140		3,041		4,075		1,443		3,106		2,140		3,439		4,192
Other expense reimbursements—Dealer Manager		27		58		20		—		—		27		70		109
Property accounting fee (6)										489		—		489		478
DST Program selling commissions, dealer manager and distribution fees (1)		7,524		1,395		224		219		2,671		7,524		241		241
Other DST Program related costs—Advisor (3)		4,922		1,019		106		87
Other DST Program related costs—Advisor (5)										1,931		4,951		146		146
Total	$	36,318	$	13,095	$	19,643	$	19,564	$	20,401	$	36,318	$	8,031	$	32,529

(1)	All or a portion of these amounts will be retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers.

(2)

The distribution fees are payable monthly in arrears. Additionally, we accrue for future estimated amounts payable related to ongoing distribution fees. The future estimated amounts payable of approximately ~~$41.9~~$59.1 million and ~~$34.1~~$60.9 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, are included in other liabilities on the condensed consolidated balance sheets.

(3)	~~Includes costs reimbursed to~~The 2022 performance participation allocation in the amount of $23.7 million became payable on December 31, 2022, and the Advisor ~~related~~elected to settle the ~~DST Program.~~amounts owed in cash in January 2023.

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(4)

Other expense reimbursements include certain expenses incurred for organization and offering, acquisition and general administrative services provided to us under the advisory agreement, including, but not limited to, certain expenses described below after ~~this~~ footnote 6, allocated rent paid to both third parties and affiliates of our Advisor, equipment, utilities, insurance, travel and entertainment.

(5)	Includes costs reimbursed to the Advisor related to the DST Program.

(6)

The cost of the property management fee, including the property accounting fee, is generally borne by the tenant or tenants at each real property, either via a direct reimbursement to us or, in the case of tenants subject to a gross lease, as part of the lease cost. In certain circumstances, we may pay for a portion of the property management fee, including the property accounting fee, without reimbursement from the tenant or tenants at a real property.

Certain of the expense reimbursements described in the table above include a portion of the compensation expenses of officers and employees of the Advisor or its affiliates related to activities for which the Advisor did not otherwise receive a separate fee. Amounts incurred related to these compensation expenses for the three months ended March 31, ~~2022,~~2023, and ~~2021~~2022 were approximately ~~$2.4~~$2.8 million and ~~$2.5~~$2.4 million, respectively. No reimbursement is made for compensation of our named executive officers unless the named executive officer is providing stockholder services, as outlined in the advisory agreement.

Performance Participation Allocation

As used below, “Fund Interests” means our outstanding shares of common stock, along with OP Units, which may be or were held directly or indirectly by the Advisor, the Former Sponsor, members or affiliates of the Former Sponsor, and third parties.

The performance participation allocation is a performance-based amount that will be paid to the Advisor. This amount is calculated on the basis of the overall investment return provided to holders of Fund Interests (i.e., our outstanding shares and OP Units held by third-party investors) in any calendar year such that the Advisor will receive the lesser of (1) 12.5% of (a) the annual total return amount less (b) any loss carryforward, and (2) the amount equal to (x) the annual total return amount, less (y) any loss carryforward, less (z) the amount needed to achieve an annual total return amount equal to 5% of the NAV per Fund Interest at the beginning of such year (the “Hurdle Amount”). The foregoing calculations are calculated on a per Fund Interest basis and multiplied by the weighted-average Fund Interests outstanding during the year. In no event will the performance participation allocation be less than zero. Accordingly, if the annual total return amount exceeds the Hurdle Amount plus the amount of any loss carryforward, then the Advisor will earn a performance participation allocation equal to 100% of such excess, but limited to 12.5% of the annual total return amount that is in excess of the loss carryforward. Additionally, the Advisor will provide us with a waiver of a portion of its fees generally equal to the amount of the performance component that would have been payable with respect to the Class E shares and the Series 1 Class E OP Units held by third parties until the NAV of such shares or units exceeds $10.00 a share or unit, the benefit of which will be shared among all holders of Fund Interests.

The allocation of the performance participation interest is ultimately determined at the end of each calendar year and will be paid in Class I OP units or cash, at the election of the Advisor. ~~During~~The performance hurdle was not achieved as of March 31, 2023, therefore no performance participation allocation expense was recognized in our condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021, the Company recognized $12.2 million and $1.7 million, respectively, of performance participation allocation expense in the Company’s condensed consolidated statements of operations as2023. As the performance hurdle was achieved as of ~~both~~ March 31, 2022, ~~and 2021.~~we recognized approximately $12.2 million of performance participation allocation expense in our condensed consolidated statements of operations for the three months ended March 31, 2022.

1821

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~~11.~~12. NET INCOME (LOSS) PER COMMON SHARE

The computation of our basic and diluted net income (loss) per share attributable to common stockholders is as follows:



	For the Three Months Ended March 31,				For the Three Months Ended March 31,
(in thousands, except per share data)	2022		2021		2023		2022
Net income attributable to common stockholders—basic	$	21,011	$	17,565
Net income attributable to redeemable noncontrolling interests		246		134
Net income attributable to noncontrolling interests		3,537		1,699
Net income attributable to common stockholders—diluted	$	24,794	$	19,398
Net (loss) income attributable to common stockholders—basic					$	(2,004)	$	21,011
Net (loss) income attributable to redeemable noncontrolling interests						(18)		246
Net (loss) income attributable to noncontrolling interests						(549)		3,537
Net (loss) income attributable to common stockholders—diluted					$	(2,571)	$	24,794
Weighted-average shares outstanding—basic		178,528		145,861		206,774		178,528
Incremental weighted-average shares effect of conversion of noncontrolling interests		32,148		15,228		56,252		32,148
Weighted-average shares outstanding—diluted		210,676		161,089		263,026		210,676
Net income per share attributable to common stockholders:
Net (loss) income per share attributable to common stockholders:
Basic	$	0.12	$	0.12	$	(0.01)	$	0.12
Diluted	$	0.12	$	0.12	$	(0.01)	$	0.12

~~12.~~13. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information and disclosure of non-cash investing and financing activities is as follows:


	For the Three Months Ended				For the Three Months Ended
	March 31,				March 31,
(in thousands)	2022		2021		2023		2022
Supplemental disclosure of non-cash investing and financing activities:
Distributions reinvested in common stock	$	6,743	$	5,459	$	7,990	$	6,743
Change in accrued future ongoing distribution fees		7,828		3,987
(Decrease) increase in accrued future ongoing distribution fees						(1,800)		7,828
Increase in DST Program Loans receivable through DST Program capital raising		14,827		4,992		14,015		14,827
Settlement of DST Program Loans through issuance of OP Units		3,299		209
Redeemable noncontrolling interest issued as settlement of performance participation allocation		15,327		4,608		—		15,327
Issuances of OP Units for DST Interests		39,441		25,941		—		39,441

Restricted Cash

Restricted cash consists of lender and property-related escrow accounts. The following table presents the components of the beginning of period and end of period cash, cash equivalents and restricted cash reported within the condensed consolidated statements of cash flows:

For the Three Months Ended

March 31,

(in thousands)

2022

2021

Beginning of period:

Cash and cash equivalents

$
10,605

$
11,266

Restricted cash

3,747

10,468

Cash, cash equivalents and restricted cash

$
14,352

$
21,734

End of period:

Cash and cash equivalents

$
22,626

$
17,100

Restricted cash

4,021

10,502

Cash, cash equivalents and restricted cash

$
26,647

$
27,602


	For the Three Months Ended
	March 31,
(in thousands)	2023		2022
Beginning of period:
Cash and cash equivalents	$	13,336	$	10,605
Restricted cash		3,850		3,747
Cash, cash equivalents and restricted cash	$	17,186	$	14,352
End of period:
Cash and cash equivalents	$	36,894	$	22,626
Restricted cash		3,859		4,021
Cash, cash equivalents and restricted cash	$	40,753	$	26,647

1922

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~~13. SIGNIFICANT RISKS AND UNCERTAINTIES~~

~~Significant Risks and Uncertainties~~

One of the most significant risks and uncertainties is the adverse effect of the current novel coronavirus (COVID-19) pandemic. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers and business partners. The COVID-19 pandemic has not had a material effect on our condensed consolidated financial statements. While we are unable to predict the impact that the COVID-19 pandemic in the United States will have on our future financial condition, results of operations and cash flows, there have not been any indications of material future economic disruptions to us related to the COVID-19 pandemic.

14. COMMITMENTS AND CONTINGENCIES

Litigation

We and the Operating Partnership are not presently involved in any material litigation nor, to our knowledge, is any material litigation threatened against us or our investments.

Environmental Matters

A majority of the properties we acquire ~~are~~have been or will be subject to environmental reviews either by us or the previous owners. In addition, we may incur environmental remediation costs associated with certain land parcels we may acquire in connection with the development of ~~the~~ land. We have acquired or may in the future acquire certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous materials. We may purchase various environmental insurance policies to mitigate our exposure to environmental liabilities. We are not aware of any environmental liabilities that we believe would have a material adverse effect on our business, financial condition, or results of operations as of March 31, ~~2022.~~2023.

15. SEGMENT FINANCIAL INFORMATION

Our 4four reportable segments are office, retail, residential and industrial. Factors used to determine our reportable segments include the physical and economic characteristics of our properties and the related operating activities. Our chief operating decision makers rely on net operating income, among other factors, to make decisions about allocating resources and assessing segment performance. Net operating income is the key performance metric that captures the unique operating characteristics of each segment. Net investment in real estate properties, restricted cash, tenant receivables, straight-line rent receivables and other assets directly assignable to a property are allocated to the segment groupings. Corporate items that are not directly assignable to a property, such as ~~investment~~investments in unconsolidated joint venture partnerships, investments in real estate-related securities, debt-related investments and DST Program Loans, are not allocated to segment groupings, but are reflected as reconciling items.

The following table reflects our total consolidated assets by business segment as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:

As of
(in thousands)

March 31, 2022

December 31, 2021 (1)
Assets:

Office properties

$
331,688

$
335,811
Retail properties

618,381

639,584
Residential properties

922,842

837,491
Industrial properties

1,097,702

826,353
Corporate

308,020

351,732
Total assets

$
3,278,633

$
2,990,971

~~(1)~~

~~As of December 31, 2021, amounts held for sale are included in the corporate grouping. Refer to “Note 3” for further detail.~~


	As of
(in thousands)	March 31, 2023		December 31, 2022
Assets:
Office properties	$	379,355	$	377,546
Retail properties		517,000		537,147
Residential properties		1,485,956		1,495,532
Industrial properties		1,252,141		1,248,255
Corporate		553,851		516,244
Total assets	$	4,188,303	$	4,174,724

2023

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The following table is a reconciliation of our reported net income (loss) attributable to common stockholders to our net operating income for the three months ended March 31, 2023 and 2022:


	For the Three Months Ended
	March 31,
(in thousands)	2023		2022
Net (loss) income attributable to common stockholders	$	(2,004)	$	21,011
Debt-related income		(5,761)		(3,468)
Real estate-related depreciation and amortization		33,197		27,451
General and administrative expenses		3,044		2,037
Advisory fees		9,538		7,144
Performance participation allocation		—		12,192
Acquisition costs and reimbursements		1,169		1,629
Impairment loss on debt-related investment held for sale		2,520		—
Equity in loss from unconsolidated joint venture partnerships		2,446		1,010
Interest expense		37,545		24,410
Gain on sale of real estate property		(36,884)		(53,881)
Loss on extinguishment of debt and financing commitments, net		700		—
Loss (gain) on derivative instruments		103		(1,550)
Provision for current expected credit losses		5,630		—
Other income		(1,016)		(577)
Net (loss) income attributable to redeemable noncontrolling interests		(18)		246
Net (loss) income attributable to noncontrolling interests		(549)		3,537
Net operating income	$	49,660	$	41,191

The following table sets forth consolidated financial results by segment for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


(in thousands)	Office		Retail		Residential		Industrial		Consolidated		Office		Retail		Residential		Industrial		Consolidated
For the Three Months Ended March 31, 2023
Rental revenues											$	13,349	$	14,518	$	28,848	$	21,245	$	77,960
Rental expenses												(6,630)		(3,584)		(13,190)		(4,896)		(28,300)
Net operating income											$	6,719	$	10,934	$	15,658	$	16,349	$	49,660
Real estate-related depreciation and amortization											$	3,963	$	4,035	$	9,489	$	15,710	$	33,197
For the Three Months Ended March 31, 2022
Rental revenues	$	13,633	$	17,066	$	16,354	$	15,452	$	62,505	$	13,633	$	17,066	$	16,354	$	15,452	$	62,505
Rental expenses		(6,192)		(4,629)		(6,944)		(3,549)		(21,314)		(6,192)		(4,629)		(6,944)		(3,549)		(21,314)
Net operating income	$	7,441	$	12,437	$	9,410	$	11,903	$	41,191	$	7,441	$	12,437	$	9,410	$	11,903	$	41,191
Real estate-related depreciation and amortization	$	3,997	$	4,654	$	8,353	$	10,447	$	27,451	$	3,997	$	4,654	$	8,353	$	10,447	$	27,451
For the Three Months Ended March 31, 2021
Rental revenues	$	16,823	$	17,911	$	6,640	$	9,058	$	50,432
Rental expenses		(7,509)		(4,902)		(3,242)		(1,909)		(17,562)
Net operating income	$	9,314	$	13,009	$	3,398	$	7,149	$	32,870
Real estate-related depreciation and amortization	$	4,869	$	4,627	$	2,740	$	4,497	$	16,733

We consider net operating income to be an appropriate supplemental performance measure and believe net operating income provides useful information to our investors regarding our financial condition and results of operations because net operating income reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of the properties, such as real estate-related depreciation and amortization, general and administrative expenses, advisory fees, impairment charges, interest expense, gains on sale of properties, other income and expense, gains and losses on the extinguishment of debt and noncontrolling interests. However, net operating income should not be viewed as an alternative measure of our financial performance since it excludes such items, which could materially impact our results of operations. Further, our net operating income may not be comparable to that of other real estate companies, as they may use different methodologies for calculating net operating income. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance.

~~The following table is a reconciliation~~24

Table of ~~our reported net income (loss) attributable to common stockholders to our net operating income for the three months ended March 31, 2022 and 2021:~~contents

For the Three Months Ended

March 31,

(in thousands)

2022

2021

Net income attributable to common stockholders

$
21,011

$
17,565

Debt-related income

(3,468)

(2,124)

Real estate-related depreciation and amortization

27,451

16,733

General and administrative expenses

2,037

2,218

Advisory fees, related party

7,144

4,824

Performance participation allocation

12,192

1,749

Acquisition costs and reimbursements

1,629

367

Impairment of real estate property

0

758

Equity in income from unconsolidated joint venture partnerships

1,010

0

Other income

(2,127)

(274)

Interest expense

24,410

16,563

Gain on sale of real estate property

(53,881)

(27,342)

Net income attributable to redeemable noncontrolling interests

246

134

Net income attributable to noncontrolling interests

3,537

1,699

Net operating income

$
41,191

$
32,870

16. SUBSEQUENT EVENTS

~~Acquisition of Properties~~

Subsequent to March 31, 2022, we acquired (excluding properties related to our DST Program) 6 residential properties and 1 life science property for an aggregate purchase price of approximately $638.0 million.

~~Table of Contents~~

Renewal of ~~and Amendment to~~ Advisory Agreement

OnAres Real Estate Income Trust Inc., the Operating Partnership and the Advisor previously entered into that certain Amended and Restated Advisory Agreement (2022), effective May 1, 2022 (the “2022 Advisory Agreement”). The term of the ~~Company,~~2022 Advisory Agreement continued through April 30, 2023, subject to renewal for an unlimited number of one-year periods. Effective as of April 30, 2023, Ares Real Estate Income Trust Inc., the Operating Partnership and the Advisor renewed the ~~Third Amended and Restated~~2022 Advisory Agreement ~~(2021) (“2021 Advisory Agreement”)~~through April 30, 2024 by entering into the Amended and Restated Advisory Agreement ~~2022, effective as of May 1, 2022, and renewed through April 30, 2023~~(2023) (the ~~“2022~~“2023 Advisory Agreement”).

~~In addition to~~ The terms of the ~~renewal, the 2022~~2023 Advisory Agreement ~~amends~~are substantially the ~~2021 Advisory Agreement by changing~~same as the ~~way that the Advisor is compensated for providing property accounting services with respect to certain~~terms of the Company’s real properties, which services relate to accounting for real property operations and are considered “property accounting” in the real estate industry (“Property Accounting Services”). The Property Accounting Services generally include the maintenanceprior version of the real property’s books and records in accordance with United States generally accepted accounting principles and the Company’s policies, procedures, and internal controls, in a timely manner, and the processing of property-related cash receipts and disbursements. Examples of such property accounting services include, but are not limited to, lease administration, monthly tenant billing and collections, rental revenue accounting, accounting for doubtful accounts, preparing rental expense recovery estimates and reconciliations, recording rental expenses, processing rental expense invoices and tenant reimbursement payments, accounting and budgeting for capital improvement projects, preparing and reviewing operating budgets, assisting in reporting and cash management for loan compliance purposes, and preparing account reconciliations and operating reports. Property accounting services do not include corporate-level accounting services that include, but are not limited to, consolidation, accounting and reporting analysis, and quality control reviews of accounting and reporting of third-party property accountants to ensure the accuracy, timeliness, and consistency of property accounting results. Under the amended Advisory Agreement, the Advisor will receive a property accounting fee as consideration for providing Property Accounting Services, which is equal to the difference between: (i) the property management fee charged with respect to each real property (the “Property Management Fee”), which reflects the market rate for all real property management services, including Property Accounting Services, based on rates charged for similar properties within the region or market in which the real property is located, and (ii) the amount paid to third-party property management firms for property management services, which fee is based on an arms-length negotiation with a third-party property management service provider (the difference between (i) and (ii), the “Property Accounting Fee”). The cost of the Property Management Fee, including the Property Accounting Fee, is generally borne by the tenant or tenants at each real property, either via a direct reimbursement to the Company or, in the case of tenants subject to a gross lease, as part of the lease cost. In certain limited circumstances, the Company may pay for a portion of the Property Management Fee, including the Property Accounting Fee, without reimbursement from the tenant or tenants at a real property.agreement.

2225

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to the terms “we,” “our” or “us” refer to Ares Real Estate Income Trust Inc. and its consolidated subsidiaries. The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Such forward-looking statements relate to, without limitation, our future capital expenditures, distributions, acquisitions and dispositions (including the amount and nature thereof), other developments and trends of the real estate industry, business strategies and the expansion and growth of our operations. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements are subject to a number of assumptions, risks and uncertainties which 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. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “continue,” or the negative of these words, or other similar words or terms. Readers are cautioned not to place undue reliance on these forward-looking statements.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

●

the impact of macroeconomic trends, such as the unemployment rate, availability of credit, impact of inflation, rising interest rates, the conflict in Ukraine and the COVID-19 pandemic, which may have a negative effect on the following, among other things:

●

the fundamentals of our business, including overall market occupancy, space utilization for our tenants, who we refer to as customers from time-to-time herein, and rental rates;

●

the financial condition of our customers, some of which are retail, financial, legal and other professional firms, our lenders, and institutions that hold our cash balances and short-term investments, which may expose us to increased risks of breach or default by these parties;

●

customers’ ability to pay rent on their leases or our ability to re-lease space that is or becomes vacant; and

●

the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis;

●

general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on customers’ financial condition and competition from other developers, owners and operators of real estate);

●

our ability to effectively raise and deploy proceeds from our ongoing public offerings;

●

risks associated with the demand for liquidity under our share redemption program and our ability to meet such demand;

●

risks associated with the availability and terms of debt and equity financing and the use of debt to fund acquisitions and developments, including the risk associated with interest rates impacting the cost and/or availability of financing;

●

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”));

●

the failure to successfully integrate Black Creek Group into the business, operations and corporate culture of Ares, and to retain Black Creek Group personnel following Ares’ acquisition of Black Creek Group’s U.S. real estate investment advisory and distribution business in July 2021;

●

conflicts of interest arising out of our relationships with the Sponsor, the Advisor and their affiliates;

●

changes in accounting principles, policies and guidelines applicable to REITs;

●

environmental, regulatory and/or safety requirements; and

●

the availability and cost of comprehensive insurance, including coverage for terrorist acts.

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For further discussion of these and other factors, see Part I, Item 1A, “Risk Factors” in our 2021 Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

OVERVIEW

General

Ares Real Estate Income Trust Inc. is a NAV-based perpetual life REIT that was formed on April 11, 2005, as a Maryland corporation. We are primarily focused on investing in and operating a diverse portfolio of real property. As of March 31, ~~2022,~~2023, our consolidated real property portfolio consisted of 7291 properties, totaling approximately ~~14.9~~18.6 million square feet located in 3233 markets throughout the U.S. We also owned 56159 properties through our unconsolidated joint venture partnerships as of March 31, ~~2022.~~2023. Unless otherwise noted, these unconsolidated properties are excluded from the presentation of our portfolio data herein.

We have operated and elected to be treated as a REIT for U.S. federal income tax purposes, commencing with the taxable year ended December 31, 2006, and we intend to continue to operate in accordance with the requirements for qualification as a REIT. We utilize an UPREIT organizational structure to hold all or substantially all of our assets through the Operating Partnership.

As a NAV-based perpetual life REIT, we intend to conduct ongoing public primary offerings of our common stock on a perpetual basis. We also intend to conduct an ongoing distribution reinvestment plan offering for our stockholders to reinvest distributions in our shares. From time to time, we intend to file new registration statements on Form S-11 with the SEC to register additional shares of common stock so that we may continuously offer shares of common stock pursuant to Rule 415 under the Securities Act. During the three months ended March 31, ~~2022,~~2023, we raised ~~$109.8 million of~~ gross proceeds of approximately $47.7 million from the sale of approximately 5.4 million shares of our common stock in our ongoing public ~~primary~~ offerings, ~~and $6.7 million~~including proceeds from ~~the sale of common stock under~~ our distribution reinvestment ~~plan.~~plan of approximately $8.0 million. See “Note 8 to the Condensed Consolidated Financial Statements” for more information about our public offerings.

Additionally, we have a program to raise capital through private placement offerings by selling DST Interests. These private placement offerings are exempt from registration requirements pursuant to Section 4(a)(2) of the Securities Act. We anticipate that these interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Code. Similar to our prior private placement offerings, we expect that the DST Program will give us the opportunity to expand and diversify our capital raise strategies by offering what we believe to be an attractive and unique investment product for investors that may be seeking replacement properties to complete like-kind exchange transactions under Section 1031 of the Code. We also ~~make loans (“~~offer DST Program ~~Loans”)~~Loans to finance ~~a portion~~no more than 50% of the ~~sale~~purchase price of the DST Interests to certain purchasers of the interests in the Delaware statutory ~~trusts to finance no more than 50% of the purchase price payable upon their acquisition of such interests.~~trusts. During the three months ended March 31, ~~2022,~~2023, we sold ~~$280.8~~$101.8 million of gross interests related to the DST Program, ~~$14.8~~$14.0 million of which were financed by DST Program Loans. See “Note 6 to the Condensed Consolidated Financial Statements” for additional detail regarding the DST Program.

We currently operate in four reportable segments: office, retail, residential and industrial. The following table summarizes our real property portfolio by segment as of March 31, ~~2022:~~2023:


						Average													Average
				% of Total		Effective Annual						% of					% of Total		Effective Annual						% of
($ and square feet in thousands,	Number of	Number of	Rentable	Rentable		Base Rent per		%		Aggregate		Aggregate		Number of	Number of	Rentable	Rentable		Base Rent per		%		Aggregate		Aggregate
except for per square foot data)	Markets (1)	Real Properties	Square Feet	Square Feet		Square Foot (2)		Leased		Fair Value		Fair Value		Markets (1)	Real Properties	Square Feet	Square Feet		Square Foot (2)		Leased		Fair Value		Fair Value
Office properties	6	6	1,463	9.8	%	$	34.73	77.9	%	$	574,900	15.1	%	7	8	1,572	8.5	%	$	34.93	75.6	%	$	591,700	13.0	%
Retail properties	8	22	2,793	18.7			19.18	94.8			831,950	21.8		8	18	2,318	12.5			19.39	96.4			693,150	15.2
Residential properties	7	8	2,377	15.9			28.03	93.5			1,036,550	27.2		8	14	4,205	22.6			27.60	93.8			1,683,050	36.8
Industrial properties	23	36	8,291	55.6			6.15	97.1			1,365,950	35.9		28	51	10,507	56.4			5.96	97.9			1,600,450	35.0
Total real property portfolio	32	72	14,924	100.0	%	$	14.46	94.2	%	$	3,809,350	100.0	%	33	91	18,602	100.0	%	$	14.44	94.9	%	$	4,568,350	100.0	%

(1)	Reflects the number of unique markets by segment and in total. As such, the total number of markets does not equal the sum of the number of markets by segment as certain segments are located in the same market.

(2)	Amount calculated as total annualized base rent, which includes the impact of any contractual tenant concessions (cash basis) per the terms of the lease, divided by total lease square footage as of March 31, ~~2022.~~2023.

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We currently focus our investment activities primarily across the major U.S. property sectors (industrial, residential (which includes and/or may include multi-family and other types of rental housing such as manufactured, student and ~~single family~~single-family rental housing), office (which includes and/or may include medical office and life science laboratories) and retail). To a lesser extent, we strategically

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invest in and/or intend to invest in geographies outside of the U.S., which may include Canada, the United Kingdom, Europe and other foreign jurisdictions, and in other sectors such as triple net lease, real estate debt (which may include mortgages and subordinated interests) ~~and~~, real estate-related securities, properties in sectors adjacent to our primary investment sectors and/or infrastructure, to create a diversified blend of current income and long-term value appreciation. Our near-term investment strategy is likely to prioritize new investments in the industrial and residential sectors due to relatively attractive fundamental conditions. We also intend to continue to hold an allocation of properties in the office and retail sectors, the latter of which is largely grocery-anchored.

Net Asset Value

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. 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 ~~providing monthly real property appraisals, reviewing annual third-party real property appraisals, reviewing the internal valuations of debt-related assets and liabilities performed by our Advisor,~~ 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 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 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 real properties that are bought or sold during a given calendar year, unconsolidated real properties held through joint ventures or partnerships are valued by a third-party appraiser at least once per calendar year. For valuations during interim periods, either our Advisor will determine the estimated fair value of the real properties owned by unconsolidated affiliates or 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 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. See Exhibit 4.4 of this Quarterly Report on Form 10-Q 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 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

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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. The aggregate real property valuation of ~~$3.81~~$4.57 billion compares to a GAAP basis of real properties (net of intangible lease liabilities and before accumulated amortization and depreciation) of ~~$3.33~~$4.11 billion, representing a difference of approximately ~~$479.9~~$459.3 million, or ~~14.4%~~11.2%.

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The following table sets forth the components of Aggregate Fund NAV as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


	As of				As of
(in thousands)	March 31, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Investments in office properties	$	574,900	$	668,700	$	591,700	$	610,850
Investments in retail properties		831,950		890,700		693,150		740,400
Investments in residential properties		1,036,550		907,000		1,683,050		1,685,000
Investments in industrial properties		1,365,950		983,700		1,600,450		1,603,500
Total investment in real estate properties		3,809,350		3,450,100		4,568,350		4,639,750
Investment in unconsolidated joint venture partnerships		98,371		57,425
Investments in unconsolidated joint venture partnerships						149,010		141,272
Debt-related investments		107,303		106,463		259,305		260,841
Investments in real estate-related securities						14,979		14,896
DST Program Loans		73,369		62,123		93,621		79,049
Total investments		4,088,393		3,676,111		5,085,265		5,135,808
Cash and cash equivalents		22,626		10,605		36,894		13,336
Restricted cash		4,021		3,747		3,859		3,850
Other assets		50,950		53,361		50,965		44,269
Line of credit, term loans and mortgage notes		(1,285,325)		(1,370,554)		(1,602,831)		(1,631,324)
Financing obligations associated with our DST Program		(930,259)		(682,748)		(1,225,146)		(1,141,866)
Other liabilities		(59,192)		(53,639)		(70,910)		(72,966)
Accrued performance participation allocation		(12,192)		(15,327)		—		(23,747)
Accrued advisory fees		(2,543)		(2,097)		(3,201)		(3,157)
Noncontrolling interests in consolidated joint venture partnerships		(1,211)		(1,176)		(1,610)		(1,582)
Aggregate Fund NAV	$	1,875,268	$	1,618,283	$	2,273,285	$	2,322,621
Total Fund Interests outstanding		215,806		197,960		263,332		263,232

The following table sets forth the NAV per Fund Interest as of March 31, ~~2022:~~2023:


			Class T		Class S		Class D		Class I		Class E		OP				Class T		Class S		Class D		Class I		Class E		OP
(in thousands, except per Fund Interest data)	Total		Shares		Shares		Shares		Shares		Shares		Units		Total		Shares		Shares		Shares		Shares		Shares		Units
Monthly NAV	$	1,875,268	$	165,165	$	351,835	$	66,574	$	516,451	$	481,846	$	293,397	$	2,273,285	$	243,212	$	430,771	$	64,215	$	599,002	$	453,652	$	482,433
Fund Interests outstanding		215,806		19,007		40,489		7,662		59,433		55,451		33,764		263,332		28,173		49,899		7,439		69,387		52,550		55,884
NAV Per Fund Interest	$	8.69	$	8.69	$	8.69	$	8.69	$	8.69	$	8.69	$	8.69	$	8.6328	$	8.6328	$	8.6328	$	8.6328	$	8.6328	$	8.6328	$	8.6328

Under GAAP, we record liabilities for ongoing distribution fees that (i) we currently owe the Dealer Manager under the terms of our dealer manager agreement and (ii) we estimate we may pay to the Dealer Manager in future periods for ~~shares of~~ our ~~common stock.~~Fund Interests. As of March 31, ~~2022,~~2023, we estimated approximately ~~$41.9~~$59.1 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

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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.

Financing obligations associated with our DST Program, as reflected in our NAV table above, represent outstanding proceeds raised from our private placements under the DST Program due to the fact that we have an option (which may or may not be exercised) to purchase the interests in the Delaware statutory trusts and thereby acquire the real property owned by the trusts. We may acquire these properties using OP Units, cash, or a combination of both. See “Note 6 to the Condensed Consolidated Financial Statements” for additional details regarding our DST Program. We may use proceeds raised from our DST Program for the repayment of debt, acquisition of properties and other investments, distributions to our stockholders, payments under our debt obligations and master lease agreements related to properties in our DST Program, redemption payments, capital expenditures and other general corporate purposes. We pay our Advisor an annual, fixed component of our advisory fee of 1.10% of the consideration received for selling interests in DST Properties to third-party investors, net of upfront fees and expense reimbursements payable out of gross proceeds from the sale of such interests and DST Interests financed through DST Program Loans.

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 ~~consider~~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.

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The valuations of our real properties as of March 31, ~~2022,~~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 based on weighted-averages by property type.


									Weighted-										Weighted-
	Office		Retail		Residential		Industrial		Average Basis		Office		Retail		Residential		Industrial		Average Basis
Exit capitalization rate	6.00	%	6.24	%	4.78	%	4.75	%	5.26	%	6.4	%	6.3	%	4.9	%	5.2	%	5.4	%
Discount rate / internal rate of return	6.56	%	6.89	%	5.91	%	5.71	%	6.15	%	7.3	%	7.0	%	6.1	%	6.3	%	6.5	%
Average holding period (years)	9.6		10.0		10.0		10.1		10.0		9.6		10.0		10.0		10.1		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:


	Hypothetical									Weighted-		Hypothetical									Weighted-
Input	Change	Office		Retail		Residential		Industrial		Average Values		Change	Office		Retail		Residential		Industrial		Average Values
Exit capitalization rate (weighted-average)	0.25% decrease	3.06	%	2.51	%	3.67	%	4.02	%	3.45	%	0.25% decrease	2.9	%	2.5	%	3.6	%	3.6	%	3.3	%
	0.25% increase	(2.81)	%	(2.31)	%	(3.30)	%	(3.62)	%	(3.12)	%	0.25% increase	(2.7)	%	(2.3)	%	(3.2)	%	(3.2)	%	(3.0)	%
Discount rate (weighted-average)	0.25% decrease	2.05	%	1.90	%	2.02	%	2.12	%	2.03	%	0.25% decrease	2.1	%	1.9	%	2.0	%	2.1	%	2.0	%
	0.25% increase	(2.00)	%	(1.86)	%	(1.97)	%	(2.07)	%	(1.98)	%	0.25% increase	(2.0)	%	(1.9)	%	(2.0)	%	(2.0)	%	(2.0)	%

From September 30, 2017 through November 30, 2019, 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 December 31, 2019, our property-level mortgages and corporate-level credit facilities 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

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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 March 31, ~~2022,~~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. We currently estimate the fair value of our debt (inclusive of associated interest rate hedges) that was intended to be held to maturity as of March 31, ~~2022~~2023 was ~~$32.0~~$61.5 million lower than the carrying value used for purposes of calculating our NAV (as described above) for such debt in aggregate; meaning that if we used the fair value of our debt rather than the carrying value used for purposes of calculating our NAV (and treated the associated hedge as part of the same financial instrument), our NAV would have been higher by approximately ~~$32.0~~$61.5 million, or ~~$0.15~~$0.24 per share, not taking into account all of the other items that impact our monthly NAV, as of March 31, ~~2022.~~2023.

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Reconciliation of Stockholders’ Equity and Noncontrolling Interests to NAV

The following table reconciles stockholders’ equity and noncontrolling interests per our condensed consolidated balance sheet to our NAV as of March 31, ~~2022:~~2023:


(in thousands)	As of March 31, 2022		As of March 31, 2023
Total stockholder's equity	$	689,822	$	768,645
Noncontrolling interests		232,691		393,098
Total equity under GAAP		922,513		1,161,743

Adjustments:
Accrued distribution fee (1)		41,892		59,119
Unrealized net real estate, debt and interest rate hedge appreciation (depreciation) (2)		444,667
Accumulated depreciation and amortization (3)		458,266
Other adjustments (4)		7,930
Redeemable noncontrolling interests (2)				17,791
Unrealized net real estate, financing obligations, debt and interest rate hedge appreciation (depreciation) (3)				444,110
Unrealized gain (loss) on investments in unconsolidated joint venture partnerships (4)				23,844
Accumulated depreciation and amortization (5)				564,160
Other adjustments (6)				2,518
Aggregate Fund NAV	$	1,875,268	$	2,273,285

(1)

Accrued distribution fee represents the accrual for the full cost of the distribution fee for Class T, Class S, and Class D ~~shares.~~shares and OP Units. Under GAAP, we accrued the full cost of the distribution fee payable over the life of each share (assuming such share remains outstanding the length of time required to pay the maximum distribution fee) as an offering cost at the time we sold the Class T, Class S, and Class D shares. Similarly, we accrued a liability for future distribution fees we expect will be paid for our estimate of how long Class T, Class S, and Class D OP Units will be outstanding, also as an offering cost. For purposes of calculating the NAV, we recognize the distribution fee as a reduction of NAV on a monthly basis when such fee is paid and do not deduct the liability for estimated future distribution fees that may become payable after the date as of which our NAV is calculated.

(2)	Redeemable noncontrolling interests are related to our OP Units, and are included in our determination of NAV but not included in equity under GAAP.

(3)

Our real estate and real estate-related investments are presented asat historical cost in our condensed consolidated financial statements. Additionally, our mortgage notes, term loans, ~~and~~ line of credit and financing obligations are presented at their carrying value in our condensed consolidated financial statements. As such, any increases ofor decreases in the fair market value of our real estate, ~~and~~ real estate-related investments, ~~or our~~ debt instruments or financing obligations are not included in our GAAP results. For purposes of determining our NAV, our real estate, ~~and~~ real estate-related investments, financing obligations and certain of our debt are recorded at fair value. Notwithstanding, our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity, including those subject to interest rates hedges, are valued at par (i.e. at their respective outstanding balances).

~~(3)~~(4)

Our investments in unconsolidated joint venture partnerships are presented at historical cost in our condensed consolidated financial statements. As such, any increases or decreases in the fair market value of the underlying investments or underlying debt instruments are not included in our GAAP results. For purposes of determining our NAV, the investments in the underlying real

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estate and certain of the underlying debt are recorded at fair value and reflected in our NAV at our proportional ownership interest.

(5)	We depreciate our investments in real estate and amortize certain other assets and liabilities in accordance with GAAP. Such depreciation and amortization is not recorded for purposes of determining our NAV.

~~(4)~~(6)

Includes (i) straight-line rent receivables, which are recorded in accordance with GAAP but not recorded for purposes of determining our NAV, ~~(ii) redeemable noncontrolling interests related to our OP Units, which are included in our determination of NAV but not included in total equity,~~ and ~~(iii)~~(ii) other minor adjustments.

Performance

Our NAV ~~increased~~decreased from ~~$8.17~~$8.82 per share as of December 31, ~~2021~~2022 to ~~$8.69~~$8.63 per share as of March 31, ~~2022.~~2023. The ~~increase~~decrease in NAV was primarily driven by ~~performance~~expansion in the capital market assumptions that are a major factor used in the valuation of our real estate ~~portfolio, primarily as a result of~~portfolio. This decrease was partially offset by strong leasing and above-average market rent growth ~~and strengthening capital markets, particularly~~ in ~~the~~our industrial and residential ~~sectors. Additionally contributing to~~properties, the ~~positive performance were the dispositions~~disposition of one ~~office~~partial retail property ~~two retail properties, and a retail land parcel~~ for net proceeds of approximately ~~$169.4~~$53.7 million ~~which resulted~~at a sale price in ~~an increase to NAV,~~excess of carrying value, as well as the ~~acquisitions~~acquisition of ~~seven~~one industrial ~~properties and one residential~~ property for ~~an aggregate~~a contractual purchase price of ~~$369.5 million, which have been accretive to portfolio returns.~~$17.4 million.

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Effective December 31, 2019, our board of directors approved amendments to our valuation procedures which revised the way we value property-level mortgages, corporate-level credit facilities and associated interest rate hedges when loans, including associated interest rate hedges, are intended to be held to maturity, effectively eliminating all mark-to-market adjustments for such loans and hedges from the calculation of our NAV. The following table summarizes the impact of interest rate movements on our share class returns assuming we continued to include the mark-to-market adjustments for all borrowing-related interest rate hedge and debt instruments beginning with the December 31, 2019 NAV:


					One-Year						Since NAV						One-Year								Since NAV
	Trailing				(Trailing		Three-Year		Five-Year		Inception		Trailing				(Trailing		Three-Year		Five-Year		Ten-Year		Inception
(as of March 31, 2022) (1)	Three-Months		Year-to-Date		12-Months)		Annualized		Annualized		Annualized (2)
(as of March 31, 2023) (1)													Three-Months		Year-to-Date		12-Months)		Annualized		Annualized		Annualized		Annualized (2)
Class T Share Total Return (with upfront selling commissions and dealer manager fees) (3)	3.65	%	3.65	%	15.05	%	9.08	%	6.55	%	7.13	%	(4.65)	%	(4.65)	%	(0.70)	%	7.50	%	6.39	%	6.18	%	6.79	%
Adjusted Class T Share Total Return (with upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	6.03	%	6.03	%	17.76	%	9.59	%	6.85	%	7.28	%	(5.57)	%	(5.57)	%	(0.02)	%	8.68	%	6.84	%	6.40	%	7.00	%
Difference	(2.38)	%	(2.38)	%	(2.71)	%	(0.51)	%	(0.30)	%	(0.15)	%	0.92	%	0.92	%	(0.68)	%	(1.18)	%	(0.45)	%	(0.22)	%	(0.21)	%

Class T Share Total Return (without upfront selling commissions and dealer manager fees) (3)	7.28	%	7.28	%	19.07	%	10.33	%	7.20	%	7.27	%	(1.32)	%	(1.32)	%	2.78	%	8.74	%	7.13	%	6.50	%	6.92	%
Adjusted Class T Share Total Return (without upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	9.74	%	9.74	%	21.89	%	10.86	%	7.50	%	7.43	%	(2.26)	%	(2.26)	%	3.48	%	9.94	%	7.58	%	6.72	%	7.13	%
Difference	(2.46)	%	(2.46)	%	(2.82)	%	(0.53)	%	(0.30)	%	(0.16)	%	0.94	%	0.94	%	(0.70)	%	(1.20)	%	(0.45)	%	(0.22)	%	(0.21)	%

Class S Share Total Return (with upfront selling commissions and dealer manager fees) (3)	3.65	%	3.65	%	15.05	%	9.08	%	6.55	%	7.13	%	(4.65)	%	(4.65)	%	(0.70)	%	7.50	%	6.39	%	6.18	%	6.79	%
Adjusted Class S Share Total Return (with upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	6.03	%	6.03	%	17.76	%	9.59	%	6.85	%	7.28	%	(5.57)	%	(5.57)	%	(0.02)	%	8.68	%	6.84	%	6.40	%	7.00	%
Difference	(2.38)	%	(2.38)	%	(2.71)	%	(0.51)	%	(0.30)	%	(0.15)	%	0.92	%	0.92	%	(0.68)	%	(1.18)	%	(0.45)	%	(0.22)	%	(0.21)	%

Class S Share Total Return (without upfront selling commissions and dealer manager fees) (3)	7.28	%	7.28	%	19.07	%	10.33	%	7.20	%	7.27	%	(1.32)	%	(1.32)	%	2.78	%	8.74	%	7.13	%	6.50	%	6.92	%
Adjusted Class S Share Total Return (without upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	9.74	%	9.74	%	21.89	%	10.86	%	7.50	%	7.43	%	(2.26)	%	(2.26)	%	3.48	%	9.94	%	7.58	%	6.72	%	7.13	%
Difference	(2.46)	%	(2.46)	%	(2.82)	%	(0.53)	%	(0.30)	%	(0.16)	%	0.94	%	0.94	%	(0.70)	%	(1.20)	%	(0.45)	%	(0.22)	%	(0.21)	%

Class D Share Total Return (3)	7.44	%	7.44	%	19.79	%	11.00	%	7.83	%	7.61	%	(1.17)	%	(1.17)	%	3.39	%	9.39	%	7.77	%	7.08	%	7.20	%
Adjusted Class D Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	9.90	%	9.90	%	22.62	%	11.52	%	8.14	%	7.76	%	(2.12)	%	(2.12)	%	4.10	%	10.59	%	8.22	%	7.31	%	7.41	%
Difference	(2.46)	%	(2.46)	%	(2.83)	%	(0.52)	%	(0.31)	%	(0.15)	%	0.95	%	0.95	%	(0.71)	%	(1.20)	%	(0.45)	%	(0.23)	%	(0.21)	%

Class I Share Total Return (3)	7.50	%	7.50	%	20.09	%	11.27	%	8.12	%	8.01	%	(1.11)	%	(1.11)	%	3.65	%	9.66	%	8.04	%	7.47	%	7.59	%
Adjusted Class I Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	9.97	%	9.97	%	22.92	%	11.80	%	8.43	%	8.17	%	(2.06)	%	(2.06)	%	4.36	%	10.87	%	8.49	%	7.69	%	7.80	%
Difference	(2.47)	%	(2.47)	%	(2.83)	%	(0.53)	%	(0.31)	%	(0.16)	%	0.95	%	0.95	%	(0.71)	%	(1.21)	%	(0.45)	%	(0.22)	%	(0.21)	%

Class E Share Return Total Return (3)	7.50	%	7.50	%	20.09	%	11.27	%	8.13	%	8.06	%	(1.11)	%	(1.11)	%	3.65	%	9.66	%	8.04	%	7.51	%	7.63	%
Adjusted Class E Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4)	9.97	%	9.97	%	22.92	%	11.80	%	8.44	%	8.22	%	(2.06)	%	(2.06)	%	4.36	%	10.87	%	8.49	%	7.74	%	7.85	%
Difference	(2.47)	%	(2.47)	%	(2.83)	%	(0.53)	%	(0.31)	%	(0.16)	%	0.95	%	0.95	%	(0.71)	%	(1.21)	%	(0.45)	%	(0.23)	%	(0.22)	%

(1)

Performance is measured by total return, which includes income and appreciation (i.e., distributions and changes in NAV) and is a compound rate of return that assumes reinvestment of all distributions for the respective time period, and excludes upfront selling commissions and dealer manager fees paid by investors, except for returns noted “with upfront selling commissions and dealer

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manager fees” (“Total Return”). Past performance is not a guarantee of future results. Current performance may be higher or lower than the performance data quoted.

(2)	NAV inception was September 30, 2012, which is when we first sold shares of our common stock after converting to an NAV-based REIT on July 12, 2012. Investors in our fixed price offerings prior to NAV inception on September 30, 2012 are likely to have a lower return.

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(3)

The Total Returns presented are based on actual NAVs at which stockholders transacted, calculated pursuant to our valuation procedures. From NAV inception to November 30, 2019, these NAVs reflected mark-to-market adjustments on our borrowing-related interest rate hedge positions; and from September 1, 2017 to November 30, 2019, these NAVs also reflected mark-to-market adjustments on our borrowing-related debt instruments. Prior to September 1, 2017, our valuation policies dictated marking borrowing-related debt instruments to par except in certain circumstances; therefore, we did not formally track mark-to-market adjustments on our borrowing-related debt instruments during such time.

(4)

The Adjusted Total Returns presented are based on adjusted NAVs calculated as if we had continued to mark our hedge and debt instruments to market following a policy change to largely exclude borrowing-related interest rate hedge and debt marks to market from our NAV calculations (except in certain circumstances pursuant to our valuation procedures), beginning with our NAV calculated as of December 31, 2019 NAV. Therefore, the NAVs used in the calculation are identical to those presented per Note (3) above from NAV inception through November 30, 2019. The adjusted NAVs include the incremental impacts to advisory fees and performance fees; however, the adjusted NAVs are not assumed to have impacted any share purchase or redemption. For calculation purposes, transactions were assumed to occur at the adjusted NAVs.

~~Impacts~~Trends Affecting Our Business

Our results of ~~COVID-19~~

~~With respect to COVID-19, we~~operations are ~~continuing to assess impacts to our portfolio~~affected by a variety of factors, including conditions in both the U.S. and global financial markets and the economic and political environments.

The commercial real estate ~~more broadly. Our properties have not experienced~~markets continued to be impacted by the ~~same level of stress~~challenging macroeconomic environment, including continued high inflation and valuation declines seen within harder hit sectors in which we are not invested such as hospitality, gaming, senior housing or shopping malls, nor do we have any investments in real estate securities which have experienced significant volatility. As of March 31, 2022, contractual rent collections are consistent with average annual collections prior to the pandemic.interest rates and geopolitical uncertainty. In addition, ~~we are pleased~~during the first quarter of 2023, several financial institutions in the U.S. and abroad sustained liquidity problems resulting in further volatility in the financial markets and concerns with respect to ~~report~~liquidity, in particular across regional banks. Given the current macroeconomic environment, property valuations adjusted downwards, with capitalization rate compressions waning and yields widening. Periods of excessive or prolonged inflation and rising interest rates may negatively impact our customers’ businesses, resulting in increased vacancy, concessions or bad debt expense, which may adversely and materially affect our net operating income and NAV.

We believe some of these market trends may be offset by the continued strong fundamentals of real estate. We believe our portfolio is well-positioned for this market environment. Real estate market fundamentals remain favorable, supported by strong rent growth, low vacancy rates and demand generally outpacing supply in certain sectors like multifamily and industrial. However, there is no guarantee that our ~~retail portfolio as a whole has remained stable, and many of our customers are successfully supplementing their in-store sales with e-commerce and curbside pick-up.~~

Weoutlook will remain an active buyer of institutional quality, income-producing and defensive real estate, particularly within the industrial and residential sectors which we believe should provide increased appreciation potentialpositive for the fund over time and complement our retail and office investment allocations that provide for higher income potential. Accordingly, as of March 31, 2022, we directly acquired seven industrial properties and one residential propertylong-term, especially if leasing fundamentals weaken in ~~2022 for an aggregate contractual purchase price of $369.5 million.~~the future.

RESULTS OF OPERATIONS

Summary of ~~2022~~2023 Activities

During the three months ended March 31, ~~2022,~~2023, we completed the following activities:

●

We acquired ~~seven~~one industrial ~~properties and one residential~~ property ~~comprising 1.8 million square feet~~ for ~~an aggregate~~a contractual purchase price of approximately ~~$369.5~~$17.4 million.We invested $7.7 million in our unconsolidated joint venture partnerships, which acquired an additional three properties.

●

We sold ~~two~~one partial retail ~~properties, one office~~ property ~~and a retail land parcel~~ for net proceeds of approximately ~~$169.4~~$53.7 million and recorded a net gain on sale of approximately ~~$53.9~~$36.9 million related to the sale of ~~these properties.~~this property.

●

We leased approximately ~~341,000~~125,000 square feet of our commercial properties, which included ~~86,000~~65,000 square feet of new leases and ~~255,000~~60,000 square feet of renewals. ~~We are currently 94.2% leased as~~During the first quarter of 2023, rent growth on comparable leases averaged 12.6%, calculated using cash basis rental rates (19.0% when calculated using GAAP basis rental rates). As of March 31, ~~2022, as compared~~2023, rents across our industrial properties and residential properties, our two largest segments, are estimated to ~~94.6% as of December 31, 2021.~~be 24.7% and 3.9% below market (on a weighted-average basis), respectively, providing the opportunity for meaningful net operating income growth.

●

We decreased our leverage ratio from ~~37.6%~~31.8% as of December 31, ~~2021,~~2022, to 31.2% as of March 31, ~~2022.~~2023. Our leverage ratio for reporting purposes is calculated as the outstanding principal balance of our borrowings less cash and cash equivalents divided

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by the fair value of our real property, net ~~investment~~investments in unconsolidated joint venture partnerships, investments in real estate-related securities and debt-related investments not associated with the DST Program (determined in accordance with our valuation procedures).

●

We raised ~~$109.8 million of~~ gross proceeds of $149.5 million from the sale of our common stock and DST Interests. This includes $47.7 million from the sale of 5.4 million shares of our common stock in our ongoing public ~~primary~~ offerings, ~~and $6.7 million~~including proceeds from ~~the sale of common stock under~~ our distribution reinvestment ~~plan. Additionally, we raised $280.8~~plan of approximately $8.0 million and $101.8 million of gross capital through private placement offerings by selling DST Interests, ~~$14.8~~$14.0 million of which were financed by DST Program Loans.

●

We redeemed ~~1.8~~4.0 million shares of common stock at a weighted-average purchase price of ~~$8.15~~$8.81 per share for an aggregate amount of ~~$14.6~~$35.5 million.

●

We entered into one interest rate cap agreement with a notional amount of $150.0 million that became effective in February 2023.

3035

Table of ~~Contents~~contents

In the first quarter of 2022, we elected to update the results of operations disclosure to compare the operating results for the current quarter to the immediately preceding sequential quarter. We believe this comparison provides a more relevant and informative representation of the changes to our results of operations over time.

Results for the Three ~~months ended~~Months Ended March 31, ~~2022~~2023 Compared to Prior Periods

The following table ~~summarizes~~sets forth information regarding our consolidated results of operations for the three months ended March 31, ~~2022,~~2023, as compared to the three months ended December 31, ~~2021~~2022 and to the three months ended March 31, 2021. We evaluate the performance of consolidated operating properties we own and manage using a same store analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of any material changes in the composition of the aggregate portfolio on performance measures. We have defined the same store portfolio to include consolidated operating properties owned for the entirety of both the current and prior reporting periods for which the operations had been stabilized. Other operating properties not meeting the same store criteria are reflected in the non-same store portfolio. The same store operating portfolio for the three months ended March 31, 2022 as compared to the three months ended December 31, 2021 presented below includes 56 properties totaling 11.8 million square feet owned as of October 1, 2021, which represented 78.9% of total rentable square feet as of March 31, 2022. The same store operating portfolio for the three months ended March 31, 2022 as compared to the three months ended March 31, ~~2021 presented below includes 48 properties totaling approximately 9.9 million square feet owned as of January 1, 2021, which represented 66.6% of total rentable square feet as of March 31, 2022.~~2022:

For the Three Months Ended

Change

For the Three Months Ended

Change

($ in thousands, except per square foot data)

March 31, 2022

December 31, 2021

$

%

March 31, 2022

March 31, 2021

$

%

Same store properties

$
49,858

$
49,625

$
233

0.5

$
44,017

$
43,113

$
904

2.1
%
Non-same store properties

12,647

6,894

5,753

83.4

18,488

7,319

11,169

NM

Total rental revenues

62,505

56,519

5,986

10.6

62,505

50,432

12,073

23.9

Rental expenses:

















Same store properties

(16,267)

(15,067)

(1,200)

(8.0)

(14,976)

(14,367)

(609)

(4.2)

Non-same store properties

(5,047)

(2,388)

(2,659)

NM

(6,338)

(3,195)

(3,143)

(98.4)

Total rental expenses

(21,314)

(17,455)

(3,859)

(22.1)

(21,314)

(17,562)

(3,752)

(21.4)

Net operating income:

















Same store properties

33,591

34,558

(967)

(2.8)

29,041

28,746

295

1.0

Non-same store properties

7,600

4,506

3,094

68.7

12,150

4,124

8,026

NM

Total net operating income

41,191

39,064

2,127

5.4

41,191

32,870

8,321

25.3

Other income and (expenses):

















Debt-related income

3,468

2,433

1,035

42.5

3,468

2,124

1,344

63.3

Real estate-related depreciation and amortization

(27,451)

(21,687)

(5,764)

(26.6)

(27,451)

(16,733)

(10,718)

(64.1)

General and administrative expenses

(2,037)

(2,215)

178

8.0

(2,037)

(2,585)

548

21.2

Advisory fees, related party

(7,144)

(6,044)

(1,100)

(18.2)

(7,144)

(6,573)

(571)

(8.7)

Performance participation allocation

(12,192)

(7,558)

(4,634)

(61.3)

(12,192)

—

(12,192)

—

Acquisition costs and reimbursements

(1,629)

(1,185)

(444)

(37.5)

(1,629)

—

(1,629)

—

Impairment of real estate property

—

—

—

—

—

(758)

758

NM

Equity in (loss) income from unconsolidated joint venture partnerships

(1,010)

114

(1,124)

NM

(1,010)

—

(1,010)

NM

Interest expense

(24,410)

(19,017)

(5,393)

(28.4)

(24,410)

(16,563)

(7,847)

(47.4)

Gain on sale of real estate property

53,881

24,536

29,345

NM

53,881

27,342

26,539

97.1

Other income

2,127

578

1,549

NM

2,127

274

1,853

NM

Total other (expenses) income

(16,397)

(30,045)

13,648

45.4

(16,397)

(13,472)

(2,925)

(21.7)

Net income

24,794

9,019

15,775

NM

24,794

19,398

5,396

27.8

Net income attributable to redeemable noncontrolling interests

(246)

(52)

(194)

NM

(246)

(134)

(112)

(83.6)

Net income attributable to noncontrolling interests

(3,537)

(1,135)

(2,402)

NM

(3,537)

(1,699)

(1,838)

NM

Net income attributable to common stockholders

$
21,011

$
7,832

$
13,179

NM

$
21,011

$
17,565

$
3,446

19.6

Same store supplemental data:

















Same store average percentage leased

94.2
%

94.8
%





93.4
%

94.4
%





Same store average annualized base rent per square foot

$
13.99

$
13.93





$
14.93

$
14.50


	For the Three Months Ended				Change				For the Three Months Ended				Change
($ in thousands, except per share data)	March 31, 2023		December 31, 2022		$		%		March 31, 2023		March 31, 2022		$		%
Revenues:
Rental revenues	$	77,960	$	76,247	$	1,713	2.2	%	$	77,960	$	62,505	$	15,455	24.7	%
Debt-related income		5,761		4,127		1,634	39.6			5,761		3,468		2,293	66.1
Total revenues		83,721		80,374		3,347	4.2			83,721		65,973		17,748	26.9
Operating expenses:
Rental expenses		28,300		29,648		(1,348)	(4.5)			28,300		21,314		6,986	32.8
Real estate-related depreciation and amortization		33,197		33,550		(353)	(1.1)			33,197		27,451		5,746	20.9
General and administrative expenses		3,044		2,784		260	9.3			3,044		2,037		1,007	49.4
Advisory fees		9,538		9,396		142	1.5			9,538		7,144		2,394	33.5
Performance participation allocation		—		1,659		(1,659)	(100.0)			—		12,192		(12,192)	(100.0)
Acquisition costs and reimbursements		1,169		1,529		(360)	(23.5)			1,169		1,629		(460)	(28.2)
Impairment loss on debt-related investment held for sale		2,520		1,799		721	40			2,520		—		2,520	NM
Total operating expenses		77,768		80,365		(2,597)	(3.2)			77,768		71,767		6,001	8.4
Other (income) expenses:
Equity in loss (income) from unconsolidated joint venture partnerships		2,446		(672)		3,118	NM			2,446		1,010		1,436	NM
Interest expense		37,545		39,967		(2,422)	(6.1)			37,545		24,410		13,135	53.8
Gain on sale of real estate property		(36,884)		—		(36,884)	NM			(36,884)		(53,881)		16,997	31.5
Loss on extinguishment of debt and financing commitments, net		700		—		700	NM			700		—		700	NM
Loss (gain) on derivative instruments		103		(500)		603	NM			103		(1,550)		1,653	NM
Provision for current expected credit losses		5,630		—		5,630	NM			5,630		—		5,630	NM
Other income		(1,016)		(1,009)		(7)	(0.7)			(1,016)		(577)		(439)	(76.1)
Total other expenses (income)		8,524		37,786		(29,262)	(77.4)			8,524		(30,588)		39,112	NM
Net (loss) income		(2,571)		(37,777)		35,206	93.2			(2,571)		24,794		(27,365)	NM
Net loss (income) attributable to redeemable noncontrolling interests		18		303		(285)	(94.1)			18		(246)		264	NM
Net loss (income) attributable to noncontrolling interests		549		6,936		(6,387)	(92.1)			549		(3,537)		4,086	NM
Net (loss) income attributable to common stockholders	$	(2,004)	$	(30,538)		28,534	93.4	%	$	(2,004)	$	21,011	$	(23,015)	NM	%
Weighted-average shares outstanding—basic		206,774		205,435		1,339	0.7	%		206,774		178,528		28,246	15.8	%
Weighted-average shares outstanding—diluted		263,026		254,103		8,923	3.5	%		263,026		210,676		52,350	24.8	%
Net (loss) income attributable to common stockholders per common share—basic and diluted	$	(0.01)	$	(0.15)		0.14	93.3	%	$	(0.01)	$	0.12	$	(0.13)	NM	%

NM = Not meaningful

~~Table of Contents~~

Rental Revenues. Rental revenues are comprised of rental income, straight-line rent, and amortization of above- and below-market lease assets and liabilities. Total rental revenues increased by ~~$6.0~~$1.7 million and ~~$12.1~~$15.5 million for the three months ended March 31, ~~2022,~~2023 as compared to the three months ended December 31, ~~2021~~2022 and March 31, ~~2021, respectively. For~~2022, respectively, primarily due to the ~~three months ended March 31, 2022, same~~increase in non-same store revenues resulting from significant growth in our portfolio and increased ~~by $0.2 million, as compared to the three months ended December 31, 2021, primarily driven by increased occupancy and~~ recovery revenue at certain ~~of our office and retail~~ properties in 2022. For the three months ended March 31, 2022, same store revenues increased by $0.9 million, as compared to the three months March 31, 2021, primarily driven by increased market rents and reduced rent concessions at the residential properties induring the first quarter of ~~2022. Non-same~~2023. See “Same Store Portfolio Results of Operations” below for further details of the same store revenue increased by $5.8 million and $11.2 million for the three months ended March 31, 2022, as compared to the three months ended December 31, 2021 and March 31, 2021, respectively, as a result of net positive acquisition activity, primarily in the industrial and residential segments after accounting for dispositions, primarily in the office and retail segments.revenues.

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The following table presents the components of our consolidated rental revenues:


	For the Three Months Ended				Change				For the Three Months Ended March 31,				Change				For the Three Months Ended				Change				For the Three Months Ended March 31,				Change
(in thousands)	March 31, 2022		December 31, 2021		$		%		2022		2021		$		%		March 31, 2023		December 31, 2022		$		%		2023		2022		$		%
Rental income	$	60,752	$	54,339	$	6,413	11.8	%	$	60,752	$	48,607	$	12,145	25.0	%	$	76,064	$	74,675	$	1,389	1.9	%	$	76,064	$	60,752	$	15,312	25.2	%
Straight-line rent		726		1,182		(456)	(38.6)			726		1,176		(450)	(38.3)			1,068		550		518	94.2			1,068		726		342	47.1
Amortization of above- and below-market intangibles		1,027		998		29	2.9			1,027		649		378	58.2			828		1,022		(194)	(19.0)			828		1,027		(199)	(19.4)
Total rental revenues	$	62,505	$	56,519	$	5,986	10.6	%	$	62,505	$	50,432	$	12,073	23.9	%	$	77,960	$	76,247	$	1,713	2.2	%	$	77,960	$	62,505	$	15,455	24.7	%

Rental Expenses. Rental expenses include certain property operating expenses typically reimbursed by our customers, such as real estate taxes, property insurance, property management fees, repair and maintenance and include certain non-recoverable expenses, such as consulting services and roof repairs. Total rental expenses for the three months ended March 31, ~~2022 increased~~2023 decreased by ~~$3.9 million and $3.8~~$1.3 million as compared to the three months ended December 31, ~~2021~~2022 primarily due to (i) decreased repairs and maintenance expense across our portfolio, in aggregate; and (ii) decreased bad debt expense at certain properties. Total rental expenses for the three months ended March 31, ~~2021, respectively,~~2023 increased by $7.0 million as compared to the three months ended March 31, 2022 primarily due to (i) an increase in non-same store rental expenses as a result of our acquisition activity since January 1, ~~2021,~~2022, which was partially offset by our disposition activity since January 1, ~~2021;~~2022; and (ii) increased real estate tax expense ~~driven by net acquisition activity and operating expenses associated with certain properties.~~across our portfolio, in aggregate. See “Same Store Portfolio Results of Operations” below for further details of the same store expenses.

The following table presents the various components of our rental expenses:


	For the Three Months Ended								For the Three Months Ended
	March 31,		December 31		Change				March 31,				Change				For the Three Months Ended				Change				For the Three Months Ended March 31,				Change
(in thousands)	2022		2021		$		%		2022		2021		$		%		March 31, 2023		December 31, 2022		$		%		2023		2022		$		%
Real estate taxes	$	8,822	$	6,624	$	2,198	33.2	%	$	8,822	$	7,042	$	1,780	25.3	%	$	12,448	$	12,753	$	(305)	(2.4)	%	$	12,448	$	8,822	$	3,626	41.1	%
Repairs and maintenance		4,883		4,588		295	6.4			4,883		4,801		82	1.7			5,780		6,210		(430)	(6.9)			5,780		4,883		897	18.4
Utilities		2,530		1,861		669	35.9			2,530		1,938		592	30.5			2,888		2,765		123	4.4			2,888		2,530		358	14.2
Property management fees		1,561		1,373		188	13.7			1,561		1,220		341	28.0			1,933		1,903		30	1.6			1,933		1,561		372	23.8
Insurance		958		749		209	27.9			958		565		393	69.6			1,184		1,237		(53)	(4.3)			1,184		958		226	23.6
Other		2,560		2,260		300	13.3			2,560		1,996		564	28.3			4,067		4,780		(713)	(14.9)			4,067		2,560		1,507	58.9
Total rental expenses	$	21,314	$	17,455	$	3,859	22.1	%	$	21,314	$	17,562	$	3,752	21.4	%	$	28,300	$	29,648	$	(1,348)	(4.5)	%	$	28,300	$	21,314	$	6,986	32.8	%

~~Other~~All Remaining Income and Expenses. ~~The net amount of other~~In aggregate, the remaining income and expenses decreased by ~~$13.6~~$32.1 million for the three months ended March 31, ~~2022,~~2023, as compared to the three months ended December 31, ~~2021,~~2022, primarily ~~as a result of an increase in gain from disposition of $29.3~~due to the following:

●

an increase in gain on sale of real estate property of $36.9 million related to the sale of one partial retail property in 2023.

Partially offset ~~by (i) an increase in real estate-related depreciation~~by:

●

an increase in provision for current expected credit loss of $5.6 million related to our debt-related investments.

In aggregate, the remaining income and amortization of $5.8 million driven by our net acquisition activity and lease termination amortization; (ii) an increase in interest expense of $5.4 million driven by higher interest expense on financing obligations associated with an increase in the sale of interests related to our DST Program; and (iii) an increase in performance participation allocation of $4.6 million driven by the increased performance of our portfolio.

~~The net amount of other~~ expenses increased ~~$2.9~~$35.8 million for the three months ended March 31, ~~2022,~~2023, as compared to the same period in ~~2021,~~2022, primarily ~~as a result of (i) an increase in performance participation allocation of $12.2 million driven by~~due to the increased performance of our portfolio; (ii) an increase in real estate-related depreciation and amortization of $10.7 million driven by our net acquisition activity and lease termination amortization; and (iii) an increase in interest expense of $7.8 million driven by higher interest expense on financing obligations associated with an increase in the sale of interests related to our DST Program. The increase in these expenses was partiallyfollowing:

●

a decrease in gain on sale of real estate property of $17.0 million driven by fewer disposition activity in 2023;

●

an increase in interest expense of $13.1 million driven primarily by higher interest expense on financing obligations associated with an increase in the sale of interests related to our DST Program and higher interest expense on certain variable interest rate debt;

●

an increase in real estate-related depreciation and amortization of $5.7 million driven by our net acquisition activity; and

●

an increase in provision for current expected credit loss of $5.6 million related to our debt-related investments.

Partially offset ~~by an increase in gain from dispositions of $26.5 million.~~by:

~~Segment Summary for the Three months ended March 31, 2022 Compared to Prior Periods~~

Our segments are based on our internal reporting of operating results used to assess performance based on the type of our properties. Our markets are aggregated into four reportable segments: office, retail, residential and industrial. These segments are comprised of

●

a decrease in performance participation allocation of $12.2 million as the requisite performance hurdle was met in 2022 and performance participation allocation expense was then recognized, while the performance hurdle was not met in 2023 and no performance participation allocation expense was recognized; and

●

an increase in debt-related income of $2.3 million related to our additional debt-related investments.

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Table of ~~Contents~~contents

the markets by which management and its operating teams conduct and monitor business. See “Note 15 to the Condensed Consolidated Financial Statements” for further information on our segments. Management considers rental revenues and netSame Store Portfolio Results of Operations

Net operating income (“NOI”) aggregated by segment to be the appropriate way to analyze performance. See “Additional Measures of Performance” below for detail regarding the use of NOI. The following table summarizes certain operating trends in our consolidated same store properties by segment:

For the Three Months Ended

For the Three Months Ended

March 31,

December 31

Change

March 31,

Change

($ in thousands, except per square foot data)

2022

2021


$

%

2022

2021

$

%

Rental revenues:

















Office

$
12,771

$
12,753

$
18

0.1
%

$
12,771

$
12,834

$
(63)

(0.5)
%
Retail

16,542

16,238

304

1.9

15,254

15,218

36

0.2

Residential

7,800

7,692

108

1.4

7,800

6,640

1,160

17.5

Industrial

12,745

12,942

(197)

(1.5)

8,192

8,421

(229)

(2.7)

Total same store rental revenues

49,858

49,625

233

0.5

44,017

43,113

904

2.1

Non-same store properties

12,647

6,894

5,753

83.4

18,488

7,319

11,169

NM

Total rental revenues

$
62,505

$
56,519

$
5,986

10.6
%

$
62,505

$
50,432

$
12,073

23.9
%
NOI:

















Office

$
7,118

$
7,498

$
(380)

(5.1)
%

$
7,118

$
7,366

$
(248)

(3.4)
%
Retail

12,189

12,108

81

0.7

11,185

11,445

(260)

(2.3)

Residential

4,499

4,701

(202)

(4.3)

4,499

3,398

1,101

32.4

Industrial

9,785

10,251

(466)

(4.5)

6,239

6,537

(298)

(4.6)

Total same store NOI

33,591

34,558

(967)

(2.8)

29,041

28,746

295

1.0

Non-same store properties

7,600

4,506

3,094

68.7

12,150

4,124

8,026

NM

Total NOI

$
41,191

$
39,064

$
2,127

5.4
%

$
41,191

$
32,870

$
8,321

25.3
%
Same store average percentage leased:

Office

78.4
%

79.4
%



78.4
%

82.8
%





Retail

94.7

94.4





94.7

93.8





Residential

95.1

95.6





95.1

95.0





Industrial

97.4

98.4





96.8

98.2





Same store average annualized base rent per square foot:

Office

$
34.62

$
34.92





$
34.62

$
35.12





Retail

18.82

18.46





19.55

19.34





Residential

25.11

24.91





25.11

22.70





Industrial

5.92

5.95





5.15

4.89

~~NM = Not meaningful~~

~~Office Segment.~~ For the three months ended March 31, 2022, our office segment same store NOI decreased by $0.4 million and $0.2 million, respectively, as compared to the three months ended December 31, 2021 and March 31, 2021, respectively, primarily due to reduced termination fee revenue at our Bala Pointe property and increased non-reimbursable operating expenses at our 3 Second Street property.

~~Retail Segment.~~ For the three months ended March 31, 2022, our retail segment same store NOI remained consistent as compared to the three months ended December 31, 2021. For the three months ended March 31, 2022, our retail segment same store NOI decreased by $0.3 million, as compared to the three months ended March 31, 2021, primarily due to increased bad debt expense for one tenant at our Suniland Shopping Center property.

~~Residential Segment.~~ For the three months ended March 31, 2022, our residential segment same store NOI decreased by $0.2 million as compared to the three months ended December 31, 2021, primarily due to increased operating expenses at twois a supplemental non-GAAP measure of our properties. For the three months ended March 31, 2022, our residential segment same store NOI increased by $1.1 million, as compared to the three months ended March 31, 2021, primarily due to increased market rents and reduced rent concessions at certain of our properties during the first quarter of 2022.

~~Table of Contents~~

~~Industrial Segment.~~ For the three months ended March 31, 2022, our industrial segment same store NOI decreased by $0.5 million and $0.3 million, respectively, as compared to the three months ended December 31, 2021 and March 31, 2021, respectively, primarily due to increasedproperty operating ~~expenses specifically related to bad debt expense at our Kaiser Business Center property.~~

~~ADDITIONAL MEASURES OF PERFORMANCE~~

~~Net Income and NOI~~

results. We define NOI as ~~GAAP rental~~operating revenues less operating expenses. While we believe our net income (loss), as defined by GAAP, ~~rental expenses. We~~to be the most appropriate measure to evaluate our overall performance, we consider NOI to be an appropriate supplemental performance ~~measure and~~measure. We believe NOI provides useful information to our investors regarding our results of operations because NOI reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of ~~the~~ properties, such as real estate-related depreciation and amortization, general and administrative expenses, advisory fees, impairment charges, interest expense, gains on sale of properties, other income and expense, gains and losses on the extinguishment of debt and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our financial performance since it excludes such items, which could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating ~~NOI. Therefore, we believe~~NOI, therefore, our investors should consider net income (loss), as ~~defined by GAAP, to be~~ the ~~most appropriate measure to evaluate~~primary indicator our overall financial performance. ~~Refer~~

We evaluate the performance of consolidated operating properties we own and manage using a same store analysis because the population of properties in this analysis is consistent from period to ~~“Results~~period, thereby eliminating the effects of ~~Operations—Results~~any material changes in the composition of the aggregate portfolio on performance measures. We have defined the same store portfolio to include consolidated operating properties owned for the ~~Three~~entirety of both the current and prior reporting periods for which the operations had been stabilized. Unconsolidated properties are excluded from the same store portfolio because we account for our interest in our joint venture partnership using the equity method of accounting; therefore, our proportionate share of income and loss is recognized in income (loss) of our unconsolidated joint venture partnership on the condensed consolidated statements of operations. Other operating properties not meeting the same store criteria are reflected in the non-same store portfolio. Our same store analysis may not be comparable to that of other real estate companies and should not be considered to be more relevant or accurate in evaluating our operating performance than current GAAP methodology.

The same store operating portfolio for the three months ended March 31, 2023 as compared to the three months ended December 31, 2022 presented below includes 89 properties totaling 18.4 million square feet owned as of October 1, 2022, which represented 98.7% of total rentable square feet as of March 31, 2023. The same store operating portfolio for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 ~~Compared to Prior Periods” above for a reconciliation~~presented below includes 60 properties totaling approximately 12.6 million square feet owned as of ~~our~~January 1, 2022, which represented 67.9% of total rentable square feet as of March 31, 2023.

Table of contents

The following table reconciles GAAP net income (loss) to same store portfolio NOI for the three months ended March 31, ~~2022,~~2023 as compared to the three months ended December 31, ~~2021~~2022 and March 31, ~~2021.~~2022:


	For the Three Months Ended				For the Three Months Ended March 31,
(in thousands)	March 31, 2023		December 31, 2022		2023		2022
Net (loss) income attributable to common stockholders	$	(2,004)	$	(30,538)	$	(2,004)	$	21,011
Debt-related income		(5,761)		(4,127)		(5,761)		(3,468)
Real estate-related depreciation and amortization		33,197		33,550		33,197		27,451
General and administrative expenses		3,044		2,784		3,044		2,037
Advisory fees		9,538		9,396		9,538		7,144
Performance participation allocation		—		1,659		—		12,192
Acquisition costs and reimbursements		1,169		1,529		1,169		1,629
Impairment loss on debt-related investment held for sale		2,520		1,799		2,520		—
Equity in loss (income) from unconsolidated joint venture partnerships		2,446		(672)		2,446		1,010
Interest expense		37,545		39,967		37,545		24,410
Gain on sale of real estate property		(36,884)		—		(36,884)		(53,881)
Loss on extinguishment of debt and financing commitments, net		700		—		700		—
Loss (gain) on derivative instruments		103		(500)		103		(1,550)
Provision for current expected credit losses		5,630		—		5,630		—
Other income		(1,016)		(1,009)		(1,016)		(577)
Net (loss) income attributable to redeemable noncontrolling interests		(18)		(303)		(18)		246
Net (loss) income attributable to noncontrolling interests		(549)		(6,936)		(549)		3,537
Net operating income	$	49,660	$	46,599	$	49,660	$	41,191
Less: Non-same store NOI		358		855		12,071		5,008
Same store NOI	$	49,302	$	45,744	$	37,589	$	36,183

Our markets are aggregated into four reportable segments: office, retail, residential and industrial. Our segments are based on our internal reporting of operating results used to assess performance based on the type of our properties. These segments are comprised of the markets by which management and its operating teams conduct and monitor business. See “Note 15 to the Condensed Consolidated Financial Statements” for further information on our segments. Management considers rental revenues and NOI aggregated by segment to be an appropriate way to analyze performance.

Table of contents

The following table includes a breakout of results for our same store portfolio by segment for rental revenues, rental expenses and NOI for the three months ended March 31, 2023, as compared to the three months ended December 31, 2022 and March 31, 2022:


	For the Three Months Ended						Change				For the Three Months Ended March 31,						Change
($ in thousands, except per square foot data)	March 31, 2023			December 31, 2022				$	%		2023			2022			$		%
Rental revenues:
Office	$	13,140		$	12,436		$	704	5.7	%	$	12,360		$	12,771		$	(411)	(3.2)	%
Retail		14,088			14,229			(141)	(1.0)			14,088			13,756			332	2.4
Residential		28,847			28,297			550	1.9			16,455			14,811			1,644	11.1
Industrial		21,245			20,206			1,039	5.1			15,021			13,855			1,166	8.4
Total same store rental revenues		77,320			75,168			2,152	2.9			57,924			55,193			2,731	4.9
Non-same store properties		640			1,079			(439)	(40.7)			20,036			7,312			12,724	NM
Total rental revenues	$	77,960		$	76,247		$	1,713	2.2	%	$	77,960		$	62,505		$	15,455	24.7	%
Rental expenses:
Office	$	(6,620)		$	(6,962)		$	342	4.9	%	$	(6,344)		$	(5,653)		$	(691)	(12.2)	%
Retail		(3,315)			(4,082)			767	18.8			(3,315)			(3,824)			509	13.3
Residential		(13,191)			(14,028)			837	6.0	��		(7,245)			(6,378)			(867)	(13.6)
Industrial		(4,892)			(4,352)			(540)	(12.4)			(3,431)			(3,155)			(276)	(8.7)
Total same store rental expenses		(28,018)			(29,424)			1,406	4.8			(20,335)			(19,010)			(1,325)	(7.0)
Non-same store properties		(282)			(224)			(58)	(25.9)			(7,965)			(2,304)			(5,661)	NM
Total rental expenses	$	(28,300)		$	(29,648)		$	1,348	4.5	%	$	(28,300)		$	(21,314)		$	(6,986)	(32.8)	%
NOI:
Office	$	6,520		$	5,474		$	1,046	19.1	%	$	6,016		$	7,118		$	(1,102)	(15.5)	%
Retail		10,773			10,147			626	6.2			10,773			9,932			841	8.5
Residential		15,656			14,269			1,387	9.7			9,210			8,433			777	9.2
Industrial		16,353			15,854			499	3.1			11,590			10,700			890	8.3
Total same store NOI		49,302			45,744			3,558	7.8			37,589			36,183			1,406	3.9
Non-same store properties		358			855			(497)	(58.1)			12,071			5,008			7,063	NM
Total NOI	$	49,660		$	46,599		$	3,061	6.6	%	$	49,660		$	41,191		$	8,469	20.6	%
Same store average percentage leased:
Office		75.0	%		75.4	%						73.6	%		78.6	%
Retail		95.9			95.1							95.9			94.3
Residential		94.5			93.8							94.3			93.0
Industrial		99.7			99.7							99.6			97.6
Same store average annualized base rent per square foot:
Office	$	35.52		$	35.51						$	36.17		$	34.62
Retail		19.39			19.40							19.39			18.77
Residential		27.60			27.34							31.03			28.19
Industrial		5.96			5.91							6.45			6.07

NM = Not meaningful

Table of contents

Office Segment. For the three months ended March 31, 2023, our office segment same store NOI increased by $1.0 million as compared to the three months ended December 31, 2022, primarily due to increased revenue at our 350 Carter Road property and decreased real estate taxes at our 3 Second Street property. For the three months ended March 31, 2023, our office segment same store NOI decreased by $1.1 million as compared to the three months ended March 31, 2022, primarily due to decreased occupancy at our Bala Pointe property.

Retail Segment. For the three months ended March 31, 2023, our retail segment same store NOI increased by $0.6 million and $0.8 million, respectively, as compared to the three months ended December 31, 2022 and March 31, 2022, primarily due to decreased bad debt expense at certain properties and increased occupancy at our Saugus property.

Residential Segment. For the three months ended March 31, 2023, our residential segment same store NOI increased by $1.4 million and $0.8 million, respectively, as compared to the three months ended December 31, 2022 and March 31, 2022, primarily due to increased market rents, reduced vacancy and loss to lease, and reduced real estate taxes at certain of our residential properties.

Industrial Segment. For the three months ended March 31, 2023, our industrial segment same store NOI increased by $0.5 million and $0.9 million, respectively, as compared to the three months ended December 31, 2022 and March 31, 2022, primarily due to decreased bad debt expense, along with increased occupancy at certain of our industrial properties.

ADDITIONAL MEASURES OF PERFORMANCE

Funds From Operations (“FFO”) and Adjusted Funds From Operations (“AFFO”)

We believe that FFO and AFFO, in addition to net income (loss) and cash flows from operating activities as defined by GAAP, are useful supplemental performance measures that our management uses to evaluate our consolidated operating performance. However, ~~this~~these supplemental, non-GAAP ~~measure~~measures should not be considered as ~~an alternative~~alternatives to net income (loss) or to cash flows from operating activities as ~~an indication~~indications of our performance and isare not intended to be used as a liquidity ~~measure~~measures indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity and results of operations. In addition, other REITs may define FFO, AFFO and similar measures differently and choose to treat certain accounting line items in a manner different from us due to specific differences in investment and operating strategy or for other reasons.

FFO. As defined by the National Association of Real Estate Investment Trusts (“NAREIT”), FFO is a non-GAAP measure that excludes certain items such as real estate-related depreciation and amortization. We believe FFO is a meaningful supplemental measure of our operating performance that is useful to investors because depreciation and amortization in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. By excluding gains or losses on the sale of assets, we believe FFO provides a helpful additional measure of our consolidated operating performance on a comparative basis. We use FFO as an indication of our consolidated operating performance and as a guide to making decisions about future investments.

AFFO. AFFO further adjusts FFO to reflect the performance of our portfolio by adjusting for items we believe are not directly attributable to our operations. Our adjustments to FFO to arrive at AFFO include removing the impact of (i) our performance participation allocation, (ii) unrealized (gain) loss from changes in fair value of financial instruments and (iii) financing obligation liability appreciation (depreciation).

Although some REITs may present certain performance measures differently, we believe FFO and AFFO generally facilitate a comparison to other REITs that have similar operating characteristics to us. We believe investors are best served if the information that is made available to them allows them to align their analyses and evaluation with the same performance metrics used by management in planning and executing our business strategy. Neither the SEC, NAREIT, nor any regulatory body has passed judgment on the acceptability of the adjustments used to calculate AFFO. In the future, the SEC, NAREIT, or a regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry at which point we may adjust our calculations and characterizations of AFFO.

3441

Table of ~~Contents~~contents

The following unaudited table presents a reconciliation of GAAP net income (loss) to NAREIT ~~FFO:~~FFO and AFFO:

For the Three Months Ended

March 31,

(in thousands, except per share data)

2022

2021

GAAP net income (loss) attributable to common stockholders

$
21,011

$
17,565

GAAP net income (loss) per common share—basic and diluted

$
0.12

$
0.12

Reconciliation of GAAP net income (loss) to NAREIT FFO:





GAAP net income (loss) attributable to common stockholders

$
21,011

$
17,565

Real estate-related depreciation and amortization

27,451

16,733

Impairment of real estate property

—

758

Gain on sale of real estate property

(53,881)

(27,342)

Noncontrolling interests’ share of net income (loss)

3,537

1,699

Redeemable noncontrolling interests' share of net income (loss)

246

134

Noncontrolling interests’ share of NAREIT FFO

261

(836)

Redeemable noncontrolling interests' share of NAREIT FFO

16

(66)

NAREIT FFO attributable to common stockholders—basic

(1,359)

8,645

NAREIT FFO attributable to noncontrolling interests

(277)

902

NAREIT FFO

$
(1,636)

$
9,547

Weighted-average shares outstanding—basic

178,528

145,861

Weighted-average shares outstanding—diluted

210,676

161,089

NAREIT FFO per common share—basic and diluted

$
(0.01)

$
0.06


	For the Three Months Ended March 31,
(in thousands, except per share data)	2023		2022
GAAP net (loss) income	$	(2,571)	$	24,794
Weighted-average shares outstanding—diluted		263,026		210,676
GAAP net (loss) income per common share—diluted	$	(0.01)	$	0.12
Adjustments to arrive at FFO:
Real estate-related depreciation and amortization		33,197		27,451
Gain on sale of real estate property		(36,884)		(53,881)
Our share of adjustments from joint venture partnerships		3,024		2,032
NAREIT FFO	$	(3,234)	$	396
NAREIT FFO per common share—diluted	$	(0.01)	$	0.00
Adjustments to arrive at AFFO:
Performance participation allocation		—		12,192
Unrealized (gain) loss on financial instruments (1)		9,374		(1,550)
Financing obligation liability appreciation		2,862		4,007
Our share of adjustments from joint venture partnerships		286		(10)
AFFO	$	9,288	$	15,035

(1)	Unrealized (gain) loss from changes in fair value of financial instruments primarily relates to mark-to-market changes on our derivatives not designated as cash flow hedges and our debt-related investments.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our primary sources of capital for meeting our cash requirements include debt financings, cash generated from operating activities, net proceeds from our public and private offerings and asset sales. Our principal uses of funds are distributions to our stockholders, payments under our debt obligations and payments pursuant to the master lease agreements related to properties in our DST Program, redemption payments, acquisition of properties and other investments and capital expenditures. Over time, we intend to fund a majority of our cash needs, including the repayment of debt and capital expenditures, from operating cash flows and refinancings. As of March 31, ~~2022,~~2023, we had approximately ~~$1.4~~$1.8 million of borrowings, including scheduled amortization payments, and $56.0 million of future minimum lease payments related to the properties in our DST Program coming due in the next 12 ~~months, including scheduled amortization payments.~~months. We expect to be able to repay our principal and interest obligations over the next 12 months and beyond through operating cash flows, refinancings, borrowings under our line of credit, proceeds from capital raise and/or disposition proceeds. Additionally, given the increase in market volatility, increased interest rates, high inflation and the potential recessionary environment, we may experience a decreased pace of net proceeds raised from our public offering, reducing our ability to purchase assets, which may similarly delay the returns generated from our investments and affect our NAV.

Our Advisor, subject to the oversight of our board of directors and, under certain circumstances, the investment committee or other committees established by our board of directors, will evaluate potential acquisitions or dispositions and will engage in negotiations with buyers, sellers and lenders on our behalf. Pending investment in property, debt, or other investments, we may decide to temporarily invest any unused proceeds from our public offerings in certain investments that are expected to yield lower returns than those earned on real estate assets. These lower returns may affect our NAV and our ability to make distributions to our stockholders. Potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from our public and private offerings, proceeds from the sale of assets and undistributed funds from operations.

As of March 31, 2022, contractual rent collections are consistent with average annual collections prior to the pandemic. We are pleased with these collections given the pandemic’s significant impacts on the broader economy, thus reflecting the relatively defensive nature of our assets.

~~As of March 31, 2022,~~2023, our financial position was strong with 31.2% leverage, calculated as outstanding principal balance of our borrowings less cash and cash equivalents divided by the fair value of our real property, net ~~investment~~investments in our unconsolidated joint venture partnerships, investments in real estate-related securities and debt-related investments not associated with the DST Program ~~(determined~~

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(determined in accordance with our valuation procedures). In addition, our consolidated portfolio was ~~94.2% leased~~94.5% occupied (94.9% leased) as of March 31, ~~2022~~2023 and is diversified across 7291 properties totaling ~~14.9~~18.6 million square feet across 3233 geographic markets. Our properties contain a diverse roster of ~~403~~400 commercial customers, large and small, and has an allocation based on fair value of real ~~estate~~ properties as determined by our NAV calculation of ~~35.9%~~36.8% residential, 35.0% industrial, ~~27.2% residential, 21.8%~~15.2% retail which is primarily grocery-anchored, and ~~15.1%~~13.0% office.

We believe that our cash on-hand, anticipated net offering proceeds, proceeds from our line of credit, and other financing and disposition activities should be sufficient to meet our anticipated future acquisition, operating, debt service, distribution and redemption requirements.

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Cash Flows. The following table summarizes our cash flows for the following periods:


	For the Three Months Ended March 31,						For the Three Months Ended March 31,
(in thousands)	2022		2021		$ Change		2023		2022		$ Change
Total cash provided by (used in):
Operating activities	$	24,403	$	7,659	$	16,744	$	(15,773)	$	24,403	$	(40,176)
Investing activities		(241,166)		(7,704)		(233,462)		19,170		(241,166)		260,336
Financing activities		229,058		5,913		223,145		20,170		229,058		(208,888)
Net (decrease) increase in cash, cash equivalents and restricted cash	$	12,295	$	5,868	$	6,427
Net increase in cash, cash equivalents and restricted cash							$	23,567	$	12,295	$	11,272

Net cash provided by operating activities ~~increased~~decreased by approximately ~~$16.7~~$40.2 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, primarily due to ~~growth~~changes in ~~our property operations~~operating assets and liabilities of $34.8 million as ~~a result~~compared to the prior period due to the $23.7 million settlement of ~~our acquisition activity over~~ the ~~last year.~~2022 performance participation allocation in cash in January 2023.

Net cash used in investing activities ~~increased~~decreased by approximately ~~$233.5~~$260.3 million for the three months ended March 31, ~~2022,~~2023 compared to the same period in ~~2021,~~2022, primarily due to ~~(i) an increase~~a decrease in real estate property acquisition activity of $318.2 million; and (ii) investment activity related to our investment in unconsolidated joint venture partnerships for $35.1 million that we entered into in the fourth quarter of 2021. These drivers were$353.5 million. This driver was partially offset by ~~an increase~~a decrease in ~~net~~proceeds from disposition ~~proceeds~~ of ~~$120.5~~real estate property of $115.7 million.

Net cash provided by financing activities ~~increased~~decreased by approximately ~~$223.1~~$208.9 million for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021,~~2022, primarily due to ~~an increase~~a decrease in net offering activity from our DST Program and public offering of ~~$271.2~~$240.0 million and an increase in redemption activity of $29.5 million. These drivers were partially offset by ~~a $41.6 million net decrease~~an increase in net borrowing ~~activity.~~activity of 65.5 million.

Capital Resources and Uses of Liquidity

In addition to our cash and cash equivalents balances available, our capital resources and uses of liquidity are as follows:

Line of Credit and Term Loans. As of March 31, ~~2022,~~2023, we had an aggregate of ~~$1.5~~$1.7 billion of commitments under our unsecured credit agreement, including ~~$700.0~~$900.0 million under our line of credit and $800.0 million under our two term loans. As of that date, we had: (i) ~~$162.0~~$277.0 million outstanding under our line of credit; and (ii) ~~$525.0~~$800.0 million outstanding under our term loans. The weighted-average effective interest rate across all of our unsecured borrowings is ~~2.45%~~4.40%, which includes the effect of the interest rate swap and cap agreements related to ~~$300.0~~$800.0 million in borrowings under our term loans.

As of March 31, ~~2022,~~2023, the unused and available portions under our line of credit were ~~$538.0~~$623.0 million and ~~$447.4~~$565.6 million, respectively. Our ~~$700.0~~$900.0 million line of credit matures in November 2025, and may be extended pursuant to two six-month extension options, subject to certain conditions, including the payment of extension fees. One $400.0 million term loan matures in November 2026, with no extension option available. Our other $400.0 million term loan matures in January 2027, with no extension option available. Our line of credit borrowings are available for general corporate purposes, including but not limited to the refinancing of other debt, payment of redemptions, acquisition and operation of permitted investments. Refer to “Note 5 to the Condensed Consolidated Financial Statements” for additional information regarding our line of credit and term loans.

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preferred alternative rate for LIBOR in derivatives and other financial contracts. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

LIBOR is expected to be phased out or modified by June 2023. As of March 31, ~~2022, our line of credit, term loans and~~2023, certain of our mortgage notes have an initial or extended maturity dates beyond 2023 with exposure to LIBOR. The agreements governing these loans provide procedures for determining a replacement or alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the phasing out of LIBOR after June 2023 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.

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Mortgage Notes.��As of March 31, ~~2022,~~2023, we had property-level borrowings of approximately ~~$589.1~~$517.7 million outstanding with a weighted-average remaining term of approximately ~~5.0~~4.2 years. These borrowings are secured by mortgages or deeds of trust and related assignments and security interests in the collateralized properties, and had a weighted-average interest rate of ~~3.17%~~3.85%. Refer to “Note 5 to the Condensed Consolidated Financial Statements” for additional information regarding the mortgage notes.

Debt Covenants. Our line of credit, term loan and mortgage note agreements contain various property-level covenants, including customary affirmative and negative covenants. In addition, our line of credit and term loan agreements contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio and tangible net worth thresholds. These covenants may limit our ability to incur additional debt, or to pay distributions. We were in compliance with our debt covenants as of March 31, ~~2022.~~2023.

Leverage. We use financial leverage to provide additional funds to support our investment activities. We may finance a portion of the purchase price of any real estate asset that we acquire with borrowings on short or long-term basis from banks, life insurance companies and other lenders. We calculate our leverage for reporting purposes as the outstanding principal balance of our borrowings less cash and cash equivalents divided by the fair value of our real property, net investment in our unconsolidated joint venture partnerships and debt-related investments not associated with the DST Program (determined in accordance with our valuation procedures). We had leverage of 31.2% as of March 31, ~~2022.~~2023. Our current leverage target is between 40-60%. Although we will generally work to maintain our targeted leverage ratio, there are no assurances that we will maintain the targeted range disclosed above or achieve any other leverage ratio that we may target in the future. Due to the increase in interest rates in 2022, increased market volatility and the potential of a global recession in the near-term, the cost of financing or refinancing our purchase of assets may affect returns generated by our investments. Additionally, these factors may cause our borrowing capacity to be reduced, which could similarly delay or reduce benefits to our stockholders.

Future Minimum Lease Payments Related to the DST Program. As of March 31, 2023, we had $1.1 billion of future minimum lease payments related to the DST Program. The underlying interests of each property that is sold to investors pursuant to the DST Program are leased back by an indirect wholly-owned subsidiary of the Operating Partnership on a long-term basis of up to 29 years.

Offering Proceeds. For the three months ended March 31, ~~2022,~~2023, the amount of aggregate gross proceeds raised from our public offerings (including shares issued pursuant to the distribution reinvestment plan) was ~~$116.5~~$47.7 million ($~~109.9~~45.5 million net of direct selling costs).

Distributions. To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. The payment of distributions is determined by our board of directors and may be adjusted at its discretion at any time. Distribution levels are set by our board of directors at a level it believes to be appropriate and sustainable based upon a review of a variety of factors including the current and anticipated market conditions, current and anticipated future performance and make-up of our investments, our overall financial projections and expected future cash needs. We intend to continue to make distributions on a monthly basis.

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The following table outlines sources used, as determined on a GAAP basis, to pay total gross distributions (which are paid in cash or reinvested in shares of our common stock through our distribution reinvestment plan) for the periods indicated below:

For the Three Months Ended March 31, 2022

For the Three Months Ended March 31, 2021

(in thousands)

Amount

Percentage

Amount

Percentage

Distributions

Paid in cash (1)

$
12,885

65.2
%

$
9,572

63.4
%
Reinvested in shares

6,876

34.8

5,526

36.6

Total

$
19,761

100.0
%

$
15,098

100.0
%
Sources of Cash Distributions









Cash flows from operating activities

$
12,885

100.0
%

$
7,659

80.0
%
Borrowings

—

—

1,913

20.0

Total

$
12,885

100.0
%

$
9,572

100.0
%


	For the Three Months Ended March 31, 2023				For the Three Months Ended March 31, 2022
($ in thousands)	Amount		Percentage		Amount		Percentage
Distributions
Paid in cash (1)	$	16,644	67.5	%	$	12,885	65.2	%
Reinvested in shares		8,009	32.5			6,876	34.8
Total (2)	$	24,653	100.0	%	$	19,761	100.0	%
Sources of Distributions
Cash flows from operating activities	$	—	—	%	$	12,885	65.2	%
Borrowings		16,644	67.5			—	—
DRIP (3)		8,009	32.5			6,876	34.8
Total (2)	$	24,653	100.0	%	$	19,761	100.0	%

(1)	Includes other cash distributions consisting of: (i) distributions paid to noncontrolling interest holders; and (ii) ongoing distribution fees paid to the Dealer Manager with respect to Class T, Class S and Class D ~~shares.~~shares and OP Units.

(2)	Includes distributions paid to holders of OP Units for redeemable noncontrolling interests.

(3)	Stockholders may elect to have their distributions reinvested in shares of our common stock through our distribution reinvestment plan.

For the three months ended March 31, 2023 and 2022, our FFO ~~loss~~ was ~~$1.6~~$(3.2) million, or ~~8.3%~~(13.1)% of our total distributions, and ~~for the three months ended March 31, 2021, our FFO income was $9.5~~$0.4 million, or ~~63.2%~~2.0% of our total ~~distributions.~~distributions, respectively. FFO is a non-GAAP operating metric and should not be used as a liquidity measure. However, management believes the relationship between FFO and distributions may be meaningful for investors to better understand the sustainability of our operating performance compared to distributions made. Refer to “Additional Measures of Performance” above for the definition of FFO, as well as a detailed reconciliation of our GAAP net income (loss) to FFO.

Redemptions. Below is a summary of redemptions and repurchases pursuant to our share redemption program for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022. Our board of directors may modify or suspend our current share redemption programs if it deems such action to be in the best interest of our stockholders. Refer to Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds—Share Redemption Program” for detail regarding our share redemption program.


	For the Three Months Ended March 31,						For the Three Months Ended March 31,
(in thousands, except for per share data)	2022			2021			2023		2022
Number of shares requested for redemption or repurchase		1,788			2,244
Number of shares redeemed or repurchased		1,788			2,244			4,026		1,788
% of shares requested that were redeemed or repurchased		100.0	%		100.0	%
Aggregate dollar amount of shares redeemed or repurchased							$	35,455	$	14,555
Average redemption or repurchase price per share	$	8.15		$	7.55		$	8.81	$	8.15

For the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, we received and redeemed ~~in full~~100% of eligible redemption requests for an aggregate amount of approximately ~~$14.6~~$35.5 million and ~~$16.9~~$14.6 million, respectively, which we redeemed using cash flows from operating activities in excess of our distributions paid in cash, cash on hand, proceeds from our public offerings, proceeds from the disposition of properties, and borrowings under our revolving line of credit. We generally repay funds borrowed from our revolving line of credit from a variety of sources including: cash flows from operating activities in excess of our distributions; proceeds from our public offerings; proceeds from the disposition of ~~properties;~~properties and other longer-term borrowings.

We experienced aggregate positive net inflows during the first quarter ended March 31, 2023, from the proceeds of our capital raising efforts, including the sale of DST Interests in the DST Program. When measuring capital inflows for these purposes (and aggregating them for quarter-to-date purposes), proceeds from new subscriptions in a month are included on the first day of the next month because that is the first day on which such stockholders have rights in the Company. New subscriptions for DST Interests in our DST Program are included in the month in which they close. We record DST Interests as financing obligation liabilities for accounting purposes. If and when we exercise our option to reacquire a DST Property by issuing OP Units in exchange for DST Interests, we extinguish the financing obligation liability and record the issuance of the OP Units as an issuance of equity. When measuring monthly capital outflows for these purposes (and aggregating them for quarter-to-date purposes), both share and OP unit redemption requests received in a month are included on the last day of such month because that is the last day the shareholders or

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unitholders, respectively, have rights in the Company. We record these redemptions in our financial statements as having occurred on the first day of the next month following receipt of the redemption request because shares redeemed in a given month are considered outstanding through the last day of the month. Although our quarterly aggregate net flows may be positive, any given month or component may be negative.

SUBSEQUENT EVENTS

~~Acquisition of Property~~

See “Note 16 to the Condensed Consolidated Financial Statements” for information regarding subsequent ~~events~~.events.

CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our unaudited condensed consolidated financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our condensed consolidated financial statements. Additionally, other

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companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. For a detailed description of our critical accounting estimates, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2021~~2022 Form 10-K. As of March 31, ~~2022,~~2023, our critical accounting estimates have not changed from those described in our ~~2021~~2022 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We ~~are~~have been and may continue to be exposed to the impact of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows, and optimize overall borrowing costs. To achieve these objectives, we often plan to borrow on a fixed interest rate basis for longer-term debt and utilize interest rate swap and cap agreements on certain variable interest rate debt in order to limit the effects of changes in interest rates on our results of operations. As of March 31, ~~2022,~~2023, our debt ~~instruments~~outstanding consisted of borrowings under our line of credit, term loans and mortgage notes.

Fixed Interest Rate Debt. As of March 31, ~~2022,~~2023, our fixed interest rate debt consisted of ~~$381.5~~$310.1 million under our mortgage notes and ~~$300.0~~$650.0 million of borrowings under our term loans that were effectively fixed through the use of interest rate swaps. In total, our fixed interest rate debt represented ~~53.4%~~60.2% of our total consolidated debt as of March 31, ~~2022.~~2023. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed interest rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes could affect the fair value of our fixed interest rate debt. As of March 31, ~~2022,~~2023, the fair value and the carrying value of our consolidated fixed interest rate debt, excluding the values of any associated hedges, was ~~$666.1~~$960.1 million and ~~$681.5~~$930.4 million, respectively. The fair value estimate of this debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated on March 31, ~~2022.~~2023. Given we generally expect to hold our fixed interest rate debt instruments to maturity or when they otherwise open up for prepayment at par, and the amounts due under such debt instruments should be limited to the outstanding principal balance and any accrued and unpaid interest at such time, we do not expect that the resulting change in fair value of our fixed interest rate debt instruments due to market fluctuations in interest rates, would have a significant impact on our operating cash flows.

Variable Interest Rate Debt. As of March 31, ~~2022,~~2023, our consolidated variable interest rate debt consisted of ~~$162.0~~$277.0 million of borrowings under our line of credit, ~~$225.0~~$150.0 million of borrowings under our term loans and $207.6 million under our mortgage notes, which represented ~~46.6%~~39.8% of our total consolidated debt. Interest rate changes on the variable portion of our consolidated variable-rate debt could impact our future earnings and cash flows, but would not necessarily affect the fair value of such debt. As of March 31, ~~2022,~~2023, we were exposed to market risks related to fluctuations in interest rates on ~~$594.6~~634.6 million of consolidated ~~borrowings.~~borrowings; however, $357.6 million of these borrowings are capped through the use of three interest rate cap agreements. A hypothetical 25 basis points increase in the all-in rate on the outstanding balance of our consolidated variable interest rate debt as of March 31, ~~2022,~~2023, would increase our annual interest expense by approximately ~~$1.5 million.~~$0.7 million, including the effects of our interest rate cap agreements.

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Derivative Instruments. As of March 31, ~~2022,~~2023, we had ~~nine~~15 outstanding and effective derivative instruments, with a total notional amount of ~~$507.6 million.~~$1.0 billion. These derivative instruments were comprised of interest rate swaps and interest rate caps that were designed to mitigate the risk of future interest rate increases by either providing a fixed interest rate or capping the variable interest rate for a limited, pre-determined period of time. See “Note 5 to the Condensed Consolidated Financial Statements” for further detail on our derivative instruments. We are exposed to credit risk of the counterparty to our interest rate cap and swap agreements in the event of non-performance under the terms of the agreements. If we were not able to replace these caps or swaps in the event of non-performance by the counterparty, we would be subject to variability of the interest rate on the amount outstanding under our debt that is fixed or capped through the use of the swaps or caps, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the direction of our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, ~~2022.~~2023. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of March 31, ~~2022,~~2023, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, ~~2022~~2023 that have materially affected, or are reasonably

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likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting to date as a result of many of the employees of our Advisor and its affiliates working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 pandemic on our internal controls to minimize the impact to their design and operating effectiveness.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of our ~~2021~~2022 Form 10-K, which could materially affect our business, financial condition and/or future results. The risks described in our ~~2021~~2022 Form 10-K, are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

There have been no material changes to the risk factors disclosed in our ~~2021~~2022 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Redemption Program

While stockholders may request on a monthly basis that we redeem all or any portion of their shares pursuant to our share redemption program, we are not obligated to redeem any shares and may choose to redeem only some, or even none, of the shares that have been requested to be redeemed in any particular month, in our discretion. In addition, our ability to fulfill redemption requests is subject to a number of limitations. As a result, share redemptions may not be available each month. Under our share redemption program, to the extent we choose to redeem shares in any particular month, we will only redeem shares as of the last calendar day of that month (each such date, a “Redemption Date”). Shares redeemed on the Redemption Date remain outstanding on the Redemption Date and are no longer outstanding on the day following the Redemption Date. Redemptions will be made at the transaction price in effect on the Redemption Date, except that shares that have not been outstanding for at least one year will be redeemed at 95% of the transaction price (an “Early Redemption Deduction”). The Early Redemption Deduction may be waived in certain circumstances including: (i) in the case of redemption requests arising from the death or qualified disability of the holder; (ii) in the event that a stockholder’s shares are redeemed because the stockholder has failed to maintain the $2,000 minimum account balance or (iii) with respect to shares purchased through our distribution reinvestment plan. To have his or her shares redeemed, a stockholder’s redemption request and required documentation must be received in good order by 4:00 p.m. (Eastern time) on the second to last business day of the applicable month. Settlements of share redemptions will be made within three business days of the Redemption Date. An investor may

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withdraw its redemption request by notifying the transfer agent before 4:00 p.m. (Eastern time) on the last business day of the applicable month.

The total amount of aggregate redemptions of Class T, Class S, Class D, Class I and Class E shares (based on the price at which the shares are redeemed) will be limited during each calendar month to 2% of the aggregate NAV of all classes as of the last calendar day of the previous quarter and in each calendar quarter will be limited to 5% of the aggregate NAV of all classes of shares as of the last calendar day of the previous calendar quarter; provided, however, that every month and quarter each class of our common stock will be allocated capacity within such aggregate limit to allow stockholders in such class to either (a) redeem shares (based on the price at which the shares are redeemed) equal to at least 2% of the aggregate NAV of such share class as of the last calendar day of the previous quarter, or, if more limiting, (b) redeem shares (based on the price at which the shares are redeemed) over the course of a given quarter equal to at least 5% of the aggregate NAV of such share class as of the last calendar day of the previous quarter (collectively referred to herein as the “2% and 5% limits”), which in the second and third months of a quarter could be less than 2% of the NAV of such share class. In the event that we determine to redeem some but not all of the shares submitted for redemption during any month, shares redeemed at the end of the month will be redeemed on a pro rata basis. Even if the class-specific allocations are exceeded for a class, the program may offer such class additional capacity under the aggregate program limits. Redemptions and pro rata treatment, if necessary, will first be applied within the class-specific allocated capacity and then applied on an aggregate basis to the extent there is remaining capacity. All unsatisfied redemption requests must be resubmitted after the start of the next month or quarter, or upon the recommencement of the share redemption program, as applicable.

For both the aggregate and class-specific allocations described above, (i) provided that the share redemption program has been operating and not suspended for the first month of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for that month will carry over to the second month and (ii) provided that the share redemption program has been operating and not suspended for the first two months of a given quarter and that all properly submitted redemption requests were

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satisfied, any unused capacity for those two months will carry over to the third month. In no event will such carry-over capacity permit the redemption of shares with aggregate value (based on the redemption price per share for the month the redemption is effected) in excess of 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter (provided that for these purposes redemptions may be measured on a net basis as described in the paragraph below).

We currently measure the foregoing redemption allocations and limitations based on net redemptions during a month or quarter, as applicable. The term “net redemptions” means, during the applicable period, the excess of our share redemptions (capital outflows) over the proceeds from the sale of our shares (capital inflows). For purposes of measuring our redemption capacity pursuant to our share redemption program, proceeds from new subscriptions in a month are included in capital inflows on the first day of the next month because that is the first day on which such shareholders have rights in the Company. Also for purposes of measuring our redemption capacity pursuant to our share redemption program, redemption requests received in a month are included in capital outflows on the last day of such month because that is the last day shareholders have rights in the Company. We record these redemptions in our financial statements as having occurred on the first day of the next month following receipt of the redemption request because shares redeemed in a given month are outstanding through the last day of the month. Net redemptions for the class-specific allocations will be based only on the capital inflows and outflows of that class, while net redemptions for the overall program limits would be based on capital inflows and outflows of all classes. Thus, for any given calendar quarter, the maximum amount of redemptions during that quarter will be equal to (i) 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter, plus (ii) proceeds from sales of new shares in this offering (including purchases pursuant to our distribution reinvestment plan) and the Class E distribution reinvestment plan offering since the beginning of the current calendar quarter. The same would apply for a given month, except that redemptions in a month would be subject to the 2% limit described above (subject to potential carry-over capacity), and netting would be measured on a monthly basis. With respect to future periods, our board of directors may choose whether the allocations and limitations will be applied to “gross redemptions,” i.e., without netting against capital inflows, rather than to net redemptions. If redemptions for a given month or quarter are measured on a gross basis rather than on a net basis, the redemption limitations could limit the amount of shares redeemed in a given month or quarter despite our receiving a net capital inflow for that month or quarter. In order for our board of directors to change the application of the allocations and limitations from net redemptions to gross redemptions or vice versa, we will provide notice to stockholders in a prospectus supplement or special or periodic report filed by us, as well as in a press release or on our website, at least 10 days before the first business day of the quarter for which the new test will apply. The determination to measure redemptions on a gross basis, or vice versa, will only be made for an entire quarter, and not particular months within a quarter.

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Although the vast majority of our assets consist of properties that cannot generally be readily liquidated on short notice without impacting our ability to realize full value upon their disposition, we intend to maintain a number of sources of liquidity including (i) cash equivalents (e.g. money market funds), other short-term investments, U.S. government securities, agency securities and liquid real estate-related securities and (ii) one or more borrowing facilities. We may fund redemptions from any available source of funds, including operating cash flows, borrowings, proceeds from this offering and/or sales of our assets.

Should redemption requests, in our judgment, place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on the company as a whole, or should we otherwise determine that investing our liquid assets in real properties or other illiquid investments rather than redeeming our shares is in the best interests of the company as a whole, then we may choose to redeem fewer shares than have been requested to be redeemed, or none at all. Further, our board of directors may modify or suspend our share redemption program if it deems such action to be in our best interest and the best interest of our stockholders. If the transaction price for the applicable month is not made available by the tenth business day prior to the last business day of the month (or is changed after such date), then no redemption requests will be accepted for such month and stockholders who wish to have their shares redeemed the following month must resubmit their redemption requests. The above description of the share redemption program is a summary of certain of the terms of the share redemption program. Please see the full text of the share redemption program, which is incorporated by reference as Exhibit 4.2 to this Quarterly Report on Form 10-Q, for all the terms and conditions.

The table below summarizes the redemption activity for the three months ended March 31, ~~2022,~~2023, for which all eligible redemption requests were redeemed in full:


				Total Number of Shares	Maximum Number of				Total Number of Shares	Maximum Number of
				Redeemed as Part of	Shares That May Yet Be				Redeemed as Part of	Shares That May Yet Be
	Total Number of	Average Price		Publicly Announced	Redeemed Pursuant	Total Number of	Average Price		Publicly Announced	Redeemed Pursuant
(shares in thousands)	Shares Redeemed	Paid Per Share (1)		Plans or Programs	to the Program (2)	Shares Redeemed	Paid Per Share (1)		Plans or Programs	to the Program (2)
For the Month Ended:
January 31, 2022	600	$	8.03	600	—
February 28, 2022	717		8.17	717	—
March 31, 2022 (3)	471		8.25	471	—
January 31, 2023						909	$	8.87	909	—
February 28, 2023						2,114		8.82	2,114	—
March 31, 2023 (3)						1,003		8.72	1,003	—
Total	1,788	$	8.15	1,788	—	4,026	$	8.81	4,026	—

(1)	Amount represents the average price paid to investors upon redemption.

(2)	We limit the number of shares that may be redeemed under the share redemption program as described above.

(3)

Redemption requests accepted in March ~~2022~~2023 are considered redeemed on April 1, ~~2022~~2023 for accounting purposes and, as a result, are not included in the table above. This differs from how we treat capital outflows for purposes of the limitations of our share redemption program. For purposes of measuring our redemption capacity pursuant to our share redemption program, redemption requests received in a month are included in capital outflows on the last day of such month because that is the last day shareholders have rights in the Company and we redeemed $44.5 million of shares of common stock for the three months ended March 31, 2023.

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ITEM 5. OTHER INFORMATION

~~Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act~~

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act, require an issuer to disclose in its annual and quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions relating to Iran. We are required to include certain disclosures in our periodic reports if we or any of our “affiliates” (as defined in Rule 12b-2 under the Exchange Act) knowingly engaged in certain specified activities, transactions or dealings relating to Iran or with certain individuals or entities targeted by United States’ economic sanctions during the quarterly period covered by the report. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Neither we nor any of our controlled affiliates or subsidiaries knowingly engaged in any of the specified activities relating to Iran or otherwise engaged in any activities associated with Iran during the reporting period. However, because the SEC defines the term “affiliate” broadly, it includes any person or entity that is under common control with us as well as any entity that controls us or is controlled by us. The description that follows has been provided to us by Ares.

On January 31, 2019, funds and accounts managed by Ares’ European direct lending strategy (together, the “Ares funds”) collectively acquired a 32% equity stake in Daisy Group Limited (“Daisy”). Daisy is a provider of communication services to businesses based in the United Kingdom. The Ares funds do not hold a majority equity interest in Daisy and do not have the right to appoint a majority of directors to Daisy’s board of directors.

Subsequent to completion of the Ares funds’ investment in Daisy, in connection with Ares’ routine quarterly survey of its investment funds’ portfolio companies, Daisy informed the Ares funds that it has a customer contract with Melli Bank Plc. Melli Bank Plc has been designated by the Office of Foreign Assets Control within the U.S. Department of Treasury pursuant to Executive Order 13224. Daisy generated a total of £41,546 in annual revenues in 2021 (less than 0.01% of Daisy’s annual revenues) from its dealings with Melli Bank Plc and de minimis net profits. Daisy entered into the customer contract with Melli Bank Plc prior to the Ares funds’ investment in Daisy.

Daisy terminated its contract with Melli Bank Plc on February 26, 2022. Following termination of the contract, Daisy has not engaged and does not intend to engage in any further dealings or transactions with Melli Bank Plc.

Distribution Reinvestment Plan Suitability Requirement

Pursuant to the terms of our distribution reinvestment plan (“DRP”), participants in the DRP must promptly notify us if at any time they fail to meet the current suitability requirements for making an investment in us.

The current suitability standards require that Class E stockholders participating in the DRP other than investors in Arizona, California, Ohio and Oregon have either:

●

a net worth (exclusive of home, home furnishings and automobiles) of $150,000 or more; or

●

a net worth (exclusive of home, home furnishings and automobiles) of at least $45,000 and had during the last tax year, or estimate that such investor will have during the current tax year, a minimum of $45,000 annual gross income.

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The current suitability standards require that Class E stockholders participating in the DRP in Arizona, California, Ohio and Oregon have either:

●

a net worth (exclusive of home, home furnishings and automobiles) of $250,000 or more; or

●

a net worth (exclusive of home, home furnishings and automobiles) of at least $70,000 and had during the last tax year, or estimate that such investor will have during the current tax year, a minimum of $70,000 annual gross income.

In addition, Class E stockholders participating in the DRP in Ohio and Oregon must have a net worth of at least 10 times their investment in us and any of our affiliates. The current suitability standards for Class T, Class S, Class D and Class I stockholders participating in the DRP are listed in the section entitled “Suitability Standards” in our current Class T, Class S, Class D and Class I public offering prospectus on file at www.sec.gov and on our website at ~~blackcreekgroup.com/~~areswmsresources.com/investment-solutions/AREIT.

Stockholders can notify us of any changes to their ability to meet the suitability requirements or change their DRP election by contacting us at Ares Real Estate Income Trust Inc., Investor Relations, ~~518 17th~~One Tabor Center, 1200 Seventeenth Street, Suite ~~1700,~~2900, Denver, Colorado 80202, Telephone: (303) 228-2200.

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ITEM 6. EXHIBITS

Exhibit Number		Description

3.1		Articles of Restatement. Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed with the SEC on March 21, 2012.

3.2		Articles of Amendment (name change). Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on July 12, 2012.

3.3		Articles Supplementary (Class A shares). Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on July 12, 2012.

3.4		Articles Supplementary (Class W shares). Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K filed with the SEC on July 12, 2012.

3.5		Articles Supplementary (Class I shares). Incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K filed with the SEC on July 12, 2012.

3.6		Certificate of Correction to Articles of Restatement. Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on March 26, 2014.

3.7		Certificate of Correction to Articles of Restatement. Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on August 30, 2016.

3.8		Articles of Amendment (revised terms of share classes). Incorporated by reference to Exhibit 3.8 to the Post-Effective Amendment No. 10 to Registration Statement on Form S-11 (File No. 333-197767) filed with the SEC on September 1, 2017.

3.9		Articles of Amendment (name change). Incorporated by reference to Exhibit 3.9 to the Post-Effective Amendment No. 10 to Registration Statement on Form S-11 (File No. 333-197767) filed with the SEC on September 1, 2017.

3.10		~~Ninth Amended and Restated Bylaws.~~Articles of Amendment (name change). Incorporated by reference to Exhibit ~~3.2~~3.1 to the Current Report on Form 8-K filed with the SEC on December 3, 2021.

3.11		~~Articles of Amendment (name change).~~Tenth Amended and Restated Bylaws. Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on ~~December~~March 3, ~~2021~~2023.

4.1		Fifth Amended and Restated Distribution Reinvestment Plan. Incorporated by reference to Appendix B to the Pre-Effective Amendment No. 1 to Registration Statement on Form S-11 (File No. 333-222630) filed with the SEC on August 17, 2018.

4.2		Third Amended and Restated Share Redemption Program effective as of December 1, 2021. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on December 3, 2021.

4.3		Statement regarding transfer restrictions, preferences, limitations and rights of holders of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates). Incorporated by reference to Exhibit 4.5 to the Post-Effective Amendment No. 10 to Registration Statement on Form S-11 (File No. 333-197767) filed with the SEC on September 1, 2017.

4.4		Valuation Procedures. Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed with the SEC on March 15, 2022.

4.5		Multiple Class Plan. Incorporated by reference to Exhibit 4.5 to the Quarterly Report on Form 10-Q filed with the SEC on August 12, ~~2019.~~2019.

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Exhibit Number		Description

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1*		Consent of Altus Group U.S. Inc.

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~~Exhibit~~ ~~Number~~		~~Description~~

101		The following materials from Ares Real Estate Income Trust Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2022,~~2023, filed on May 11, ~~2022,~~2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*	Filed or furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		ARES REAL ESTATE INCOME TRUST INC.

May 11, ~~2022~~2023	By:	/s/ JEFFREY W. TAYLOR
		Jeffrey W. Taylor Partner, Co-President (Principal Executive Officer)

May 11, ~~2022~~2023	By:	/s/ LAINIE P. MINNICK
		Lainie P. Minnick Managing Director, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

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			Investment in Unconsolidated Joint
		Ownership	Venture Partnerships as of
($ in thousands)	Segment	Percentage		March 31, 2022	December 31, 2021
Vue 1400 JV	Residential	85%	$	24,863	$	26,117
Net Lease JV I	Net Lease	50%		16,445		16,267
Net Lease JV II	Net Lease	50%		49,932		15,041
Total investment in unconsolidated joint venture partnerships			$	91,240	$	57,425