Ares Industrial 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 Industrial Real Estate Income Trust Inc. is a Maryland corporation formed on August 12, 2014 to make investments in income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to creditworthy corporate customers. While we have and will continue to focus our investment activities primarily on building a national industrial warehouse operating company, we may in the future invest outside the U.S. or in other types of commercial real property or real estate debt investments. We currently operate as a REIT for U.S. federal income tax purposes, and elected to be treated as a REIT beginning with our taxable year ended December 31, 2017. We utilize an Umbrella Partnership Real Estate Investment Trust ("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, subject to continued compliance with the rules and regulations of the SEC and applicable state laws. On August 4, 2021, the SEC declared our registration statement effective with respect to our third public offering of up to $5.0 billion of shares of our common stock in any combination of Class T shares, Class D shares and Class I shares (which have since been renamed as Class T-R shares, Class D-R shares, and Class I-R shares, respectively), and the third public offering commenced the same day. We closed the offering of primary shares to new investors pursuant to our third public offering on July 2, 2024, but we are continuing to offer shares in our third public offering to existing investors pursuant to our DRIP. On August 2, 2024, we initiated the Private Offering.
Pursuant to our securities offerings, we have offered and continue to offer shares of our common stock at the "transaction price," plus applicable selling commissions and dealer manager fees. The "transaction price" generally is equal to the 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 common stock, and is available generally within 15 calendar days after the end of the applicable month. Shares issued pursuant to our DRIP 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. See Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Net Asset Value" for further detail.
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 Internal Revenue Code of 1986, as amended (the "Code"). The DST Program has provided 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 Section 1031 Exchanges. 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 $250.3 millionof gross interests related to the DST Program, $17.2 millionof 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.
During the year ended December 31, 2025, we raised gross proceeds of approximately $338.2 million from the sale of approximately 26.1 million shares of our common stock, including shares issued pursuant to our DRIP. See "Note 9 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for information concerning our securities offerings.
As of December 31, 2025, we directly owned and managed a real estate portfolio that included 269 industrial buildings totaling approximately 57.4 million square feet located in 31 markets throughout the U.S., with 440 customers, and was 90.7% occupied (91.3% leased) with a weighted-average remaining lease term (based on square feet) of approximately 3.8 years. The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced. Industrial market fundamentals remain favorable and we continue to evaluate acquisition opportunities within the industrial market to effectively execute our business strategy. Refer to "Note 3 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for detail regarding our 2025 acquisition activity. As of December 31, 2025, our real estate portfolio included:
•268 industrial buildings totaling approximately 57.3 million square feet comprised our operating portfolio, which includes stabilized properties, and was 90.8% occupied (91.4% leased) with a weighted-average remaining lease term (based on square feet) of approximately 3.8 years; and
•One industrial building totaling approximately 0.1 million square feet comprised our value-add portfolio, which includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet reached stabilization. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building's shell completion or a building achieving 90% occupancy.
Additionally, as of December 31, 2025, we owned and managed one industrial building under construction totaling approximately 0.1 million square feet. Unless otherwise noted, this building is excluded from the presentation of our portfolio data herein.
As of December 31, 2025, we owned and managed one industrial building totaling approximately 0.7 million square feet and three industrial buildings that were in the pre-construction phase totaling approximately 1.0 million square feet, through our 8.0% minority ownership interest in the BTC II B Partnership. Unless otherwise noted, these buildings are excluded from the presentation of our portfolio data herein.
As of December 31, 2025, we had debt security investments designated as available-for-sale debt securities with a fair value of $102.6 million and a cumulative unrealized gain of $0.5 million from the acquisition dates. The weighted-average remaining term of our debt securities, which is based on the fully extended maturity date of the instruments, was approximately 2.7 years as of December 31, 2025.
As of December 31, 2025, we had seven debt-related investments comprised of floating-rate senior and mezzanine loans with an aggregate current commitment of $752.6 million, with a weighted-average remaining term of 1.7 years and a weighted-average interest rate of 7.99%, calculated based on Term SOFR plus a weighted-average margin of 4.30%. As of December 31, 2025, the outstanding principal amount and fair value were both $591.3 million.
We have used, and intend to continue to use, the net proceeds from our offerings primarily to make investments in real estate assets. We may use the net proceeds from our offerings to make other real estate-related investments and debt investments and to pay distributions. The number and type of properties we may acquire and debt and other investments we may make will depend upon real estate market conditions, the amount of proceeds we raise in our offerings, and other circumstances existing at the time we make our investments.
Our primary investment objectives include the following:
•preserving and protecting our stockholders' capital contributions;
•providing current income to our stockholders in the form of regular distributions; and
•realizing capital appreciation in our NAV from active investment management and asset management.
There is no assurance that we will attain our investment objectives. Our charter places numerous limitations on us with respect to the manner in which we may invest our funds. In most cases these limitations cannot be changed unless our charter is amended, which may require the approval of our stockholders.
We may acquire assets free and clear of mortgage or other indebtedness by paying the entire purchase price in cash or equity securities, or a combination thereof, and we may selectively encumber all or only certain assets with debt. The proceeds from our borrowings may be used to fund investments, make capital expenditures, pay distributions, and for general corporate purposes.
We expect to manage our corporate financing strategy under the current mortgage lending and corporate financing environment by considering various lending sources, which may include long-term fixed-rate mortgage loans, floating-rate mortgage notes, unsecured or secured lines of credit or term loans, private placement or public bond issuances, and the assumption of existing loans in connection with certain property acquisitions, or any combination of the foregoing.
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 industrial properties. 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 industrial sector help offset some of these impacts. Additionally, the 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 industrial 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 of industrial real estate, such as positive rent growth and low vacancy rates.
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:
•Our NAV increased to $13.13 per share as of December 31, 2025 from $12.71 per share as of December 31, 2024. See "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Performance" above for additional information regarding this increase.
•We raised $338.2 million of gross equity capital from our securities offerings. Additionally, we raised $250.3 million of gross capital through private placement offerings by selling DST Interests, $17.2 million of which were financed by DST Program Loans. We redeemed 20.0 million shares of our common stock for an aggregate dollar amount of $258.1 million. Additionally, we redeemed a combined 2.5 million OP Units of redeemable noncontrolling interests and noncontrolling interests for an aggregate dollar amount of $32.2 million.
•We acquired 14 industrial buildings comprised of approximately 2.7 million square feet for an aggregate purchase price of $333.5 million.
•We leased approximately 7.9 millionsquare feet, which included 2.4 millionsquare feet of new and future leases and 5.5 millionsquare feet of renewals through 88separate transactions with an average annual base rent of $9.60per square foot.
•We originated two debt-related investments consisting of a floating-rate senior loan and a floating-rate mezzanine loan with an aggregate total commitment of up to $238.3 million, a weighted-average remaining term of 2.4 years at the respective origination dates, and interest rates calculated based on Term SOFR plus a weighted-average margin of 4.51%.
•We issued 37.6 million OP Units in exchange for DST Interests for a net investment of $487.8 million.
•We amended our unsecured credit facility, which provides for our existing $1.0 billion revolving credit facility, our existing $550.0 million term loan and a new $600.0 million term loan, which refinanced our other $600.0 million existing term loan.The amendment provides us with the ability from time to time to increase the aggregate size of the credit facility up to a total of $2.9 billion, subject to receipt of lender commitments and other conditions. The amendmentalso extends the maturity date of the revolving credit facility to March 11, 2029, subject to a one-year extension option and provides for a maturity date of the $600.0 millionterm loan of March 11, 2028, subject to two one-year extension options, each subject to certain conditions. The effective interest rate for the new $600.0 millionterm loan is calculated based on either: (i) Term SOFR plus a 10 basis point adjustment ("Adjusted Term SOFR") plus a margin ranging from 1.20% to 1.90%; or (ii) an alternative base rate plus a margin ranging from 0.20% to 0.90%, each depending on our consolidated leverage ratio.
•We entered into twomortgage notes consisting of a secured floating-rate note and a secured fixed-rate note, for an aggregate total amount of $843.5 million. The floating-rate mortgage note matures in April 2027 and may be extended pursuant to three one-year extension options, subject to certain conditions, and the effective interest rate is calculated based on Term SOFR plus a margin of 2.02%, depending on our consolidated leverage ratio. We also entered into an associated interest rate cap agreement with a notional amount of $563.9 million, which effectively caps term SOFR at 3.00%, resulting in an all-in interest rate of 5.02%as of December 31, 2025. The fixed-rate mortgage note matures in January 2033, and the interest rate is fixed at 5.15%.
Portfolio Information
As of December 31, 2025 and 2024, our owned and managed portfolio was as follows:
As of
(square feet in thousands) December 31, 2025 December 31, 2024
Portfolio data:
Total buildings (1) 269 255
Total rentable square feet 57,403 54,741
Total number of customers 440 424
Percent occupied of operating portfolio (2) 90.8 % 93.1 %
Percent occupied of total portfolio (2) 90.7 % 92.6 %
Percent leased of operating portfolio (2) 91.4 % 95.0 %
Percent leased of total portfolio (2) 91.3 % 94.6 %
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(1)Represents acquired or completed buildings. There were no buildings completed during the year ended December 31, 2025. One building was completed during the year ended December 31, 2024.
(2)See "Overview-General" above for a description of our operating portfolio and our total portfolio (which includes our operating and value-add portfolios) and for a description of the occupied and leased rates.
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,
(in thousands, except per share data) 2025 2024 Change % Change
Revenues:
Rental revenues $ 545,881 $ 489,164 $ 56,717 11.6 %
Debt-related income 46,448 36,744 9,704 26.4
Total revenues 592,329 525,908 66,421 12.6
Operating expenses:
Rental expenses 135,945 123,317 12,628 10.2
Real estate-related depreciation and amortization 304,989 291,872 13,117 4.5
General and administrative expenses 16,799 17,194 (395) (2.3)
Advisory fees 67,153 66,048 1,105 1.7
Acquisition costs and reimbursements 2,824 3,036 (212) (7.0)
Total operating expenses 527,710 501,467 26,243 5.2
Other income (expenses):
Equity in income from unconsolidated joint venture partnerships 70 5,228 (5,158) (98.7)
Interest expense (278,808) (259,302) (19,506) (7.5)
(Loss) gain on financing obligations (7,823) 194 (8,017) NM
Gain on extinguishment of debt and financing obligations, net 53,940 31,250 22,690 72.6
Gain on derivative instruments 830 2,288 (1,458) (63.7)
Net gain on sale of real estate property - 56,923 (56,923) (100.0)
Other income and (expenses) 5,219 8,633 (3,414) (39.5)
Total other income (expenses) (226,572) (154,786) (71,786) (46.4)
Net loss (161,953) (130,345) (31,608) (24.2)
Net loss attributable to redeemable noncontrolling interests 3,639 3,353 286 8.5
Net loss attributable to noncontrolling interests 33,550 15,934 17,616 NM
Net loss attributable to common stockholders $ (124,764) $ (111,058) $ (13,706) (12.3)
Weighted-average shares outstanding-basic 273,655 276,152 (2,497) (0.9)
Weighted-average shares outstanding-diluted 357,483 318,856 38,627 12.1
Net loss attributable to common stockholders per common share-basic and diluted $ (0.46) $ (0.40) $ (0.06) (15.0) %
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NM = Not meaningful
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 $56.7 million for the year ended December 31, 2025, as compared to the same period in 2024, primarily due to increases in non-same store revenues resulting from the growth in our portfolio, as well as rent growth associated with comparable leases of the same store portfolio, offset by a decrease in average occupancy. For the year ended December 31, 2025, non-same store rental revenues reflect the addition of 25 industrial buildings we have acquired or completed since January 1, 2024. See "Same Store Portfolio Results of Operations" below for further details of the same store revenues.
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 increased by $9.7 million for the year ended December 31, 2025, as compared to the same period in 2024, primarily due to higher average outstanding debt investment balances and growth in our portfolio of debt-related investments during the year ended December 31, 2025, partially offset by higher origination fees earned for the year ended December 31, 2024.
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 utilities. Leases that are structured on a "triple net basis," in which customers pay their proportionate share of real estate taxes, insurance, common area maintenance, and certain other operating costs, account for 99.0% of our total leased portfolio, based on number of leases. In addition, most of our leases include fixed rental increases or Consumer Price Index-based rental increases. Total
rental expenses increased by approximately $12.6 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 expenses, which was attributable to the acquisition activity in our portfolio since January 1, 2024, as described above. 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 $13.1 million for the year ended December 31, 2025, as compared to the previous year, primarily due to growth in our portfolio and the stabilization of buildings since January 1, 2024.
Other Remaining Operating Expenses.In aggregate, the remaining operating expenses increased by $0.5 million for the year ended December 31, 2025, as compared to the previous year.
Other Income and Expenses. In aggregate, the remaining items that comprise our net income (loss) had a $(71.8) millionimpact on our net income (loss)for the year ended December 31, 2025, as compared to the previous year, primarily due to:
•a $56.9 million net gain on sale of real estate properties related to the disposition of 12 industrial buildings during the year ended December 31, 2024, while there were no dispositions during the year ended December 31, 2025;
•a $19.5 million increase in interest expense for the year ended December 31, 2025, as compared to the previous year, due to (i) a $23.8 million increase in consolidated indebtedness interest expense resulting from an overall increase in outstanding borrowings during the year ended December 31, 2025; (ii) a $9.3 million decrease in interest amounts capitalized for the year ended December 31, 2025; and (iii) a $6.7 million increase in the amortization of the value of our financing obligations for the year ended December 31, 2025; partially offset by a $23.1 million decrease in master lease payments recorded as interest expense associated with our DST Program driven by extinguishment of financing obligations;
•an $8.0 million decrease in unrealized gain on financing obligations for the year ended December 31, 2025, as compared to the previous year, due to the change in the fair value of the financing obligations for which we have elected the fair value option; and
•a $5.2 million decrease in equity in income (loss) from our unconsolidated joint venture partnerships, primarily related to a $4.5 million performance-based incentive fee earned from the BTC II B Partnership during 2024, while we did not recognize any performance-based incentive fee income from the BTC II B Partnership during 2025.
Partially offset by:
•a $55.9 million gain on extinguishment of financing obligations resulting from the exercise of a purchase option for certain properties in our DST Program for the year ended December 31, 2025, compared to the $31.3 million gain on extinguishment of financing obligations for the year ended December 31, 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, acquisition-related expenses, advisory fees, impairment charges, general and administrative expenses, interest expense, gains on sale of properties, other income and expense 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 interests in our joint venture partnerships 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 properties" includes buildings not meeting the same store criteria. 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 included 237 buildings totaling approximately 50.2 million square feet owned as of January 1, 2024, which represented 87.5% of total rentable square feet, 91.3% of total rental revenues, and 91.3% of net operating income for the year ended December 31, 2025.
The following table reconciles GAAP net income (loss) to same store property NOI for the years ended December 31, 2025and 2024:
For the Year Ended
(in thousands) December 31, 2025 December 31, 2024 Change % Change
Net loss attributable to common stockholders $ (124,764) $ (111,058) $ (13,706) (12.3) %
Debt-related income (46,448) (36,744) (9,704) (26.4)
Real estate-related depreciation and amortization 304,989 291,872 13,117 4.5
General and administrative expenses 16,799 17,194 (395) (2.3)
Advisory fees 67,153 66,048 1,105 1.7
Acquisition costs and reimbursements 2,824 3,036 (212) (7.0)
Equity in income from unconsolidated joint venture partnerships (70) (5,228) 5,158 98.7
Interest expense 278,808 259,302 19,506 7.5
Loss (gain) on financing obligations 7,823 (194) 8,017 NM
Gain on extinguishment of debt and financing obligations, net (53,940) (31,250) (22,690) (72.6)
Gain on derivative instruments (830) (2,288) 1,458 63.7
Net gain on sale of real estate property - (56,923) 56,923 100.0
Other income and expenses (5,219) (8,633) 3,414 39.5
Net loss attributable to redeemable noncontrolling interests (3,639) (3,353) (286) (8.5)
Net loss attributable to noncontrolling interests (33,550) (15,934) (17,616) NM
Property net operating income $ 409,936 $ 365,847 $ 44,089 12.1
Less: Non-same store property NOI 35,551 12,469 23,082 NM
Same store property NOI $ 374,385 $ 353,378 $ 21,007 5.9 %
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NM = Not meaningful
The following table includes a breakout of our results for our same store portfolio 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
(in thousands) December 31, 2025 December 31, 2024 Change % Change
Rental revenues:
Same store operating properties $ 498,273 $ 471,946 $ 26,327 5.6 %
Other properties 47,608 17,218 30,390 NM
Total rental revenues 545,881 489,164 56,717 11.6 %
Rental expenses:
Same store operating properties (123,888) (118,568) (5,320) (4.5) %
Other properties (12,057) (4,749) (7,308) NM
Total rental expenses (135,945) (123,317) (12,628) (10.2) %
Net operating income:
Same store operating properties 374,385 353,378 21,007 5.9 %
Other properties 35,551 12,469 23,082 NM
Total property net operating income $ 409,936 $ 365,847 $ 44,089 12.1 %
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NM = Not meaningful
Rental Revenues.Same store rental revenues increased by $26.3 million for the year ended December 31, 2025 as compared to the same period in 2024, primarily due to rental rate growth and increased recovery revenues. Non-same store rental revenues increased by $30.4 million for the year ended December 31, 2025 as compared to the prior year primarily due to the acquisition or completion of 25 buildings and the stabilization of an additional seven buildings since January 1, 2024.
Rental Expenses.Same store rental expenses increased by $5.3 million for the year ended December 31, 2025 as compared to the same period in 2024, primarily due to an increase in property tax expense. Non-same store rental expenses increased by $7.3 million for the year ended December 31, 2025 as compared to the same period in 2024, primarily due to the growth in our portfolio described above.
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) performance-based incentive fee (income) expense, (ii) unrealized (gain) loss from changes in fair value of financial instruments, (iii) increase (decrease) in financing obligation liability appreciation, and (iv) forfeited investment deposits, 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 $ (161,953) $ (130,345) $ (210,223)
Weighted-average shares outstanding-diluted 357,483 318,856 312,121
GAAP net loss per common share-diluted $ (0.46) $ (0.40) $ (0.67)
Adjustments to arrive at FFO:
Real estate-related depreciation and amortization 304,989 291,872 294,111
Net gain on sale of real estate property - (56,923) -
Our share of adjustments from unconsolidated joint venture partnerships 249 (448) 98
FFO $ 143,285 $ 104,156 $ 83,986
FFO per common share-diluted $ 0.40 $ 0.33 $ 0.27
Adjustments to arrive at AFFO:
Performance-based incentive fee income - (4,459) -
Unrealized (gain) loss on financial instruments (1) (38,343) (16,142) 13,498
Decrease in financing obligation liability appreciation - (6,664) (12,303)
Forfeited investment deposit - - 7,689
AFFO $ 104,942 $ 76,891 $ 92,870
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(1)Unrealized (gain) loss on financial instruments relates to mark-to-market changes on our derivatives not designated as cash flow hedges, mark-to-market changes on our financing obligations for which we have elected the fair value option 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 are net proceeds from our securities offerings, including proceeds from the sale of shares offered through our DRIP, debt financings, and cash generated from operating activities. Our principal uses of funds are, and will be, for the acquisition of properties and other investments, capital expenditures, operating expenses, payments under our debt obligations, distributions to our stockholders, redemption payments and payments pursuant to the master lease agreements related to the properties in our DST Program. Over time, we intend to
fund a majority of our cash needs for items other than asset acquisitions, including the repayment of debt and capital expenditures, from operating cash flows and refinancings. Our primary material cash requirements for the next 12 months relate to our unfunded commitments on our debt-related investments and unconsolidated joint venture partnerships, our indebtedness, future minimum lease payments associated with our DST Program, redemptions, and the fixed component of the advisory fee. As of December 31, 2025, we had outstanding line of credit, term loan and mortgage note borrowings with varying maturities for an aggregate principal amount of $4.8 billion, with $1.2 billion becoming payable within the next 12 months, though the term of our $367.8 million mortgage note that matures in July 2026 may be extended pursuant to a one-year extension option, subject to certain conditions, and the term of our $590.0 million mortgage note that matures in July 2026 may be extended pursuant to three one-year extension options, subject to certain conditions. As of December 31, 2025, we had $23.8 million of future minimum lease payments related to the properties in our DST Program due in the next 12 months. We also had $196.7 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. In addition, we had $4.8 million of projected development costs to be incurred within the next 12 months. We expect to be able to pay our interest expense and rent obligations over the next 12 months and beyond through operating cash flows and/or borrowings. 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 NAV. There may be a delay between the deployment of proceeds raised from our securities offerings and our purchase of assets, which could result in a delay in the benefits to our stockholders, if any, of returns generated from our investments.
During the year ended December 31, 2025, we raised $338.2 million of gross equity capital from our securities offerings and redemptions of common stock amounted to $258.1 million. As of December 31, 2025, we had cash and cash equivalents of $63.0 million and leverage of 46.3%, calculated as outstanding principal balance of our borrowings, including secured financings on investments in real estate debt securities, 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, as determined in accordance with our valuation procedures. See "-Capital Resources and Uses of Liquidity-Offering Proceeds" for further information concerning capital raised in 2025. As of December 31, 2025, we owned and managed a real estate portfolio that included 269 industrial buildings totaling approximately 57.4 million square feet, with a diverse roster of 440 customers, large and small, spanning a multitude of industries and sectors across 31 markets, with a strategic weighting towards top tier markets where we have historically seen the lowest volatility combined with positive returns over time. Our portfolio was 90.7% occupied (91.3% leased) with a weighted-average remaining lease term (based on square feet) of 3.8 years.
The 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 continue to evaluate potential acquisitions and dispositions and will engage in negotiations with sellers and lenders on our behalf. Pending investment in property, debt and 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. During these times of economic uncertainty, we have seen and could once again see a slowdown in transaction volume, which would adversely impact our ability to acquire real estate assets, which would cause us to retain more lower yielding investments and hold them for longer periods of time while we seek to acquire additional 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 the sale of assets, and undistributed funds from operations.
We believe that our cash on-hand, anticipated net offering proceeds, and anticipated financing activities will be sufficient to meet our liquidity needs for the foreseeable future over the next 12 months and beyond.
Cash Flows.The following table summarizes our cash flows, as determined on a GAAP basis, for the following periods:
For the Year Ended December 31,
(in thousands) 2025 2024 Change
Total cash provided by (used in):
Operating activities $ 98,811 $ 66,072 $ 32,739
Investing activities (559,685) (568,763) 9,078
Financing activities 508,395 516,546 (8,151)
Net increase in cash, cash equivalents and restricted cash $ 47,521 $ 13,855 $ 33,666
2025 Cash Flows Compared to 2024 Cash Flows
Cash provided by operating activities during the year ended December 31, 2025 increased by approximately $32.7 million as compared to the same period in 2024, primarily as a result of (i) a $44.1 million increase in the property NOI for the year ended December 31, 2025; and (ii) an $11.9 million increase in our debt-related income excluding origination fees for the year ended December 31, 2025; partially offset by an $18.8 million increase in our consolidated indebtedness interest expense, excluding amortization of interest rate cap premiums, due to higher weighted-average borrowings on our consolidated borrowings and our entry into two new mortgage notes during the year ended December 31, 2025.
Cash used in investing activities during the year ended December 31, 2025decreased by approximately $9.1 millionas compared to the same period in 2024, primarily due to (i) the purchase of $94.4 millionof available-for-sale debt securities during the year ended December 31, 2024, while there were no purchases of available-for-sale debt securities during the same period in 2025; (ii) the net increase in collections of $95.2 millionof principal repayments on our debt-related investments and debt securities during the year ended December 31, 2025; (iii) a net decrease in capital expenditure activity of $38.8 million for the year ended December 31, 2025; and (iv) a net decrease in acquisition activity of $24.9 million for the year ended December 31, 2025; partially offset by the $238.7 millionin proceeds from the disposition of 12buildings during the year ended December 31, 2024, while no buildings were sold during the same period in 2025.
Cash provided by financing activities during the year ended December 31, 2025decreased by approximately $8.2 millionas compared to the same period in 2024, driven by (i) a net decrease in borrowings and secured financings of $314.4 million for the year ended December 31, 2025as compared to the same period in 2024; (ii) a $26.9 millionnet increase in distributions paid to common stockholders, redeemable noncontrolling interest holders and noncontrolling interest holders and distribution fees paid to affiliates; and (iii) an increase in interest rate cap premiums and debt issuance costs paid of $28.4 million; partially offset by (a) a net increase in proceeds from issuance of common stock and from financing obligations of $230.1 millionfor the year ended December 31, 2025as compared to the same period in 2024; and (b) a $133.9 millionnet decrease in redemptions of shares of our common stock and redeemable noncontrolling interests and noncontrolling interests for the year ended December 31, 2025as compared to the same period in 2024.
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 $2.2 billion of commitments under our credit agreements, including $1.0 billion under our line of credit and $1.2 billion under our two term loans. As of that date, we had $388.0 million outstanding under our line of credit with an effective interest rate of 5.11%, which includes the effect of interest rate cap agreements. Additionally, as of December 31, 2025, we had $1.2 billion outstanding under our term loans with an effective interest rate of 3.62%, which includes the effect of the interest rate swap agreements and interest rate cap agreements. The unused and available portions under our line of credit were both $612.0 million as of December 31, 2025. Our $1.0 billion line of credit matures in March 2029 and may be extended pursuant to a one-year extension option, subject to continuing compliance with certain financial covenants and other customary conditions. Our
$550.0 million term loan matures in March 2027. Our $600.0 million term loan matures in March 2028, and may be extended pursuant to two one-year extension options, subject to continuing compliance with certain financial covenants and other customary conditions. Our line of credit and term loan borrowings are available for general corporate purposes including, but not limited to, the acquisition and operation of permitted investments by us. 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 approximately $3.2 billion of principal outstanding with a weighted-average remaining term of 1.7 years, excluding any extension options on certain of our mortgage notes. 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 4.58%. 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, the agreements governing our line of credit and term loans 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, to make borrowings under our line of credit, or to pay distributions. We were in compliance with all of 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 acquired with borrowings on short or long-term basis from banks, institutional investors and other lenders. We calculate our leverage for reporting purposes as outstanding principal balance of our borrowings, including secured financings on investments in real estate debt securities, 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, as determined in accordance with our valuation procedures. We had leverage of 46.3% as of December 31, 2025. Our management expects that as we deploy capital going forward, our leverage will near approximately 50%. Due to changes in interest rates and increased market volatility, 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 December 31, 2025, we had $469.9 million 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, aggregate gross proceeds raised from our securities offerings, including proceeds raised through our DRIP, were $338.2 million ($331.3 million net of direct selling costs).
Distributions.We intend to continue to accrue and make distributions on a regular basis. For the year ended December 31, 2025, approximately 44.9% of our total gross distributions were paid from cash flows from operating activities, as determined on a GAAP basis, and 55.1% of our total gross distributions were funded from sources other than cash flows from operating activities, as determined on a GAAP basis; specifically, 40.4% were funded with proceeds from shares issued pursuant to our DRIP and 14.7% were funded with proceeds from financing activities. Some or all of our future distributions may be paid from sources other than cash flows from operating activities, such as cash flows from financing activities, which include borrowings (including borrowings secured by our assets), proceeds from the issuance of shares pursuant to our DRIP, proceeds from sales of assets, the net proceeds from shares sold in our securities offerings and from our sale of DST Interests. We have not established a cap on the amount of our distributions that may be paid from any of these sources. The amount of any distributions will be determined by our board of directors, and will depend on, among other things, current and projected cash requirements, tax considerations and other factors deemed relevant by our board.
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 $0.15750 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 D-R shares, Class S-PR shares and Class D-PR shares. This quarterly rate is equal to a monthly rate of $0.05250 per share of each class of our common stock, less the respective distribution fees that are payable with respect to
Class T-R shares, Class D-R shares, Class S-PR shares and Class D-PR shares. Distributions for each month of the first quarter of 2026 have been or will be paid in cash or reinvested in shares of our common stock for those electing to participate in our DRIP following the close of business on the respective Distribution Record Date applicable to such monthly distributions.
There can be no assurances that the current distribution rate or amount per share will be maintained. In the near-term, we expect that we may need to continue to rely on sources other than cash flows from operations, as determined on a GAAP basis, to pay distributions, which, if insufficient, could negatively impact our ability to pay such distributions. In certain years and certain individual quarters, total distributions were not fully funded by cash flows from operations. In such cases, the shortfalls were funded from DRIP or borrowings.
The following table outlines sources used, as determined on a GAAP basis, to pay total gross distributions (which are paid in cash or reinvested in shares of our common stock through our DRIP) for the years ended as of the dates indicated below:
For the Year Ended December 31, 2025 For the Year Ended December 31, 2024
($ in thousands) Amount Percentage Amount Percentage
Distributions
Paid in cash (1) $ 130,992 59.6 % $ 103,482 54.1 %
Reinvested in shares 88,933 40.4 87,860 45.9
Total $ 219,925 100.0 % $ 191,342 100.0 %
Sources of Distributions
Cash flows from operating activities $ 98,811 44.9 % $ 66,072 34.5 %
Borrowings 32,181 14.7 37,410 19.6
DRIP (2) 88,933 40.4 87,860 45.9
Total $ 219,925 100.0 % $ 191,342 100.0 %
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(1)Includes (i) distributions paid to noncontrolling interest holders and (ii) ongoing distribution fees relating to Class T-R shares, Class D-R shares, Class S-PR shares, Class D-PR shares and OP Units. See "Note 13 to the Consolidated Financial Statements" in Item 8, "Financial Statements and Supplementary Data" for further detail regarding the ongoing distribution fees.
(2)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 $143.3 million and $104.2 million, respectively, compared to total gross distributions of $219.9 million and $191.3 million, 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 9 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 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 program 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-Share Redemption Program" for detail regarding our share redemption program.
For the Year Ended December 31,
(in thousands, except per share data) 2025 2024 2023
Number of shares redeemed 20,027 33,009 45,044
Aggregate dollar amount of shares redeemed $ 258,145 $ 421,135 $ 652,754
Average redemption price per share $ 12.89 $ 12.76 $ 14.49
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.
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 reimbursed or paid by our customers. Our leases may require our customers to pay certain taxes and operating expenses, either in part or in whole, or may 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, most inflationary increases in costs may be at least partially offset by the contractual rent increases and operating expense reimbursement provisions or escalations.
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.
Ares Industrial Real Estate Income Trust Inc. published this content on March 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 06, 2026 at 11:03 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]