Ares Real Estate Income Trust Inc.

03/06/2026 | Press release | Distributed by Public on 03/06/2026 05:03

Annual Report for Fiscal Year Ending DECEMBER 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with our consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements" above for a description of these risks and uncertainties.
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 December 31, 2025, our consolidated real property portfolio consisted of 143 properties totaling approximately 30.5 million square feet located in 34 markets throughout the U.S. We also owned, either directly through our unconsolidated joint venture partnerships or indirectly through other entities owned by our unconsolidated joint venture partnerships, 150 credit lease properties, 21 industrial properties, 15 data center investments and 27 debt-related investments as of December 31, 2025. 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.
We intend to offer shares of our common stock on a continuous basis. We also intend to conduct an ongoing distribution reinvestment plan offering for our stockholders to reinvest distributions in our shares. During the year ended December 31, 2025, we raised gross proceeds of $335.5 million from the sale of 42.8 million shares of our common stock in our ongoing securities offerings, including proceeds from our distribution reinvestment plan of $31.6 million. See "Note 10 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for more information about our securities 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 Rule 506(b) of Regulation D under 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 ("Section 1031 Exchanges") 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 offer DST Program Loans to finance no more than 50% of the purchase price of the DST Interests to certain purchasers of the DST Interests. During the year ended December 31, 2025, we sold $1.22 billion of gross interests related to the DST Program, $99.8 million of which were financed by DST Program Loans. See "Note 7 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for additional detail regarding the DST Program.
As of December 31, 2025, our total investment portfolio consisted of the following sector allocations:
Real Estate (1)
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(1) Calculated using the fair value of our real property, investments in unconsolidated joint venture partnerships and investments in real estate debt and securities not associated with the DST Program, as determined in accordance with our valuation procedures. Includes our pro-rata share of fair value of real property and debt-related investments held through our unconsolidated joint venture partnerships, as determined in accordance with our valuation procedures.
As of December 31, 2025, we had four floating-rate debt-related investments with a weighted-average interest rate of 7.7% and a weighted-average remaining life of 1.7 years. As of December 31, 2025, the aggregate outstanding principal was $182.5 million, the aggregate carrying amount was $182.3 million and total aggregate current commitments were up to $215.9 million.
As of December 31, 2025, we had two investments in available-for-sale debt securities, which were comprised of one CMBS and one preferred equity investment, and one equity security investment. As of December 31, 2025, the aggregate fair value of these investments was $121.0 million.
During the year ended December 31, 2025, we originated 10 loans through our mortgage loan origination program with a total principal balance of $860.4 million. Additionally, during the year ended December 31, 2025, we sold 11 loans, including one loan which was held for sale as of December 31, 2024, totaling $1.05 billion, equal to the carrying cost of the debt-related investments on the dates of sale, to a joint venture partnership in which we have an ownership interest. During the year ended December 31, 2025, we recognized origination fee income related to our mortgage loan origination program of $4.0 million.
We currently focus our investment activities primarily across the major U.S. property sectors (residential (which includes and/or may include multi-family and other types of rental housing such as manufactured, student and single-family rental housing), industrial, retail and office (which includes and/or may include medical office and life science laboratories)), data center properties and investments in real estate debt and securities. To a lesser extent, we strategically invest in and/or intend to invest in geographies outside of the U.S., which may include Canada, Mexico, the United Kingdom, Europe, Japan and other foreign jurisdictions, and in other sectors such as credit lease and self-storage, 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 residential and industrial sectors due to relatively attractive fundamental conditions. We also intend to continue to hold an allocation of properties in the retail and office sectors, the former of which is largely grocery-anchored.
Trends Affecting Our Business
Our results of operations are affected by a variety of factors, including conditions in both the U.S. and global financial markets and the economic and political environments.
Throughout 2025, the U.S. economy continued to expand, supported by persistent consumer spending and easing inflationary pressures. The year began with macroeconomic challenges amidst heightened geopolitical uncertainty, both of which continued to weigh on operating performance, property valuations and transaction activity across the commercial real estate sector. These challenges moderated later in the year aided by the Federal Reserve's shift to a less restrictive monetary policy.
Reduced interest rate pressures and more supportive monetary policy led to individual property transaction volumes growth for the year and broad market indices demonstrated flat to increasing commercial real estate values on a year-over-year basis. Aiding valuations, new construction starts remained near or at 10-year lows across multifamily, industrial, retail and office property types. Lending markets also supported commercial real estate activity reflecting higher conduit and CMBS new-issue volumes quarter-over-quarter and year-over-year as well as a modest increase in bank participation.
While the Federal Reserve has signaled a potential willingness to further reduce interest rates in 2026, there is no certainty that there will be a decrease in interest rates or of the magnitude or pace of potential decreases, especially if inflation accelerates.
Rising operating costs placed pressure on cash flow performance across many real estate property types in 2025. Triple net leases within the commercial sector help offset some of these impacts. Although certain markets are showing a recovery, office properties nationally continue to experience challenges driven by remote work and elevated costs to operate, improve or repurpose these office properties. These factors have largely resulted in lower demand for office space and have driven elevated levels of vacancy rates and default rates. Additionally, the real estate sector experienced significant new supply coming out of the pandemic which has caused vacancy rates to rise off historical lows and rent growth to moderate. Offsetting new deliveries has been a significant decline in new construction starts driven by higher interest rates. Ultimately, this lack of new future inventory may result in a shortage of contemporary, in-demand properties in the years to come, furthering the disparity between supply and demand dynamics. In addition, there is a significant amount of unspent capital targeting commercial real estate properties that could support values and elevate transaction activities. Property valuations and capitalization rates remained steady and we believe certain of these market trends will be offset by continued strong operating fundamentals, such as occupancy and rental rates, in property types that include multifamily and industrial.
While lower market rates and increased capital markets liquidity support commercial real estate property transactions and values, there is pronounced uncertainty around U.S. economic and foreign policies, international relations and their potential impact to the U.S. economy. Should the risks from these factors become more acute, the commercial real estate market may be further adversely impacted.
We believe our portfolio is well-positioned in this market environment. However, there is no guarantee that our outlook will remain positive for the long-term, especially if leasing fundamentals weaken in the future.
RESULTS OF OPERATIONS
Summary of 2025 Activities
During the year ended December 31, 2025, we completed the following activities:
•We acquired two residential properties, 18 industrial properties, two self-storage properties and two data center properties for an aggregate contractual purchase price of approximately $1.53 billion. We also invested an aggregate of $430.8 million in our unconsolidated joint venture partnerships and our investments in real estate debt and securities.
•We sold four industrial properties and one office property for net proceeds of approximately $110.9 million and recorded a net gain on sale of $57.2 million related to the sale of these properties.
•We leased approximately 2.2 million square feet of our commercial properties, which included 0.4 millionsquare feet of new leases and 1.8 millionsquare feet of renewals.
•We decreased our leverage ratio from 41.2% as of December 31, 2024, to 35.5% as of December 31, 2025. Our leverage ratio for reporting purposes is calculated as outstanding principal balance of our borrowings, including
secured financings on debt-related investments, less cash and cash equivalents, divided by the fair value of our real property, net investments in unconsolidated joint venture partnerships and investments in real estate debt and securities not associated with the DST Program (determined in accordance with our valuation procedures).
•We raised gross proceeds of $1.55 billion from the sale of our common stock and DST Interests. This includes $335.5 million from the sale of 42.8 million shares of our common stock in our securities offerings, including proceeds from our distribution reinvestment plans of $31.6 million, and $1.22 billion of gross capital through private placement offerings by selling DST Interests, $99.8 million of which were financed by DST Program Loans.
•We redeemed 15.9 million shares of common stock at a weighted-average purchase price of $7.70 per share for an aggregate amount of $122.5 million. Additionally, we redeemed a combined 6.0 million OP Units of redeemable noncontrolling interests and noncontrolling interests for an aggregate dollar amount of $46.3 million.
•We amended and restated our unsecured credit facility, by entering into a $1.0 billion revolving credit facility, a $700.0 million term loan and a second $300.0 million term loan, for an aggregate amount of $2.0 billion. The amendment and restatement provides us with the ability from time to time to increase the aggregate size of the credit facility up to a total of $2.50 billion, subject to receipt of lender commitments and other conditions.The amendment and restatement extends the maturity date of the revolving credit facility to June 18, 2029, subject to a one-year extension option. The amendment and restatement also extends maturity date of both term loans to June 18, 2029, with both subject to a one-year extension option, each subject to certain conditions.
•We entered into a master repurchase agreement (the "Goldman Sachs MRA") with Goldman Sachs Bank USA ("Goldman Sachs"), which allows us to borrow up to $500.0 million. Under the Goldman Sachs MRA, we are permitted to sell, and later repurchase, certain qualifying mortgage loans, senior notes, mezzanine loans and pari-passu participations in commercial mortgage loans and mezzanine loans approved by Goldman Sachs in its sole discretion. The termination date of the Goldman Sachs MRA is July 10, 2026, which may be extended pursuant to a one-year extension option, subject to certain conditions. The interest rate on the Goldman Sachs MRA borrowings is determined based on prevailing rates corresponding to the terms of the borrowings. As of December 31, 2025, we had no of borrowings outstanding pursuant to the Goldman Sachs MRA.
•We issued 27.8 million OP Units in exchange for DST Interests for a net investment of $220.7 million. In addition, we paid $0.5 million in cash in exchange for DST Interests.
Results for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024
The following table sets forth information regarding our consolidated results of operations for the year ended December 31, 2025, as compared to the year ended December 31, 2024.
For the Year Ended December 31, Change
($ in thousands, except per share data) 2025 2024 %
Revenues:
Rental revenues $ 452,604 $ 370,851 $ 81,753 22.0%
Debt-related income 46,231 46,642 (411) (0.9)
Total revenues 498,835 417,493 81,342 19.5
Operating expenses:
Rental expenses 167,252 136,232 31,020 22.8
Real estate-related depreciation and amortization 196,808 152,777 44,031 28.8
General and administrative expenses 13,662 12,808 854 6.7
Advisory fees 51,296 40,786 10,510 25.8
Performance participation allocation 16,544 - 16,544 NM
Acquisition costs and reimbursements 6,868 7,034 (166) (2.4)
Total operating expenses 452,430 349,637 102,793 29.4
Other income (expenses):
Income from unconsolidated joint venture partnerships 48,568 14,531 34,037 NM
Interest expense (251,369) (188,318) (63,051) (33.5)
Gain on sale of real estate property 57,200 12,913 44,287 NM
Gain (loss) on financial assets 407 (17) 424 NM
Loss on financing obligations (54,776) (2,034) (52,742) NM
Gain on extinguishment of debt and financing obligations, net 32,741 41,050 (8,309) (20.2)
(Loss) gain on derivative instruments (7) 402 (409) NM
Provision for current expected credit losses 464 1,533 (1,069) (69.7)
Other income and expenses 11,134 6,583 4,551 69.1
Total other income (expenses) (155,638) (113,357) (42,281) (37.3)
Net loss before income tax expense (109,233) (45,501) (63,732) NM
Income tax expense (17,953) (11,842) (6,111) (51.6)
Net loss (127,186) (57,343) (69,843) NM
Net loss attributable to redeemable noncontrolling interests 431 273 158 57.9
Net loss attributable to noncontrolling interests 58,751 19,935 38,816 NM
Net loss attributable to common stockholders $ (68,004) $ (37,135) $ (30,869) (83.1)%
Weighted-average shares outstanding-basic 183,522 188,336 (4,814) (2.6)%
Weighted-average shares outstanding-diluted 342,369 305,179 37,190 12.2%
Net loss attributable to common stockholders per common share-basic and diluted $ (0.37) $ (0.20) $ (0.17) (85.0)%
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NM = Not meaningful
Total Revenues. In aggregate, total revenues increased by approximately $81.3 million for the year ended December 31, 2025, as compared to the same period in 2024, primarily due to the factors described below.
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 approximately $81.8 million for the year ended December 31, 2025, as compared to the same period in 2024, primarily due to the increase in non-same store revenues resulting from significant net growth in our portfolio and increased market rents at various industrial properties. See "Same Store Portfolio Results of Operations" below for further details of the same store revenues.
The following table presents the components of our consolidated rental revenues:
For the Year Ended December 31, Change
($ in thousands) 2025 2024 $ %
Rental income $ 440,945 $ 360,139 $ 80,806 22.4 %
Straight-line rent 5,486 6,823 (1,337) (19.6)
Amortization of above- and below-market intangibles 6,173 3,889 2,284 58.7
Total rental revenues $ 452,604 $ 370,851 $ 81,753 22.0 %
Debt-Related Income. Debt-related income is comprised of interest income and amortization related to our debt-related investments and debt securities. Total debt-related income decreased by $0.4 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024.
Total Operating Expenses. In aggregate, total operating expenses increased by $102.8 million for the year ended December 31, 2025, as compared to the same period in 2024, primarily due to the factors described below.
Rental Expenses. Rental expenses include certain property operating expenses typically reimbursed by our customers at our commercial properties, such as real estate taxes, property insurance, property management fees, repair and maintenance, and include certain non-recoverable expenses, such as consulting services and tenant leasing costs. Total rental expenses increased by approximately $31.0 million for the year ended December 31, 2025, as compared to the same period in 2024, primarily due to an increase in non-same store rental expenses resulting from significant net growth in our portfolio. See "Same Store Portfolio Results of Operations" below for further details of the same store expenses.
Real Estate-Related Depreciation and Amortization. In aggregate, real estate-related depreciation and amortization expense increased by $44.0 million for the year ended December 31, 2025, as compared to the previous year, primarily due to significant net growth in our portfolio.
Other Remaining Operating Expenses.In aggregate, the remaining operating expenses increased by $27.7 million for the year ended December 31, 2025, as compared to the same period in 2024, primarily due to an increase in advisory fees and performance participation allocation of $27.1 million resulting from increased capital raised through our public offerings and DST Program and the positive performance of our portfolio.
Other Income and Expenses.In aggregate, the remaining items that comprise our net income (loss) had a $(48.4) million impact on our net income (loss) for the year ended December 31, 2025, as compared to the same period in 2024, primarily due to the following:
•an increase in interest expense of $63.1 million driven primarily by an increase in average outstanding borrowings and financing obligations during the period; and
•an increase in unrealized loss on financing obligations of $52.7 million driven by changes in valuations of properties in our DST Program.
Partially offset by:
•an increase in gain on sale of real estate property of $44.3 million driven by the sale of four industrial properties and one office property in 2025 as compared to the sale of one industrial property, one parcel of land and two partial retail properties in 2024; and
•an increase in income (loss) from unconsolidated joint venture partnerships of $34.0 million driven by increased investment in joint venture partnerships and positive performance of our investments in unconsolidated joint venture partnerships.
Segment Summary for the Years Ended December 31, 2025 and 2024
Same Store Portfolio Results of Operations
Property net operating income ("NOI") is a supplemental non-GAAP measure of our property operating results. We define property NOI as rental revenues less operating expenses. While we believe our net income (loss), as defined by GAAP, to be the most appropriate measure to evaluate our overall performance, we consider property NOI to be an appropriate supplemental performance measure. We believe property NOI provides useful information to our investors regarding our results of operations because property 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 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 expenses, gains and losses on the extinguishment of debt and noncontrolling interests. However, property 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 property NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating property NOI, therefore, our investors should consider net income (loss) as the primary indicator of our overall financial performance.
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. 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 partnerships on the 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 year ended December 31, 2025 as compared to the year ended December 31, 2024 presented below includes 93 properties totaling 19.2 million square feet owned as of January 1, 2024, which represented 63.1% of total rentable square feet as of December 31, 2025.
The following table reconciles GAAP net income (loss) to same store portfolio property NOI for the years ended December 31, 2025 and 2024:
For the Year Ended December 31,
(in thousands) 2025 2024
Net loss attributable to common stockholders $ (68,004) $ (37,135)
Debt-related income (46,231) (46,642)
Real estate-related depreciation and amortization 196,808 152,777
General and administrative expenses 13,662 12,808
Advisory fees 51,296 40,786
Performance participation allocation 16,544 -
Acquisition costs and reimbursements 6,868 7,034
Income from unconsolidated joint venture partnerships (48,568) (14,531)
Interest expense 251,369 188,318
Gain on sale of real estate property (57,200) (12,913)
(Gain) loss on financial assets (407) 17
Loss on financing obligations 54,776 2,034
Gain on extinguishment of debt and financing obligations, net (32,741) (41,050)
Loss (gain) on derivative instruments 7 (402)
Provision for current expected credit losses (464) (1,533)
Other income and expenses (11,134) (6,583)
Income tax expense 17,953 11,842
Net loss attributable to redeemable noncontrolling interests (431) (273)
Net loss attributable to noncontrolling interests (58,751) (19,935)
Property net operating income $ 285,352 $ 234,619
Less: Non-same store property NOI 72,783 17,552
Same store property NOI $ 212,569 $ 217,067
Our real property markets are aggregated into six reportable property segments: residential, industrial, retail, office, data center and other. Our property segments are based on our internal reporting of operating results used to assess performance based on the type of our properties. These property segments are comprised of the markets by which management and its operating teams conduct and monitor business. See "Note 18 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for further information on our segments. Management considers rental revenues and property NOI aggregated by property segment to be an appropriate way to analyze performance.
The following table includes a breakout of results for our same store portfolio by property segment for rental revenues, rental expenses and property NOI for the year ended December 31, 2025 as compared to the year ended December 31, 2024:
For the Year Ended December 31, Change
($ in thousands, except per square foot data) 2025 2024 $ %
Rental revenues:
Residential $ 130,807 $ 131,268 $ (461) (0.4)%
Industrial 105,715 104,413 1,302 1.2
Retail 60,405 60,818 (413) (0.7)
Office 43,188 41,650 1,538 3.7
Data center - - - -
Other 3,840 3,676 164 4.5
Total same store rental revenues 343,955 341,825 2,130 0.6
Non-same store properties 108,649 29,026 79,623 NM
Total rental revenues $ 452,604 $ 370,851 $ 81,753 22.0%
Rental expenses:
Residential $ (66,070) $ (61,709) $ (4,361) (7.1)%
Industrial (26,858) (25,992) (866) (3.3)
Retail (16,009) (15,847) (162) (1.0)
Office (20,876) (19,675) (1,201) (6.1)
Data center - - - -
Other (1,573) (1,535) (38) (2.5)
Total same store rental expenses (131,386) (124,758) (6,628) (5.3)
Non-same store properties (35,866) (11,474) (24,392) NM
Total rental expenses $ (167,252) $ (136,232) $ (31,020) (22.8)%
Property NOI:
Residential $ 64,737 $ 69,559 $ (4,822) (6.9)%
Industrial 78,857 78,421 436 0.6
Retail 44,396 44,971 (575) (1.3)
Office 22,312 21,975 337 1.5
Data center - - - -
Other 2,267 2,141 126 5.9
Total same store property NOI 212,569 217,067 (4,498) (2.1)
Non-same store properties 72,783 17,552 55,231 NM
Total property NOI $ 285,352 $ 234,619 $ 50,733 21.6%
Same store average percentage leased:
Residential 92.5 % 92.0 %
Industrial 96.0 97.6
Retail 96.3 96.9
Office 77.7 78.2
Data center - -
Other 85.5 80.4
Same store average annualized base rent per square foot:
Residential $ 27.81 $ 27.83
Industrial 7.80 7.44
Retail 21.00 20.15
Office 38.61 37.90
Data center - -
Other 23.44 24.15
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NM = Not meaningful
Residential Segment.Our residential segment same store property NOI decreased by $4.8 million for the year ended December 31, 2025 compared to the same period in 2024, primarily due to increased operating expenses at certain of our residential properties, as well as reduced market rent and increased rent concessions at certain of our residential properties.
Industrial Segment. Our industrial segment same store property NOI increased by $0.4 million for the year ended December 31, 2025 compared to the same period in 2024.
Retail Segment. Our retail segment same store property NOI decreased by $0.6 million for the year ended December 31, 2025 compared to the same period in 2024.
Office Segment. Our office segment same store property NOI increased by $0.3 million for the year ended December 31, 2025 compared to the same period in 2024.
Other Segment. Our other segment same store property NOI increased by $0.1 million for the year ended December 31, 2025 compared to the same period in 2024, primarily due to increased occupancy at various properties.
Results for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
See "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 6, 2025, which is incorporated herein by reference, for a comparison of our results of operations for the years ended December 31, 2024 and December 31, 2023.
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, these supplemental, non-GAAP measures should not be considered as alternatives to net income (loss) or to cash flows from operating activities as indications of our performance and are not intended to be used as liquidity 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) increase (decrease) in financing obligation liability appreciation, as applicable.
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.
The following unaudited table presents a reconciliation of GAAP net income (loss) to FFO and AFFO:
For the Year Ended December 31,
(in thousands, except per share data) 2025 2024 2023
GAAP net loss $ (127,186) $ (57,343) $ (83,213)
Weighted-average shares outstanding-diluted 342,369 305,179 267,556
GAAP net loss per common share-diluted $ (0.37) $ (0.20) $ (0.31)
Adjustments to arrive at FFO:
Real estate-related depreciation and amortization 196,808 152,777 149,985
Gain on sale of real estate property (57,200) (12,913) (36,884)
Our share of adjustments from joint venture partnerships 3,104 6,595 7,114
FFO $ 15,526 $ 89,116 $ 37,002
FFO per common share-diluted $ 0.05 $ 0.29 $ 0.14
Adjustments to arrive at AFFO:
Performance participation allocation 16,544 - -
Unrealized loss (gain) on financial instruments (1) 20,505 (40,796) 3,435
Decrease in financing obligation liability appreciation - (69) (459)
Our share of adjustments from joint venture partnerships (25,259) (8,709) 733
AFFO $ 27,316 $ 39,542 $ 40,711
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(1)Unrealized (gain) loss on financial instruments primarily relates to mark-to-market changes on our derivatives not designated as cash flow hedges, mark-to-market changes on our debt-related investments, DST Program Loans, equity securities and financing obligations for which we have elected the fair value option, valuation allowance and changes to our provision for current expected credit losses on our debt-related investments and gains or losses on extinguishment of our financing obligations.
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 securities offerings, asset sales and repayments from investments in real estate debt and securities. 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 December 31, 2025, we had approximately $479.4 million of borrowings, including scheduled amortization payments, becoming payable within the next 12 months, though the terms of the associated loan agreements for $475.0 million of these borrowings can be extended pursuant to three one-year extension options, subject to certain conditions. As of December 31, 2025, we had approximately $112.7 million of future minimum lease payments related to the properties in our DST Program coming due in the next 12 months. In addition, we have $442.0 million in unfunded commitments related to our investments in unconsolidated joint venture partnerships and our investments in real estate debt and securities as of December 31, 2025. We expect to be able to repay our principal and interest obligations and fund our capital commitments 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, changes in interest rates and high inflation, we have experienced a decreased pace of net proceeds raised from our securities offerings, 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 securities 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 securities offerings, proceeds from the sale of assets and undistributed funds from operations.
As of December 31, 2025, our financial position was strong with 35.5% leverage, calculated as outstanding principal balance of our borrowings, including secured financings on debt-related investments, less cash and cash equivalents divided by the fair value of our real property, net investments in unconsolidated joint venture partnerships, investments in real estate debt and securities not associated with the DST Program (determined in accordance with our valuation procedures). In addition, our consolidated portfolio was 94.5% occupied (94.9% leased) as of December 31, 2025 and is diversified across 143 properties totaling 30.5 million square feet across 34 geographic markets. Our properties contain a diverse roster of 445 commercial customers, large and small, and has an allocation based on fair value of real properties as determined by our NAV calculation of 35.3% residential, 39.7% industrial, 9.6% retail, which is primarily grocery-anchored, 5.3% office, 7.4% data center and 2.7% other properties in adjacent sectors.
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.
Cash Flows. The following table summarizes our cash flows for the following periods:
For the Year Ended December 31,
(in thousands) 2025 2024 $ Change
Total cash provided by (used in):
Operating activities $ 253,643 $ (169,493) $ 423,136
Investing activities (1,609,911) (919,127) (690,784)
Financing activities 1,374,464 1,096,352 278,112
Effect of exchange rate changes on cash, cash equivalents and restricted cash 137 21 116
Net increase in cash, cash equivalents and restricted cash $ 18,333 $ 7,753 $ 10,580
2025 Cash Flows Compared to 2024 Cash Flows
Net cash provided by operating activities increased by $423.1 million for the year ended December 31, 2025, compared to the same period in 2024, primarily due to the sale of our held for sale debt-related investment, with a carrying value of $193.9 million, which was sold in January 2025, as well as a $50.7 million increase in property net operating income; partially offset by a $51.7 million increase in interest paid related to our consolidated indebtedness and DST Program.
Net cash used in investing activities increased by $690.8 million for the year ended December 31, 2025, compared to the same period in 2024, primarily due to an increase in real estate property acquisition activity of $657.8 million as well as a $132.9 million increase in investments in unconsolidated joint venture partnerships and a $114.9 million increase in investments in available-for-sale debt securities; partially offset by an increase in principal collections on available-for-sale debt securities of $123.8 million and an increase in proceeds from disposition of real estate property of $79.7 million.
Net cash provided by financing activities increased by $278.1 million for the year ended December 31, 2025, compared to the same period in 2024, primarily due to an increase in net offering activity from our DST Program and securities offerings of $655.6 million; partially offset by a decrease in net borrowings of $414.9 million.
2024 Cash Flows Compared to 2023 Cash Flows
See "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 6, 2025, which is incorporated herein by reference, for a comparison of our cash flows for the years ended December 31, 2024 and December 31, 2023.
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 December 31, 2025, we had an aggregate of $2.0 billion of commitments under our unsecured credit agreement, including $1.0 billion under our line of credit and $1.0 billion under our two term loans. As of that date, we had: (i) $744.3 million outstanding under our line of credit; and (ii) $1.0 billion outstanding under our term loans. The weighted-average effective interest rate across all of our unsecured borrowings is 4.65%, which includes the effect of the interest rate swap and cap agreements related to $925.0 million in borrowings under our line of credit and our term loans.
As of December 31, 2025, the unused and available portions under our line of credit were $255.7 million and $255.5 million, respectively. Our $1.0 billion line of credit matures in June 2029, and may be extended pursuant to a one-year extension option, subject to certain conditions, including the payment of extension fees. One $700.0 million term loan matures in June 2029,and may be extended pursuant to a one-year extension option. Our other $300.0 million term loan matures in June 2029, and may be extended pursuant to a one-year extension option. 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 6 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for additional information regarding our line of credit and term loans.
Mortgage Notes.As of December 31, 2025, we had property-level borrowings of $1.26 billion outstanding with a weighted-average remaining term of approximately 2.0 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 5.14%. Refer to "Note 6 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" 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 December 31, 2025.
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 a 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, including secured financings on debt-related investments, less cash and cash equivalents, divided by the fair value of our real property, net investments in unconsolidated joint venture partnerships and investments in real estate debt and securities not associated with the DST Program (determined in accordance with our valuation procedures). We had leverage of 35.5%as of December 31, 2025. Our current target leverage ratio 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 changes in interest rates and increased market volatility, the cost of financing or refinancing our 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 December 31, 2025, we had $2.33 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 year ended December 31, 2025, the amount of aggregate gross proceeds raised from our securities offerings (including shares issued pursuant to the distribution reinvestment plan) was $335.5 million ($331.7 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.
For the first quarter of 2026, our board of directors authorized monthly distributions to all common stockholders of record as of the close of business on the last business day of each month, or January 30, 2026, February 27, 2026, and March 31, 2026 (each a "Distribution Record Date"). The distributions were authorized at a quarterly rate of $0.10350 per share of each class of our common stock, less the respective distribution fees that are payable monthly with respect to Class T-R shares, Class S-R shares, Class D-R shares, Class S-PR shares and Class D-PR shares. This quarterly rate is equal to a monthly rate of $0.03450 per share of each class of our common stock, less the respective distribution fees that are payable with respect to Class T-R shares, Class S-R shares, Class D-R shares, Class S-PR shares and Class D-PR shares. Distributions for each month of the first quarter of 2026 have been or will be paid in cash or reinvested in shares of our common stock for those electing to participate in our DRIP following the close of business on the respective Distribution Record Date applicable to such monthly distributions. There can be no assurances that the current distribution rate will be maintained in future periods.
The following table outlines sources used, as determined on a GAAP basis, to pay total gross distributions (which are paid in cash or reinvested in shares of our common stock through our DRIP) for the periods indicated below:
For the Year Ended December 31, 2025 For the Year Ended December 31, 2024
($ in thousands) Amount Percentage Amount Percentage
Distributions:
Paid in cash (1) $ 107,584 77.2 % $ 90,093 73.8 %
Reinvested in shares 31,780 22.8 % 31,926 26.2 %
Total (2) $ 139,364 100.0 % $ 122,019 100.0 %
Sources of Distributions:
Cash flows from operating activities (3) $ 107,584 77.2 % $ - - %
Borrowings - - % 90,093 73.8 %
DRIP (4) 31,780 22.8 % 31,926 26.2 %
Total (2) $ 139,364 100.0 % $ 122,019 100.0 %
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(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-R shares, Class S-R shares, Class D-R shares, Class S-PR shares, Class D-PR shares and OP Units. See "Note 14 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for further detail regarding the ongoing distribution fees.
(2)Includes distributions paid to holders of OP Units for redeemable noncontrolling interests.
(3)In the fourth quarter of 2024, we originated a held for sale debt-related investment, with a carrying value of $193.9 million as of December 31, 2024, which reduced our cash flows from operating activities for the year ended December 31, 2024 by the same amount. In January 2025, we sold this debt-related investment for a cash sale price of $194.5 million, which was a cash inflow from operating activities in the first quarter of 2025.
(4)Stockholders may elect to have their distributions reinvested in shares of our common stock through our DRIP.
For the years ended December 31, 2025 and 2024, our FFO was $15.5 million, or 11.1% of our total distributions, and $89.1 million, or 73.0% of our total 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.
Refer to "Note 10 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for further detail on our distributions.
Redemptions.Below is a summary of redemptions and repurchases pursuant to our share redemption program for the years ended December 31, 2025, 2024 and 2023. All eligible redemption requests were fulfilled for the periods presented. Eligible redemption requests are requests submitted in good order by the request submission deadline set forth in the share redemption program. Our board of directors may make exceptions to, 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 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities and Use of Proceeds-Share Redemption Program" for detail regarding our share redemption program.
For the Year Ended December 31,
(in thousands, except for per share data) 2025 2024 2023
Number of shares redeemed or repurchased 15,911 24,937 22,815
Aggregate dollar amount of shares redeemed or repurchased $ 122,486 $ 191,630 $ 193,859
Average redemption or repurchase price per share $ 7.70 $ 7.69 $ 8.50
For the years ended December 31, 2025, 2024 and 2023, we received and redeemed 100% of eligible redemption requests for an aggregate amount of approximately $122.5 million, $191.6 million and $193.9 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 securities offerings, proceeds from the disposition of properties, and borrowings under our line of credit. We generally repay funds borrowed from our line of credit from a variety of sources including: cash flows from operating activities in excess of our distributions; proceeds from our securities offerings; proceeds from the disposition of properties; and other longer-term borrowings. In addition, refer to "Note 10 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for detail regarding our redemption activity relating to OP Units.
For purposes of the share redemption program, redemption requests received in a month are included on the last day of such month because that is the last day the stockholders 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.
SUBSEQUENT EVENTS
See "Note 19to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for information regarding subsequent events.
INFLATION
Increases in the costs of owning and operating our properties due to inflation could impact our results of operations and financial condition to the extent such increases are not paid or reimbursed by our customers. Substantially all of our commercial leases provide for separate real estate tax and operating expense reimbursement escalations over a base amount. In addition, our leases provide for fixed base rent increases or indexed increases. As a result, inflationary increases in costs may be offset in part or in full by the contractual rent increases and operating expense reimbursement provisions or escalations. Our residential leases typically have initial terms of 12 months or less, which generally enables us to compensate for inflationary effects by adjusting rental rates on our residential leases to the extent the market will bear such adjustment.
In recent years, the U.S. economy has been impacted by periods of high inflation. While levels of inflation moderated during 2025, there can be no assurance that this trend will continue. Periods of excessive or prolonged inflation may negatively impact our customers' businesses, resulting in increased vacancy, concessions or bad debt expense, which may adversely and materially affect our results of operations, financial condition, NAV and cash flows.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those estimates that require management to make challenging, subjective, or complex judgments, often because they must estimate the effects of matters that are inherently uncertain and may change in subsequent periods. Critical accounting estimates involve judgments and uncertainties that are sufficiently sensitive and may result in materially different results under different assumptions and conditions and can have a material impact on the consolidated financial statements.
Investment in Real Estate Properties
We first determine whether an acquisition constitutes a business or asset acquisition. Upon determination of an asset acquisition, the purchase price of a property is allocated to land, building and improvements, and intangible lease assets and liabilities. Fair value determinations are based on estimated cash flow projections that utilize discount and/or capitalization rates, as well as certain available market information. The fair value of land, building and improvements considers the value of the property as if it were vacant. The fair value of intangible lease assets is based on our evaluation of the specific characteristics of each lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, current market conditions and market rates, the customer's credit quality and costs to execute similar leases. The fair value of above- and below-market leases is calculated as the present value of the difference between the contractual amounts to be paid pursuant to each in-place lease and our estimate of fair market lease rates for each corresponding in-place lease, using a discount rate that reflects the risks associated with the leases acquired and measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed-rate renewal options for below-market leases. In estimating carrying costs, we include estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider tenant improvements, leasing commissions and legal and other related expenses.
Impairment of Real Estate Properties
We review our investment in real estate properties individually whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded for the difference between estimated fair value of the real estate property and the carrying amount when the estimated future cash flows and the estimated liquidation value of the real estate property are less than the real estate property carrying amount. Our estimates of future cash flows and liquidation values require us to make assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for customers, changes in market rental rates, costs to operate each property, and expected ownership periods that can be difficult to predict.
Fair Value of Financing Obligations
The underlying interests in real properties sold to investors pursuant to the DST Program are leased-back by a wholly owned subsidiary of the Operating Partnership on a long-term basis. These master lease agreements are fully guaranteed by the Operating Partnership and the Operating Partnership retains a fair market value purchase option giving it the right, but not the obligation, to acquire the DST Interests in the DST Program from the investors at a later time in exchange for OP Units, cash or a combination of OP Units and cash. This results in a failed sale and leaseback transaction for accounting purposes; therefore, we record DST Interests as financing obligation liabilities.
We have elected the fair value option for certain financing obligations and, as such, these financing obligations are carried at fair value. Unrealized gains and losses on financing obligations are recorded as a component of other income (expenses) on our consolidated statements of operations. Financing obligations are valued on a recurring basis using discounted cash flow models. We utilize discount rates and exit capitalization rates as inputs in our valuation models. Changes in these assumptions could materially change the valuation of our financing obligations and have an impact on our results of operations and financial position.
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