SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

(Mark One)


ý	~~QuarterlyReportPursuant~~to~~Section 13~~or~~15(d) oftheSecuritiesExchangeAct~~of~~1934~~

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

For the quarterly period endedSeptember 30, ~~2017~~

2023


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

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

For the transition period from to .

Commission File No. 000-52596

ARES REAL ESTATE INCOME TRUSTINC.

~~BLACK CREEKDIVERSIFIEDPROPERTYFUNDINC.~~

(Exact name of registrant as specified in its charter)



~~Maryland~~	~~30-0309068~~
Maryland	30-0309068
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
~~518~~
One Tabor Center, 1200 Seventeenth Street, ~~17th Floor~~Suite 2900, Denver, CO ~~Denver, CO~~	80202
(Address of principal executive offices)	(Zip Code)

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

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

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý☒ No ☐

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



Large accelerated filer	☐	Accelerated filer	☐
~~Non-accelerated filer~~	ý ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐
Non-accelerated filer	☒			Emerging growth company	☐

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

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

☒

As of November ~~10, 2017, 2,097,694~~7, 2023, there were 28,523,979 shares of the registrant’s Class T common stock, ~~16,750~~48,265,163 shares of the registrant’s Class S common stock, ~~2,519,582~~6,952,264 shares of the registrant’s Class D common stock, ~~33,977,252~~65,814,609 shares of the registrant’s Class I common stock and ~~95,661,035~~48,522,794 shares of the registrant’s Class E common stock ~~of Black Creek Diversified Property Fund Inc., each with a par value $0.01 per share, were~~ outstanding.

Table of ~~Contents~~contents

~~Black Creek Diversified Property Fund Inc.~~

~~Quarterly Report onForm 10-Q~~

~~For the Three and Nine Months Ended September 30, 2017~~

ARES REAL ESTATE INCOME TRUST INC.

TABLE OF CONTENTS

		Page

	~~Page~~
PART I. FINANCIAL INFORMATION
Item 1.	Financial ~~Statements (unaudited)~~Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) ~~Income~~for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	5
	Condensed Consolidated ~~Statement~~Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited)	7 8
	Notes to Condensed Consolidated Financial Statements (unaudited)	8 9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48 52
Item 4.	Controls and Procedures	48 52
PART II. OTHER INFORMATION
Item ~~1. Legal Proceedings~~1A.	49Risk Factors	53
~~Item 1A. Risk Factors~~	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51 53
Item ~~3. Defaults Upon Senior Securities~~5.	53Other Information	55
~~Item 4. Mine Safety Disclosures~~	53
~~Item 5. Other Information~~	53
Item 6. ~~Exhibits~~	54Exhibits	56

Table of contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	As of
(in thousands, except per share data)	September 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
Net investment in real estate properties	$	3,786,199	$	3,605,578
Investments in unconsolidated joint venture partnerships		141,916		120,372
Investments in real estate debt and securities (includes $107,200 and $14,896 at fair value as of September 30, 2023 and December 31, 2022, respectively)		325,400		275,335
Cash and cash equivalents		14,503		13,336
Restricted cash		4,149		3,850
DST Program Loans		116,195		81,897
Other assets		98,109		74,356
Total assets	$	4,486,471	$	4,174,724
LIABILITIES AND EQUITY
Liabilities
Accounts payable and accrued expenses	$	78,586	$	58,097
Debt, net		1,793,069		1,616,475
Intangible lease liabilities, net		37,928		42,444
Financing obligations, net		1,383,834		1,130,810
Other liabilities		92,352		114,901
Total liabilities		3,385,769		2,962,727
Commitments and contingencies (Note 14)
Redeemable noncontrolling interest		16,879		18,130
Equity
Stockholders’ equity:
Preferred stock, $0.01 par value—200,000 shares authorized, none issued and outstanding		—		—
Class T common stock, $0.01 par value—500,000 shares authorized, 28,833 shares and 26,884 shares issued and outstanding, respectively		288		269
Class S common stock, $0.01 par value—500,000 shares authorized, 49,134 shares and 49,237 shares issued and outstanding, respectively		491		492
Class D common stock, $0.01 par value—500,000 shares authorized, 7,014 shares and 7,871 shares issued and outstanding, respectively		70		79
Class I common stock, $0.01 par value—500,000 shares authorized, 66,482 shares and 69,142 shares issued and outstanding, respectively		665		691
Class E common stock, $0.01 par value—500,000 shares authorized, 49,548 shares and 52,974 shares issued and outstanding, respectively		496		530
Additional paid-in capital		1,877,371		1,898,510
Distributions in excess of earnings		(1,067,116)		(973,395)
Accumulated other comprehensive income		18,101		16,083
Total stockholders’ equity		830,366		943,259
Noncontrolling interests		253,457		250,608
Total equity		1,083,823		1,193,867
Total liabilities and equity	$	4,486,471	$	4,174,724

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of contents

~~BLACK CREEK DIVERSIFIED PROPERTY FUND~~

ARES REAL ESTATE INCOME TRUST INC.

~~CONDENSED CONSOLIDATEDBALANCE SHEETS~~

~~(In thousands, except share and footnoted information)~~

໿

As of
September 30,
2017 December 31,
2016
(Unaudited)
ASSETS
Investments in real property $ 2,221,700
$ 2,204,322
Accumulated depreciation and amortization (529,846 ) (492,911 )
Total net investments in real property 1,691,854
1,711,411
Debt-related investments, net 11,259
15,209
Total net investments 1,703,113
1,726,620
Cash and cash equivalents 5,841
13,864
Restricted cash 8,268
7,282
Other assets, net 40,549
35,962
Total Assets $ 1,757,771
$ 1,783,728
LIABILITIES AND EQUITY
Liabilities:
Accounts payable and accrued expenses ⁽¹⁾
$ 31,336
$ 34,085
Mortgage notes 477,946
342,247
Unsecured borrowings 673,555
706,554
Intangible lease liabilities, net 55,856
59,545
Other liabilities 27,581
33,206
Total Liabilities 1,266,274
1,175,637
Equity:
Stockholders’ equity:
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 139,949,658 and 150,636,393 shares issued and outstanding, as of September 30, 2017 and December 31, 2016, respectively ⁽²⁾
1,399
1,506
Additional paid-in capital 1,282,495
1,361,638
Distributions in excess of earnings (872,249 ) (839,896 )
Accumulated other comprehensive loss (4,618 ) (6,905 )
Total stockholders’ equity 407,027
516,343
Noncontrolling interests 84,470
91,748
Total Equity 491,497
608,091
Total Liabilities and Equity $ 1,757,771
$ 1,783,728


~~(1)~~	Includes approximately $2.9 million and $3.6 million that we owed to Black Creek Diversified Property Advisors LLC (f/k/a Dividend Capital Total Advisors LLC) (our "Advisor") and affiliates of our Advisor for services and reimbursement of certain expenses as of September 30, 2017 and December 31, 2016, respectively.


~~(2)~~	~~See Note 7 for the number of shares outstanding of each class of common stock as of September 30, 2017 and December 31, 2016.~~

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~BLACK CREEK DIVERSIFIED PROPERTY FUND INC.~~

~~CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS~~

~~(Unaudited)~~

~~(In thousands, except per share and footnoted information)~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
REVENUE:
Rental revenue $ 49,478
$ 53,258
$ 152,022
$ 161,504
Debt-related income 194
235
654
710
Total Revenue
49,672
53,493
152,676
162,214
EXPENSES:

Rental expense 17,516
16,437
51,520
48,388
Real estate depreciation and amortization expense 16,927
19,989
53,661
60,022
General and administrative expenses ⁽¹⁾
2,760
2,234
7,034
7,192
Advisory fees, related party 3,274
3,681
10,215
11,118
Acquisition-related expenses —
136
—
661
Impairment of real estate property ⁽²⁾
—
2,090
1,116
2,677
Total Operating Expenses
40,477
44,567
123,546
130,058
OTHER (EXPENSES) INCOME:

Other (expense) and income (664 ) 2,308
(862 ) 2,297
Interest expense (11,346 ) (10,011 ) (31,193 ) (31,394 )
Gain on extinguishment of debt and financing commitments —
—
—
5,136
Gain on sale of real property ⁽³⁾
670
2,095
11,022
43,495
Net (loss) income (2,145 ) 3,318
8,097
51,690
Net loss (income) attributable to noncontrolling interests 185
(353 ) (1,591 ) (4,826 )
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,960 ) $ 2,965
$ 6,506
$ 46,864
NET (LOSS) INCOME PER BASIC AND DILUTED COMMON SHARE $ (0.01 ) $ 0.02
$ 0.04
$ 0.29
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic 139,925
158,688
144,998
161,274
Diluted 151,739
170,952
156,918
173,760
Distributions declared per common share $ 0.0892
$ 0.0892
$ 0.2674
$ 0.2677


~~(1)~~	Includes approximately $1.6 million and $1.4 million of reimbursable expenses incurred by our Advisor and its affiliates during the three months ended September 30, 2017 and 2016, respectively, and approximately $4.8 million and $4.9 million of reimbursable expenses incurred by our Advisor and its affiliates during the nine months ended September 30, 2017 and 2016, respectively.


~~(2)~~	Includes approximately $186,000 paid to our Advisor for advisory fees associated with the disposition of real properties during the three months ended September 30, 2016 and approximately $45,000 and $265,000 paid to our Advisor for advisory fees associated with the disposition of real properties during the nine months ended September 30, 2017 and 2016, respectively.

~~(3)~~

Includes approximately $77,000 and $85,000 paid to our Advisor for advisory fees associated with the disposition of real properties during the three months ended September 30, 2017 and 2016, respectively, and approximately $318,000 and $1.8 million paid to our Advisor for advisory fees associated with the disposition of real properties during the nine months ended September 30, 2017 and 2016, respectively.

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~BLACK CREEK DIVERSIFIED PROPERTY FUND INC.~~

~~CONDENSED CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE (LOSS) INCOME~~

~~(Unaudited)~~

~~(In thousands)~~

໿

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Net (loss) income $ (2,145 ) $ 3,318
$ 8,097
$ 51,690
Other Comprehensive (Loss) Income:
Change in value of cash flow hedging derivatives 948
2,901
2,360
(9,880 )
Comprehensive (loss) income (1,197 ) 6,219
10,457
41,810
Comprehensive loss (income) attributable to noncontrolling interests 169
(571 ) (1,664 ) (4,098 )
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,028 ) $ 5,648
$ 8,793
$ 37,712

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~BLACK CREEK DIVERSIFIED PROPERTY FUND INC.~~

~~CONDENSED CONSOLIDATEDSTATEMENT OF EQUITY~~

~~(Unaudited)~~

~~(In thousands)~~

໿

Stockholders’ Equity
Accumulated
Additional Distributions Other
Common Stock Paid-in in Excess of Comprehensive Noncontrolling Total
Shares Amount Capital Earnings Loss Interests Equity
Balances, December 31, 2016 150,636
$ 1,506
$ 1,361,638
$ (839,896 ) $ (6,905 ) $ 91,748
$ 608,091
Comprehensive income:
Net income —
—
—
6,506
—
1,591
8,097
Unrealized change in value of cash flow hedging derivatives —
—
—
—
2,287
73
2,360
Common stock:
Issuance of common stock, net of offering costs 4,125
41
31,028
—
—
—
31,069
Issuance of common stock, stock-based compensation plans (99 ) (1 ) (647 ) —
—
—
(648 )
Redemptions of common stock (14,712 ) (147 ) (110,454 ) —
—
—
(110,601 )
Amortization of stock-based compensation —
—
1,526
—
—
—
1,526
Distributions declared on common stock —
—
—
(38,798 ) —
—
(38,798 )
Distributions on unvested Advisor RSUs —
—
—
(61 ) —
—
(61 )
Noncontrolling interests:
Contributions of noncontrolling interests —
—
—
—
—
106
106
Distributions declared to noncontrolling interests —
—
—
—
—
(5,840 ) (5,840 )
Redemptions of noncontrolling interests —
—
(596 ) —
—
(3,208 ) (3,804 )
Balances, September 30, 2017 139,950
$ 1,399
$ 1,282,495
$ (872,249 ) $ (4,618 ) $ 84,470
$ 491,497

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~BLACK CREEK DIVERSIFIED PROPERTY FUND INC.~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2023		2022		2023		2022
Revenues:
Rental revenues	$	82,369	$	76,988	$	237,533	$	212,987
Debt-related income		8,837		1,548		21,787		5,862
Total revenues		91,206		78,536		259,320		218,849
Operating expenses:
Rental expenses		30,651		28,095		87,790		74,305
Real estate-related depreciation and amortization		32,146		36,713		99,201		101,067
General and administrative expenses		2,974		3,155		8,991		7,786
Advisory fees		9,661		8,980		28,822		24,351
Performance participation allocation		—		3,710		—		22,088
Acquisition costs and reimbursements		2,032		1,176		5,050		3,898
Impairment loss on debt-related investment held for sale		—		—		3,780		—
Total operating expenses		77,464		81,829		233,634		233,495
Other expenses (income):
Equity in loss (income) from unconsolidated joint venture partnerships		1,078		(1,590)		3,727		(2,298)
Interest expense		33,967		42,255		109,394		100,439
Gain on sale of real estate property		—		(11,303)		(36,884)		(94,827)
Loss on extinguishment of debt and financing commitments, net		—		—		700		—
Loss (gain) on derivative instruments		76		(1,691)		(13)		(4,223)
Provision for current expected credit losses		(1,048)		—		2,950		—
Other income and expenses		(1,298)		(843)		(3,330)		(1,843)
Total other expenses (income)		32,775		26,828		76,544		(2,752)
Net loss		(19,033)		(30,121)		(50,858)		(11,894)
Net loss attributable to redeemable noncontrolling interests		146		253		390		67
Net loss attributable to noncontrolling interests		4,477		4,996		11,304		2,378
Net loss attributable to common stockholders	$	(14,410)	$	(24,872)	$	(39,164)	$	(9,449)
Weighted-average shares outstanding—basic		201,968		200,667		204,968		190,199
Weighted-average shares outstanding—diluted		266,487		242,994		264,821		226,294
Net loss attributable to common stockholders per common share—basic and diluted	$	(0.07)	$	(0.12)	$	(0.19)	$	(0.05)

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of contents

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022
Net loss	$	(19,033)	$	(30,121)	$	(50,858)	$	(11,894)
Change from cash flow hedging activities		94		17,445		3,146		31,258
Change from activities related to available-for-sale debt securities		69		—		122		—
Comprehensive (loss) income		(18,870)		(12,676)		(47,590)		19,364
Comprehensive loss (income) attributable to redeemable noncontrolling interests		144		106		365		(216)
Comprehensive loss (income) attributable to noncontrolling interests		4,439		2,179		10,908		(2,401)
Comprehensive (loss) income attributable to common stockholders	$	(14,287)	$	(10,391)	$	(36,317)	$	16,747

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of contents

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Stockholders’ Equity
								Accumulated
				Additional		Distributions		Other
	Common Stock			Paid-in		in Excess of		Comprehensive		Noncontrolling		Total
(in thousands)	Shares	Amount		Capital		Earnings		Income (Loss)		Interests		Equity
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022
Balance as of June 30, 2022	195,101	$	1,951	$	1,740,243	$	(882,795)	$	2,350	$	139,184	$	1,000,933
Net loss (excluding $253 attributable to redeemable noncontrolling interest)	—		—		—		(24,872)		—		(4,996)		(29,868)
Change from cash flow hedging activities (excluding $147 attributable to redeemable noncontrolling interest)	—		—		—		—		14,481		2,817		17,298
Issuance of common stock	9,776		98		87,795		—		—		—		87,893
Share-based compensation	27		—		92		—		—		—		92
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs	—		—		(1,771)		—		—		—		(1,771)
Trailing distribution fees	—		—		(2,940)		1,399		—		(7,921)		(9,462)
Redemptions of common stock	(2,287)		(23)		(20,260)		—		—		—		(20,283)
Issuances of OP Units for DST Interests	—		—		—		—		—		97,464		97,464
Other noncontrolling interests net distributions	—		—		—		—		—		(31)		(31)
Distributions declared on common stock and noncontrolling interests (excludes $192 attributable to redeemable noncontrolling interest)	—		—		—		(18,815)		—		(3,780)		(22,595)
Redemption value allocation adjustment to redeemable noncontrolling interests	—		—		(304)		—		—		—		(304)
Redemptions of noncontrolling interests	—		—		(547)		—		—		(594)		(1,141)
Reallocation of stockholders' equity and noncontrolling interests	—		—		29,297		—		(125)		(29,172)		—
Balance as of September 30, 2022	202,617	$	2,026	$	1,831,605	$	(925,083)	$	16,706	$	192,971	$	1,118,225
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023
Balance as of June 30, 2023	204,870	$	2,049	$	1,910,433	$	(1,033,940)	$	17,965	$	274,337	$	1,170,844
Net loss (excluding $146 attributable to redeemable noncontrolling interest)	—		—		—		(14,410)		—		(4,477)		(18,887)
Change from securities and cash flow hedging activities (excluding $2 attributable to redeemable noncontrolling interest)	—		—		—		—		123		38		161
Issuance of common stock	2,366		24		20,015		—		—		—		20,039
Share-based compensation	35		—		46		—		—		—		46
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs	—		—		(784)		—		—		—		(784)
Trailing distribution fees	—		—		415		1,430		—		803		2,648
Redemptions of common stock	(6,260)		(63)		(52,552)		—		—		—		(52,615)
Distributions declared on common stock and noncontrolling interests (excludes $204 attributable to redeemable noncontrolling interest)	—		—		—		(20,196)		—		(6,247)		(26,443)
Redemption value allocation adjustment to redeemable noncontrolling interests	—		—		55		—		—		—		55
Redemptions of noncontrolling interests	—		—		—		—		—		(11,241)		(11,241)
Reallocation of stockholders' equity and noncontrolling interests	—		—		(257)		—		13		244		—
Balance as of September 30, 2023	201,011	$	2,010	$	1,877,371	$	(1,067,116)	$	18,101	$	253,457	$	1,083,823

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of contents

ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Stockholders’ Equity
								Accumulated
				Additional		Distributions		Other
	Common Stock			Paid-in		in Excess of		Comprehensive		Noncontrolling		Total
(in thousands)	Shares	Amount		Capital		Earnings		Income (Loss)		Interests		Equity
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022
Balance as of December 31, 2021	169,665	$	1,696	$	1,542,617	$	(865,844)	$	(9,563)	$	107,520	$	776,426
Net loss (excluding $67 attributable to redeemable noncontrolling interest)	—		—		—		(9,449)		—		(2,378)		(11,827)
Change from cash flow hedging activities (excluding $283 attributable to redeemable noncontrolling interest)	—		—		—		—		26,196		4,779		30,975
Issuance of common stock	38,620		387		332,032		—		—		—		332,419
Share-based compensation	27		—		192		—		—		—		192
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs	—		—		(7,172)		—		—		—		(7,172)
Trailing distribution fees	—		—		(13,312)		3,688		—		(11,744)		(21,368)
Redemptions of common stock	(5,695)		(57)		(48,726)		—		—		—		(48,783)
Issuances of OP Units for DST Interests	—		—		—		—		—		136,905		136,905
Other noncontrolling interests net distributions	—		—		—		—		—		(54)		(54)
Distributions declared on common stock and noncontrolling interests (excludes $543 attributable to redeemable noncontrolling interest)	—		—		—		(53,478)		—		(9,604)		(63,082)
Redemption value allocation adjustment to redeemable noncontrolling interests	—		—		(1,900)		—		—		—		(1,900)
Redemptions of noncontrolling interests	—		—		(1,050)		—		—		(3,456)		(4,506)
Reallocation of stockholders' equity and noncontrolling interests	—		—		28,924				73		(28,997)		—
Balance as of September 30, 2022	202,617	$	2,026	$	1,831,605	$	(925,083)	$	16,706	$	192,971	$	1,118,225
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
Balance as of December 31, 2022	206,108	$	2,061	$	1,898,510	$	(973,395)	$	16,083	$	250,608	$	1,193,867
Net loss (excluding $390 attributable to redeemable noncontrolling interest)	—		—		—		(39,164)		—		(11,304)		(50,468)
Change from securities and cash flow hedging activities (excluding $25 attributable to redeemable noncontrolling interest)	—		—		—		—		2,847		396		3,243
Issuance of common stock	11,854		119		103,731		—		—		—		103,850
Share-based compensation	35		—		196		—		—		—		196
Upfront offering costs, including selling commissions, dealer manager fees, and offering costs	—		—		(3,421)		—		—		—		(3,421)
Trailing distribution fees	—		—		(881)		4,354		—		(3,167)		306
Redemptions of common stock	(16,986)		(170)		(145,764)		—		—		—		(145,934)
Issuances of OP Units for DST Interests	—		—		—		—		—		84,725		84,725
Other noncontrolling interests net distributions	—		—		—		—		—		(7)		(7)
Distributions declared on common stock and noncontrolling interests (excludes $588 attributable to redeemable noncontrolling interest)	—		—		—		(58,911)		—		(16,644)		(75,555)
Redemption value allocation adjustment to redeemable noncontrolling interests	—		—		298		—		—		—		298
Redemptions of noncontrolling interests	—		—		(3,354)		—		—		(23,923)		(27,277)
Reallocation of stockholders' equity and noncontrolling interests	—		—		28,056		—		(829)		(27,227)		—
Balance as of September 30, 2023	201,011	$	2,010	$	1,877,371	$	(1,067,116)	$	18,101	$	253,457	$	1,083,823

See accompanying Notes to Condensed Consolidated Financial Statements.

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ARES REAL ESTATE INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Nine Months Ended September 30,
(in thousands)	2023		2022
Operating activities:
Net loss	$	(50,858)	$	(11,894)
Adjustments to reconcile net loss to net cash provided by operating activities:
Real estate-related depreciation and amortization		99,201		101,067
Straight-line rent and amortization of above- and below-market leases		(5,464)		(5,941)
Gain on sale of real estate property		(36,884)		(94,827)
Performance participation allocation		—		22,088
Impairment loss on debt-related investment held for sale		3,780		—
Equity in loss (income) of unconsolidated joint venture partnerships		3,727		(2,298)
Loss on extinguishment of debt and financing commitments, net		700		—
Provision for current expected credit losses		2,950		—
Amortization of deferred financing costs		5,100		5,464
Increase in financing obligation liability appreciation		1,761		24,721
Unrealized loss (gain) on derivative instruments not designated as cash flow hedges		3,822		(4,223)
Other		4,506		6,400
Changes in operating assets and liabilities
Other assets, accounts payable and accrued expenses and other liabilities		9,137		19,150
Cash settlement of accrued performance participation allocation		(23,747)		—
Net cash provided by operating activities		17,731		59,707
Investing activities:
Real estate acquisitions		(262,044)		(1,181,616)
Capital expenditures		(34,576)		(25,309)
Proceeds from disposition of real estate property		53,735		274,816
Investments in debt-related investments		(27,911)		(49,699)
Principal collections on debt-related investments		64,948		4,084
Investments in unconsolidated joint venture partnerships		(27,830)		(47,906)
Investments in available-for-sale debt securities		(90,331)		—
Other		2,199		(13)
Net cash used in investing activities		(321,810)		(1,025,643)
Financing activities:
Proceeds from mortgage notes		83,500		—
Repayments of mortgage notes		(71,612)		(1,408)
Net proceeds from (repayments of) line of credit		163,000		(71,000)
Proceeds from term loan		—		275,000
Redemptions of common stock		(145,934)		(48,783)
Distributions paid to common stockholders, redeemable noncontrolling interest holders and noncontrolling interest holders		(44,686)		(36,104)
Proceeds from issuance of common stock		79,590		311,106
Proceeds from financing obligations, net		299,749		576,541
Offering costs for issuance of common stock and private placements		(11,466)		(11,963)
Redemption of noncontrolling interests		(27,277)		(4,506)
Redemption of redeemable noncontrolling interests		—		(7,724)
Debt issuance costs paid		(1,378)		(1,542)
Interest rate cap premiums		(17,941)		—
Net cash provided by financing activities		305,545		979,617
Net increase in cash, cash equivalents and restricted cash		1,466		13,681
Cash, cash equivalents and restricted cash, at beginning of period		17,186		14,352
Cash, cash equivalents and restricted cash, at end of period	$	18,652	$	28,033

See accompanying Notes to Condensed Consolidated Financial Statements.

~~(Unaudited)~~

~~(In thousands)~~

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For the Nine Months Ended September 30,
2017 2016
OPERATING ACTIVITIES:
Net income $ 8,097
$ 51,690
Adjustments to reconcile net income to net cash provided by operating activities:
Real estate depreciation and amortization expense 53,661
60,022
Gain on disposition of real property (11,022 ) (43,495 )
Impairment of real estate property 1,116
2,677
Gain on extinguishment of debt and financing commitments —
(5,136 )
Other adjustments to reconcile net income to net cash provided by operating activities 5,241
5,663
Changes in operating assets and liabilities (3,265 ) (3,583 )
Net cash provided by operating activities 53,828
67,838
INVESTING ACTIVITIES:
Acquisition of real property (39,538 ) (65,861 )
Capital expenditures in real property (18,801 ) (18,598 )
Proceeds from disposition of real property 36,250
202,665
Principal collections on debt-related investments 3,915
349
Other investing activities (1,492 ) 7,788
Net cash (used in) provided by investing activities (19,666 ) 126,343
FINANCING ACTIVITIES:
Mortgage note proceeds 299,469
84,045
Mortgage note principal repayments (162,037 ) (270,215 )
Net (repayments of) proceeds from revolving line of credit borrowings (34,000 ) 151,000
Redemption of common shares (110,665 ) (150,588 )
Distributions on common stock (30,086 ) (28,698 )
Proceeds from sale of common stock 12,486
51,968
Offering costs for issuance of common stock (3,425 ) (5,160 )
Distributions to noncontrolling interest holders (6,560 ) (5,498 )
Redemption of OP Unit holder interests (3,427 ) (4,316 )
Other financing activities (3,940 ) 1,915
Net cash used in financing activities
(42,185 ) (175,547 )
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(8,023 ) 18,634
CASH AND CASH EQUIVALENTS, beginning of period
13,864
15,769
CASH AND CASH EQUIVALENTS, end of period
$ 5,841
$ 34,403
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 27,985
$ 29,782
Supplemental Disclosure of Noncash Investing and Financing Activities:
Common stock issued pursuant to the distribution reinvestment plan $ 18,433
$ 15,313
Non-cash disposition of real property * $ —
$ 7,830


*	~~Represents the amount of sales proceeds from the disposition of real property that we did not receive or pay in cash, primarily due to the repayment of related borrowings by the purchaser at closing.~~

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~BLACK CREEK DIVERSIFIED PROPERTY FUND~~

ARES REAL ESTATE INCOME TRUST INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Three and Nine Months Ended September 30, 2017~~

(Unaudited)

~~BLACK CREEK DIVERSIFIED PROPERTY FUND INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Three and Nine Months Ended September 30, 2017~~

~~(Unaudited)~~

1. ~~ORGANIZATION~~

Black Creek Diversified Property Fund Inc. (f/k/a Dividend Capital Diversified Property Fund Inc.) is a Maryland corporation formed on April 11, 2005 to invest in a diverse portfolio of real property and real estate related investments. As used herein, “the Company,BASIS OF PRESENTATION

Unless the context otherwise requires, the “Company,” “we,” “our” ~~and~~or “us” ~~refer~~refers to ~~Black Creek Diversified Property Fund~~Ares Real Estate Income Trust Inc. and its consolidated ~~subsidiaries and partnerships except where the context otherwise requires.~~

We operate in such a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes, and we utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through our operating partnership, Black Creek Diversified Property Operating Partnership, L.P. (f/k/a Dividend Capital Total Realty Operating Partnership, L.P.) (our “Operating Partnership”).

subsidiaries. We are the sole general partner of our Operating Partnership. In addition, we have contributed 100% of the proceeds received from our offerings of common stock to our Operating Partnership in exchange for partnership units (“OP Units”) representing our interest as a limited partner of our Operating Partnership. Our Operating Partnership qualifies as a variable interest entity for accounting purposes and substantially all of the assets of the Company are heldexternally managed by our Operating Partnership, which, subject to certain Operating Partnership and subsidiary level financing restrictions, can be used to settle its obligations. Creditors of certain liabilities of our Operating Partnershipadvisor.

The accompanying unaudited condensed consolidated financial statements included herein have ~~recourse~~been prepared pursuant to the Company. Under our Operating Partnership, we historically had variable interest entities that were joint ventures in which we had real estate investments. The accompanying condensed consolidated balance sheets included approximately $48.2 million, after accumulated depreciationrules and ~~amortization, in net investments in real property in these consolidated variable interest entities as~~regulations of ~~December 31, 2016. As of September 30, 2017, we did not hold any investment in any joint ventures.~~

As of September 30, 2017 and December 31, 2016, we owned approximately 92.3% and 92.6%, respectively, of the limited partnership interests in our Operating Partnership, and the remaining limited partnership interests in our Operating Partnership were owned by third-party investors. Our Operating Partnership has classes of OP Units that correspond to our classes of common stock. As of September 30, 2017 and December 31, 2016, our Operating Partnership had issued and outstanding approximately 11.7 million and 12.0 million Class E OP Units held by third party investors, respectively, which represent limited partnership interests issued in connection with its private placement offerings. As of September 30, 2017 and December 31, 2016, such Class E OP Units had a maximum approximate redemption value of $86.9 million and $91.2 million, respectively, based on the most recent selling price of our common stock pursuant to our primary offering.

~~On July 12, 2012,~~ the Securities and Exchange Commission (the ~~“Commission”) declared effective our Registration Statement on Form S-11 (Registration Number 333-175989) (as amended, the “Prior Registration Statement”~~“SEC”). The Prior Registration Statement applied to the offer and sale (the “Prior Offering”) of up to $3,000,000,000 of our shares of common stock, of which $2,250,000,000 of shares were expected to be offered to the public in a primary offering and $750,000,000 of shares were expected to be offered to our stockholders pursuant to an amended and restated distribution reinvestment plan (subject to our right to reallocate such amounts). In the Prior Offering, we offered to the public three classes of shares: Class A shares, Class W shares and Class I shares with net asset value (“NAV”) based pricing. On September 15, 2015, we terminated the Prior Offering. Through September 15, 2015, the date our Prior Offering terminated, we had raised gross proceeds of approximately $183.0 million from the sale of approximately 25.8 million sharesAccordingly, certain disclosures normally included in the ~~Prior Offering, including approximately $3.4 million through our distribution reinvestment plan.~~

On September 16, 2015, the Commission declared effective our Registration Statement on Form S-11 (Registration Number 333-197767) (the “Follow-On Registration Statement”). The Follow-On Registration Statement applies to the Company’s follow-on “best efforts” offering of up to $1,000,000,000 of the Company’s Class A, Class I and Class W shares of common stock, of which $750,000,000 of shares are expected to be offered to the public in a primary offering and $250,000,000 of shares are expected to be offered to stockholders of the Company pursuant to its distribution reinvestment plan (subject to the Company’s right to reallocate such amounts) (the “Follow-On Offering”). As of September 30, 2017, we had raised gross proceeds of approximately $129.4 million from the sale of approximately 17.4 million shares in the Follow-On Offering.

~~Effective Amendment No. 10 to our Follow-On Registration Statement, which was filed on the Restructuring Date and is available on the website of the Commission at the address~~ ~~www.sec.gov. As part of the Restructuring, we, among other things:~~

~~changed our outstanding unclassified shares of common stock (which, since 2012, we have referred to as “Class E” shares ) to a new formally designated class of Class E shares;~~

~~changed our outstanding Class A, Class W and Class I shares of common stock to Class T, Class D and a new version of Class I shares of common stock, respectively;~~

~~created a new class of common stock called Class S shares;~~

~~revised the classes of common stock that we offer in our ongoing primary public offering from Class A, Class W and Class I shares to Class T, Class S, Class D and a new version of Class I shares;~~

~~revised the compensation we pay to our dealer manager in connection with our offerings;~~

~~revised the fees and reimbursements we pay to our Advisor;~~

~~changed the frequency of our NAV calculations from daily to monthly and made other changes to our valuation policies; and~~

~~adopted a new share redemption program that applies to all of our stockholders.~~

As of September 30, 2017, we were offering to sell any combination of Class T shares, Class S, Class D shares and Class I shares with a dollar value up to the maximum remaining offering amount pursuant to the Follow-On Offering. We also sold shares of our Class E shares, pursuant to our distribution reinvestment plan offering registered on our Registration Statement on Form S-3 (Registration Number 333-162636).

~~2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

~~Interim Financial Statements~~

~~The accompanying interim condensed consolidated~~annual audited financial statements (herein referred to as “financial statements,” “balance sheets,” “statements of operations,” “statements of comprehensive (loss) income,” “statement of equity,” or “statements of cash flows”) have been prepared in accordance with accounting principles generally accepted in the ~~United States~~U.S. (“GAAP”) and with the Commission's instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, these financial statements do not include all the information and disclosure required by GAAP for complete financial statements. In the opinion of management,have been omitted. As such, the accompanying unaudited condensed consolidated financial statements include all adjustments and eliminations, consisting only of normal recurring items necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of operating results for a full year. The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with ~~our audited~~the consolidated financial statements and notes ~~thereto, included~~contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, filed with the ~~Commission~~SEC on March ~~3, 2017. There~~20, 2023 (“2022 Form 10-K”).

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

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

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

Reclassifications

Certain items in our condensed consolidated balance sheets as of December 31, 2022, our condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and our condensed consolidated statements of cash flows for the nine months ended September 30, 2022 have been ~~no significant changes~~reclassified to conform to the ~~Company’s significant accounting policies~~2023 presentation.

Revision of Immaterial Overstatement of Noncontrolling Interests

During the three months and nine months period ended September 30, 2023, we identified misstatements associated with allocations between stockholders’ equity and noncontrolling interests. Specifically, noncontrolling interests were not adjusted through additional paid-in capital and accumulated other comprehensive income within stockholders’ equity to reflect the changing ownership percentage of third-party holders of partnership units (“OP Units”) in AREIT Operating Partnership LP (the “Operating Partnership”) each period dating back to 2008. Based on an analysis of ASC 250 “Accounting Changes and Error Corrections” and Staff Accounting Bulletin 99 “Materiality,” we determined that these allocation misstatements were immaterial to the previously issued consolidated financial statements. Also, these immaterial misstatements have no impact on our net income, net assets, cash flows, or the value of our common stock or OP Units.

Each period the ownership of the Operating Partnership varies between us, as the general partner and a limited partner, and the other limited partners of the Operating Partnership. This occurs for a variety of reasons, including the issuance of common stock or OP Units at net asset value (“NAV”), the redemption of common stock or OP Units at NAV, and the exchange or transfer of OP Units. Transactions that change our ownership interest in the Operating Partnership are accounted for as equity transactions if we retain our controlling financial interest in the Operating Partnership and no gain or loss is recognized in net income. Subsequently, the net equity balance in the Operating Partnership should be adjusted to reflect the changes in ownership of the Operating Partnership between us and the other limited partners. These adjustments are based on their respective ownership at the end of each period and are reflected as a reallocation between additional paid-in capital and accumulated other comprehensive income within stockholders’ equity and noncontrolling interests within our equity section on our condensed consolidated balance sheets and our unaudited condensed consolidated statements of equity.

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The following table summarizes the effects of these reallocations on prior period balances:


			Cumulative Adjustment		Current Period
($ in thousands)	As Previously Reported		Prior to Period		Quarterly Reallocation		As Revised
As of December 31, 2021
Additional paid-in capital	$	1,457,296	$	85,321	$	N/A	$	1,542,617
Accumulated other comprehensive income (loss)	$	(13,418)	$	3,855	$	N/A	$	(9,563)
Noncontrolling interests	$	196,696	$	(89,176)	$	N/A	$	107,520
As of June 30, 2022
Additional paid-in capital	$	1,655,295	$	92,133	$	(7,185)	$	1,740,243
Accumulated other comprehensive income (loss)	$	(1,703)	$	4,041	$	12	$	2,350
Noncontrolling interests	$	228,185	$	(96,174)	$	7,173	$	139,184
As of September 30, 2022
Additional paid-in capital	$	1,717,360	$	84,948	$	29,297	$	1,831,605
Accumulated other comprehensive income (loss)	$	12,778	$	4,053	$	(125)	$	16,706
Noncontrolling interests	$	311,144	$	(89,001)	$	(29,172)	$	192,971
As of December 31, 2022
Additional paid-in capital	$	1,744,022	$	114,245	$	40,243	$	1,898,510
Accumulated other comprehensive income (loss)	$	13,148	$	3,928	$	(993)	$	16,083
Noncontrolling interests	$	408,031	$	(118,173)	$	(39,250)	$	250,608
As of June 30, 2023
Additional paid-in capital	$	1,727,632	$	152,061	$	30,740	$	1,910,433
Accumulated other comprehensive income (loss)	$	15,872	$	2,731	$	(638)	$	17,965
Noncontrolling interests	$	459,231	$	(154,792)	$	(30,102)	$	274,337

2. INVESTMENTS IN REAL ESTATE PROPERTIES

The following table summarizes our consolidated investments in real estate properties.


	As of
(in thousands)	September 30, 2023		December 31, 2022
Land	$	723,871	$	694,998
Buildings and improvements		3,386,706		3,152,553
Intangible lease assets		325,660		317,141
Right of use asset		13,637		13,637
Investment in real estate properties		4,449,874		4,178,329
Accumulated depreciation and amortization		(663,675)		(572,751)
Net investment in real estate properties	$	3,786,199	$	3,605,578

Acquisitions

During the nine months ended September 30, 2023, we acquired 100% of the following properties through asset acquisitions:


($ in thousands)	Property Type	Acquisition Date	Total Purchase Price (1)
2023 Acquisitions:
VM8 Logistics Center	Industrial	1/19/2023	$	17,511
Moreno Valley Distribution Center	Industrial	5/2/2023		33,421
Arabelle Lincoln Station	Residential	8/16/2023		80,086
BLVD Dallas	Residential	9/15/2023		58,050
SLC Logistics Center	Industrial	9/26/2023		77,085
Total 2023 acquisitions			$	266,153

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

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During the nine months ended September 30, 2023, we allocated the purchase price of our acquisitions to land, building and improvements and intangible lease assets as follows:


	For the Nine Months Ended
($ in thousands)	September 30, 2023
Land	$	36,895
Building and improvements		216,922
Intangible lease assets		11,482
Above-market lease assets		854
Total purchase price (1)	$	266,153

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

The weighted-average amortization period for the intangible lease assets acquired in connection with our acquisitions during the nine months ended September 30, ~~2017 other than~~2023, as of the ~~updates described below.~~respective date of each acquisition, was 4.1 years.

Dispositions

During the nine months ended September 30, 2023, we sold one partial retail property for net proceeds of approximately $53.7 million. We recorded a net gain on sale of approximately $36.9 million.

During the nine months ended September 30, 2022, we sold six retail properties, one office property and one retail land parcel for net proceeds of approximately $274.8 million. We recorded a net gain on sale of approximately $94.8 million.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities as of September 30, 2023 and December 31, 2022 include the following:


	As of September 30, 2023						As of December 31, 2022
			Accumulated						Accumulated
(in thousands)	Gross		Amortization		Net		Gross		Amortization		Net
Intangible lease assets (1)	$	301,873	$	(228,604)	$	73,269	$	294,208	$	(214,201)	$	80,007
Above-market lease assets (1)		23,787		(20,300)		3,487		22,933		(19,707)		3,226
Below-market lease liabilities		(73,331)		35,403		(37,928)		(76,033)		33,589		(42,444)

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

Rental Revenue Adjustments and Depreciation and Amortization Expense

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


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Increase (decrease) to rental revenue:
Straight-line rent adjustments	$	996	$	898	$	2,738	$	2,864
Above-market lease amortization		(194)		(185)		(593)		(538)
Below-market lease amortization		1,181		1,209		3,319		3,615
Real estate-related depreciation and amortization:
Depreciation expense	$	27,413	$	26,118	$	80,911	$	71,665
Intangible lease asset amortization		4,733		10,595		18,290		29,402

~~New Accounting Pronouncements~~

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3. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURE PARTNERSHIPS

We have acquired interests in joint venture partnerships for purposes of investing in various assets and properties. We record our investments in AREIT-McDowell Vue Parent LLC (“Vue 1400 JV”), Pathfinder Core AREIT JV NNN Holdings, LLC (“Net Lease JV I”), Pathfinder Core AREIT Net Lease Aggregator LLC (“Net Lease JV II”), Pathfinder Core AREIT Net Lease TRS Aggregator LLC (“Net Lease JV III”), Ares PDC Common Holdings LLC (“Prime Date Center JV I”), Ares PDC Pref Investor LLC (“Prime Data Center JV II”) and MC European Real Estate Debt Parent II LP (“MERED II JV”) under the ~~FASB issued~~ equity method on our condensed consolidated balance sheets as we have the ability to exercise significant influence in each partnership but do not have control of the entities. Each partnership invests in assets and properties across the U.S., with the exception of MERED II JV which plans to invest in assets in Europe. Other partners in Net Lease JV I, Net Lease JV II, Net Lease JV III, Prime Data Center JV I, Prime Data Center JV II and MERED II JV are affiliates of our Advisor. As of September 30, 2023, we had unfunded commitments of $90.2 million, in aggregate, related to our investments in unconsolidated joint venture partnerships.

The following table summarizes our investments in unconsolidated joint venture partnerships as of September 30, 2023 and December 31, 2022:


						Investments in Unconsolidated
	Investment	Ownership Percentage as of				Joint Venture Partnerships as of
($ in thousands)	Type	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Vue 1400 JV	Residential	85.0	%	85.0	%	$	24,628	$	25,984
Net Lease JV I	Net Lease	50.0	%	50.0	%		16,081		16,393
Net Lease JV II	Net Lease	50.0	%	50.0	%		58,916		65,763
Net Lease JV III	Net Lease	50.0	%	50.0	%		22,846		12,232
Prime Data Center JV I	Data Center	13.0	%	N/A			11,667		N/A
Prime Data Center JV II	Data Center	13.0	%	N/A			7,778		N/A
MERED II JV (1)	Debt	19.9	%	N/A			—		N/A
Total investments in unconsolidated joint venture partnerships						$	141,916	$	120,372

(1)	As of September 30, 2023, we had not made any contributions to MERED II JV and had an unfunded capital commitment of $74.6 million, with provisions to increase our total capital commitment with approval from the limited and general partners.

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4. INVESTMENTS IN REAL ESTATE DEBT AND SECURITIES

Debt-Related Investments

The following table summarizes our debt-related investments as of September 30, 2023 and December 31, 2022:


					Weighted-Average			Weighted-Average
($ in thousands)	Carrying Amount (1)		Outstanding Principal (1)		Interest Rate			Remaining Life (Years)
As of September 30, 2023
Senior loans (2)	$	110,918	$	118,414		9.0	%		1.7
Mezzanine loans		107,282		108,500		11.4			1.1
Total debt-related investments (2)	$	218,200	$	226,914		10.4	%		1.4
As of December 31, 2022
Senior loans (2)	$	151,645	$	154,622		8.5	%		2.1
Mezzanine loans		108,794		108,500		10.4			1.9
Total debt-related investments (2)	$	260,439	$	263,122		9.5	%		2.0

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

(2)

As of September 30, 2023 and December 31, 2022, carrying amounts include $37.8 million and $42.0 million, respectively, related to one senior loan debt-related investment that was in default and on non-accrual status. Outstanding principal includes $43.8 million related to this senior loan as of September 30, 2023 and December 31, 2022. During the nine months ended September 30, 2023, we recorded an impairment loss of $3.8 million related to this senior loan. There was no impairment loss recorded during the three months ended September 30, 2023. The impairment loss is included in impairment loss on debt-related investment held for sale on the condensed consolidated statements of operations. This senior loan is held-for-sale and therefore the carrying amount has been reduced to its fair value as of both September 30, 2023 and December 31, 2022. Weighted-average interest rate and weighted-average remaining life excludes this senior loan from its calculations.

During the nine months ended September 30, 2023, we received full repayment of $64.9 million outstanding principal on a senior loan debt-related investment.

Current Expected Credit Losses

Accounting Standards Update ~~2014-09, Revenue from Contracts with Customers~~(“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic ~~606)~~326): Measurement of Credit Losses on Financial Instruments, requires us to reflect current expected credit losses (“~~ASU 2014-09”~~CECL”)~~, which provides new guidance outlining a single comprehensive model~~ on both the outstanding balances and unfunded commitments on loans held for ~~entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance in Topic 605, "Revenue Recognition". This guidance~~investment and requires ~~an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the~~ consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance specifically excludes revenue associated with lease contracts. Additionally, this guidance expands related disclosure requirements regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. We plan to adopt the standard when it becomes effective for us beginning January 1, 2018. Rental revenues and certain recoveries earned from leasing our operating properties will be evaluated with the adoption of the lease accounting standard (discussed below). The revised lease accounting standard includes a package of practical expedients that allows an entity to avoid reassessing the accounting for lease components, including the allocations between lease and nonlease components in contracts under ASU 2014-09. We expect to elect this package of practical expedients, and accordingly will not reallocate contract consideration to lease components within the scope of the existing lease guidance when the Company adopts ASU 2014-09. Additionally, we do not expect ASU 2014-09 to significantly impact the accounting for sales of our properties. Our initial analysis of our non-lease related revenue contracts indicates that the adoption of ASU 2014-09 will not have a material effect on our consolidated financial statements; however, we are still in the process of evaluating ASU 2014-09.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”), which amends the accounting guidance regarding lessees accounting, leveraged leases, and sale and leaseback transactions. The accounting applied by a lessor is largely unchanged under ASU 2016-02, however, the standard requires that lessors expense certain initial direct costs that are not incremental in negotiating a lease. Under existing standards, certain of these costs are capitalizable and therefore this new standard may result in certain of these costs being expensed as incurred after adoption. Such costs are not material to us. This standard may also impact the timing, recognition and disclosures related to our rental recoveries from tenants earned from leasing our operating properties. The guidance will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2018. The guidance should be adopted using a modified retrospective transition, which will require application of ASU 2016-02 at the beginning of the earliest comparative period presented. We will adopt the standard when it becomes effective for us beginning January 1, 2019, and we expect to elect the practical expedients available for implementation under ASU 2016-02. Under the practical expedients election, we would not be required to reassess: (i) whether an expired or existing contract meets the definition of a ~~lease; (ii) the lease classification at the adoption date~~broad range of historical experience adjusted for ~~expired or existing leases;~~current conditions and ~~(iii) whether costs previously capitalized as initial direct costs would continue~~reasonable and supportable forecast information to ~~be amortized.~~inform credit loss estimates (the “CECL Reserve”). ASU 2016-02 will also require new disclosures within the notes accompanying our consolidated financial statements. Our initial analysis of our lease contracts indicates that the adoption of ASU 2016-02 will not have a material impact on our consolidated financial statements; however, we are still in the process of evaluating ASU 2016-02.

~~In February 2017,~~ ~~the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2017-05,~~ ~~Other Income- Gain and Losses from Derecognition of Nonfinancial Assets (Topic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~ ("ASU 2017-05"), which clarifies that a financial asset is within the scope of ASU 2017-05 if it is deemed an "in substance nonfinancial asset." Additionally, ASU 2017-05 adds guidance for partial sales of nonfinancial assets. The guidance will beNo. 2016-13 was effective for annual reporting periods beginning after December 15, ~~2017, and will require full or modified retrospective application. Early adoption is permitted for annual reporting periods (including~~2019, including interim ~~reporting~~ periods within ~~those periods) beginning after December 15, 2016. We plan to adopt~~that reporting period. ASU ~~2017-05 at the same time we adopt Accounting Standards Update 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~when the standard becomes effective for~~No. 2016-13 was adopted by us ~~beginning January 1, 2018 and the modified retrospective application will be applied. We do not anticipate the adoption will have a significant impact on our financial statements.~~

~~In August 2017, the FASB issued Accounting Standards Update 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~ ("ASU 2017-12"), which expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. Additionally, ASU 2017-12 attempts to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The guidance will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted any time after the issuance of ASU 2017-12 including in an interim period. A one-time cumulative effect adjustment is recorded to accumulated other comprehensive income and opening retained earnings as of the beginning of the fiscal year of adoption. We do not anticipate the adoption will have a significant impact on our financial statements, and we plan on adopting ASU 2017-12 as of January 1, ~~2018.~~

~~Newly Adopted Accounting Pronouncements~~

~~In January 2017,~~2020. Increases and decreases to expected credit losses impact earnings and are recorded within the ~~FASB issued Accounting Standards Update 2017-01 ("~~provision for current expected credit losses in our condensed consolidated statements of operations. The CECL Reserve related to outstanding balances on loans held for investment required under ASU ~~2017-01"),~~No. 2016-13 is a valuation account that is deducted from the amortized cost basis of our loans held for investment in our condensed consolidated balance sheets. The CECL Reserve related to unfunded commitments on loans held for investment is recorded within other liabilities in our condensed consolidated balance sheets.

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

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Loan balances that are deemed to be accounted for as acquisitions (or disposals) of assets or businesses. This guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Earlier adoption is permitted. The guidance in ASU 2017-01 should be adopted on a prospective basis. We adopted ASU 2017-01 as of January 1, 2017 and anticipate that future acquisitions of real property will likely be accounted for as asset acquisitions rather than business combinations. Among other things, accounting for an asset acquisition requires capitalization of acquisition costsuncollectible are written off as a ~~component of~~realized loss and are deducted from our CECL Reserve. The write-offs are recorded in the ~~acquired assets whereas accounting for business combinations requires acquisition costs to be expensed.~~ period in which the loan balance is deemed uncollectible based on management’s judgment.

As of September 30, ~~2017,~~2023, our CECL Reserve for our debt-related investment portfolio is $2.9 million or 1.0% of our debt- related investment commitment balance of $289.1 million, excluding debt-related investments held-for-sale. During the three months ended September 30, 2023, we ~~capitalized approximately $231,000~~recognized a decrease in provision for current expected credit losses of ~~acquisition costs related to our acquisition of real property~~$1.0 million, and during the nine months ended September 30, ~~2017. Additionally, goodwill~~2023, we recognized an increase in provision for current expected credit losses of $3.0 million. The debt-related investment commitment balance is ~~not recognized~~comprised of $183.1 million of funded commitments and ~~contingent consideration~~$106.0 million of unfunded commitments with associated CECL Reserves of $1.8 million and $1.1 million, respectively. The CECL Reserve for unfunded commitments is based on the unfunded portion of the loan commitment over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit and is recorded ~~when probable~~as an other liability on the condensed consolidated balance sheets. The calculation of the CECL Reserve excludes one debt-related investment that is currently held for sale. There have been no write-offs or recoveries related to any of our existing debt-related investments. CECL Reserves were immaterial in prior periods.

Available-for-Sale Debt Securities

We acquire debt securities that are commercial real estate collateralized loan obligations (“CRE CLOs”) primarily for cash management and ~~reasonably estimable~~investment purposes. Additionally in the second quarter of 2023, we originated a preferred equity investment that is recognized as a debt security as it has a mandatory redemption feature and meets the definition of a security under ~~accounting for asset acquisitions.~~

~~3. INVESTMENTS IN REAL PROPERTY~~

~~Currently, our consolidated~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 320, Investments—Debt Securities. On the acquisition date, we designate investments in real ~~property consist~~estate debt securities as available-for-sale. Investments in debt securities that are classified as available-for-sale are carried at fair value. These assets are valued on a recurring basis and any unrealized holding gains and losses other than those associated with a credit loss are recorded each period in other comprehensive income. There were no credit losses associated with our available-for-sale debt securities as of ~~investments~~and for the period ended September 30, 2023.

As of September 30, 2023 we had one preferred equity investment and one CRE CLO designated as available-for-sale debt securities. As of December 31, 2022, we had one CRE CLO designated as available-for-sale debt securities. As of September 30, 2023, the weighted-average remaining term of our CRE CLO, which is based on the estimated fully extended maturity dates of the underlying loans of the debt security, was approximately 3.3 years and the remaining term of our preferred equity investment was 3.3 years. We have $11.9 million in ~~office, industrial and retail properties. The following tables summarize~~unfunded commitments related to our ~~consolidated investments in real property~~preferred equity investment as of September 30, ~~2017 and December 31, 2016 (amounts in thousands):~~

Real Property Land Building and Improvements Intangible Lease Assets Total Investment Amount Intangible Lease Liabilities Net Investment Amount
As of September 30, 2017:
Office $ 171,176
$ 718,316
$ 230,188
$ 1,119,680
$ (14,917 ) $ 1,104,763
Industrial 12,611
67,118
19,148
98,877
(575 ) 98,302
Retail 292,483
598,730
111,930
1,003,143
(75,264 ) 927,879
Total gross book value 476,270
1,384,164
361,266
2,221,700
(90,756 ) 2,130,944
Accumulated depreciation/amortization —
(236,829 ) (293,017 ) (529,846 ) 34,900
(494,946 )
Total net book value $ 476,270
$ 1,147,335
$ 68,249
$ 1,691,854
$ (55,856 ) $ 1,635,998
As of December 31, 2016:
Office $ 171,176
$ 701,859
$ 236,143
$ 1,109,178
$ (15,121 ) $ 1,094,057
Industrial 8,821
63,999
16,308
89,128
(344 ) 88,784
Retail 293,973
599,020
113,023
1,006,016
(75,515 ) 930,501
Total gross book value 473,970
1,364,878
365,474
2,204,322
(90,980 ) 2,113,342
Accumulated depreciation/amortization —
(215,858 ) (277,053 ) (492,911 ) 31,435
(461,476 )
Total net book value $ 473,970
$ 1,149,020
$ 88,421
$ 1,711,411
$ (59,545 ) $ 1,651,866

~~Acquisitions~~

2023. The following table summarizes our ~~acquisition~~investments in available-for-sale debt securities as of ~~real property during~~September 30, 2023 and December 31, 2022:


($ in thousands)	Face Amount		Amortized Cost		Unamortized Discount		Unamortized Fees (1)		Unrealized Gain, Net (2)		Fair Value
As of September 30, 2023
CRE CLOs	$	14,979	$	14,886	$	93	$	—	$	148	$	15,034
Preferred equity		93,095		92,166		—		929		—		92,166
Total debt securities	$	108,074	$	107,052	$	93	$	929	$	148	$	107,200
As of December 31, 2022
CRE CLOs	$	14,979	$	14,870	$	109	$	—	$	26	$	14,896
Total debt securities	$	14,979	$	14,870	$	109	$	—	$	26	$	14,896

(1)	Includes unamortized loan origination fees received on debt securities.

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

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5. DEBT

A summary of our consolidated debt is as follows:


	Weighted-Average
	Effective Interest Rate as of					Balance as of
	September 30,		December 31,			September 30,		December 31,
($ in thousands)	2023		2022		Current Maturity Date	2023		2022
Line of credit (1)	5.43	%	5.72	%	November 2025	$	398,000	$	235,000
Term loan (2)	3.31		3.90		November 2026		400,000		400,000
Term loan (3)	4.26		4.56		January 2027		400,000		400,000
Fixed-rate mortgage notes	3.80		3.48		January 2027 - May 2031		392,904		380,316
Floating-rate mortgage notes (4)	4.63		4.52		October 2024 - October 2026		207,600		207,600
Total principal amount / weighted-average (5)	4.25	%	4.31	%		$	1,798,504	$	1,622,916
Less: unamortized debt issuance costs						$	(13,063)	$	(14,849)
Add: unamortized mark-to-market adjustment on assumed debt							7,628		8,408
Total debt, net						$	1,793,069	$	1,616,475
Gross book value of properties encumbered by debt						$	1,019,217	$	970,310

(1)

The effective interest rate is calculated based on the Term Secured Overnight Financing Rate (“Term SOFR”) plus an 11.448 basis point adjustment (“Adjusted Term SOFR”), plus a margin ranging from 1.25% to 2.00% depending on our consolidated leverage ratio. As of September 30, 2023, the unused and available portions under the line of credit were approximately $502.0 million and $428.5 million, respectively. The weighted-average interest rate is the all-in interest rate, including the effects of interest rate cap agreements relating to $150.0 million in borrowings under this line of credit. The line of credit is available for general business purposes including, but not limited to, refinancing of existing indebtedness and financing the acquisition of permitted investments, including commercial properties.

(2)

The effective interest rate is calculated based on Adjusted Term SOFR, plus a margin ranging from 1.20% to 1.90% depending on our consolidated leverage ratio. Total commitments for this term loan are $400.0 million. The weighted-average interest rate is the all-in interest rate, including the effects of interest rate swap agreements relating to $300.0 million in borrowings under this term loan and an interest rate cap agreement relating to $100.0 million in borrowings under this term loan.

(3)

The effective interest rate is calculated based on Adjusted Term SOFR, plus a margin ranging from 1.20% to 1.90% depending on our consolidated leverage ratio. Total commitments for this term loan are $400.0 million. The weighted-average interest rate is the all-in interest rate, including the effects of interest rate swap agreements relating to $350.0 million in borrowings under this term loan and an interest rate cap agreement relating to $50.0 million in borrowings under this term loan.

(4)

The effective interest rate is calculated based on Adjusted Term SOFR plus a margin. As of both September 30, 2023 and December 31, 2022, our floating-rate mortgage notes were subject to interest rate spreads ranging from 1.55% to 2.50%. The weighted-average interest rate is the all-in interest rate, including the effects of interest rate cap agreements which capped the effective interest rates of our two floating-rate mortgage notes at 4.61% and 4.66%, respectively, as of September 30, 2023.

(5)	The weighted-average remaining term of our consolidated borrowings was approximately 3.2 years as of September 30, 2023, excluding the impact of certain extension options.

For the three months ended September 30, 2023 and 2022, the amount of interest incurred related to our consolidated indebtedness, excluding amortization of debt issuance costs, was $21.2 million and $15.8 million, respectively. For the nine months ended September 30, ~~2017 (dollar amounts~~2023 and ~~square footage in thousands):~~ 2022, the amount of interest incurred related to our consolidated indebtedness, excluding amortization of debt issuance costs, was $61.4 million and $37.6 million, respectively. See “Note 6” for the amount of interest incurred related to the DST Program (as defined below).

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As of September 30, 2023, the principal payments due on our consolidated debt during each of the next five years and thereafter were as follows:


(in thousands)	Line of Credit (1)		Term Loans		Mortgage Notes (2)		Total
Remainder of 2023	$	—	$	—	$	526	$	526
2024		—		—		129,265		129,265
2025		398,000		—		2,646		400,646
2026		—		400,000		85,396		485,396
2027		—		400,000		177,034		577,034
Thereafter		—		—		205,637		205,637
Total principal payments	$	398,000	$	800,000	$	600,504	$	1,798,504

Real Property Property
Type Market Date of Acquisition Acquired
Ownership Contract
Price Net Rentable
Square Feet Percent Leased at Acquisition
Vasco Road Industrial East Bay, CA 7/21/2017 100% $ 16,248
96
100%
Northgate Industrial Las Vegas, NV 7/26/2017 100% 24,500
248
100%
$ 40,748
344

The following table summarizes the allocations of the fair value of the real property we acquired during the nine months ended September 30, 2017 to land, building and improvements, intangible lease assets, intangible lease liabilities, and mark-to-market adjustment on assumed debt (dollar amounts in thousands). We have not made any material adjustments related to these allocations.

Weighted-Average
Amortization
Period (Years)
Real Property Land Building and Improvements Intangible Lease Assets Intangible Lease Liabilities Total Fair Value Prorations and Credits Contract Price Intangible Lease Assets Intangible Lease Liabilities
Vasco Road $ 4,880
$ 9,637
$ 2,382
$ (575 ) $ 16,324
$ (76 ) $ 16,248
5.9 8.1
Northgate 3,940
17,110
3,605
—
24,655
(155 ) 24,500
9.8 N/A
Total/ Weighted Average $ 8,820
$ 26,747
$ 5,987
$ (575 ) $ 40,979
$ (231 ) $ 40,748
8.3 8.1

~~Dispositions~~

~~During the nine months ended September 30, 2017 and 2016, we disposed of the following properties (dollar amounts and square footage in thousands):~~

Property Type Market Ownership Net Rentable Square Feet Percentage Leased Disposition Date Contract
Sales Price Gain on Sale
For the nine months ended September 30, 2017
Retail Greater Boston 100% 51
61 % 5/31/2017 $ 4,500
$ —
Industrial Portfolio ⁽¹⁾
Louisville, KY 90% 609
100 % 6/9/2017 26,800
10,352
Industrial ⁽²⁾
Dallas, TX 100% 128
— % 7/21/2017 7,661
670
Total/ Weighted Average 788
81 % $ 38,961
$ 11,022
For the nine months ended September 30, 2016
Office Washington, DC 100% 574
100 % 2/18/2016 $ 158,400
$ 41,241
Office Chicago, IL 80% 107
66 % 3/1/2016 9,850
—
Office Chicago, IL 80% 199
81 % 3/1/2016 18,000
159
Retail Greater Boston 100% 39
100 % 8/5/2016 3,625
975
Industrial Louisville, KY 90% 126
33 % 9/2/2016 5,400
1,120
Office Washington, DC 100% 178
— % 9/30/2016 18,600
—
Total/ Weighted Average 1,223
73 % $ 213,875
$ 43,495


(1)	~~Industrial portfolio included three properties.~~The term of the line of credit may be extended pursuant to two six-month extension options, subject to certain conditions.

(2)

~~Disposed~~ ~~property was~~A $127.0 million mortgage note matures in October 2024 and the term may be extended pursuant to a ~~single building from a three-building industrial property. We continue~~one-year extension option, subject to ~~own the remaining portion of the property.~~

certain conditions. A $115.0 million mortgage note matures in January 2027 and may be extended pursuant to two one-year extension options, subject to certain conditions.

~~Real Property Impairment~~

During the nine months ended September 30, 2017, we recorded a $1.1 million impairment charge related to a consolidated retail property located in the Greater Boston market ("Hanover"), which we acquired in August 2007. We held a 100% ownership interest in Hanover. We sold Hanover in May 2017. Prior to the disposition, the net book value

Debt Covenants

Our line of Hanover exceeded the contract sales price less the cost to sell by approximately $1.1 million. Accordingly, we recorded an impairment charge to reduce the net book value of Hanover to our estimate of its fair value less the cost to sell.

During the nine months ended September 30, 2016, we recorded a $2.1 million impairment charge related to a consolidated office property located in the Washington, DC market ("Sunset Hills"), which we acquired in June 2010. We sold Sunset Hills in September 2016. Prior to the disposition, the net book value of Sunset Hills exceeded the contract sales price less the cost to sell by $2.1 million. Accordingly, we recorded an impairment charge to reduce the net book value of Sunset Hills to our estimate of its fair value less the cost to sell.

Additionally, during the nine months ended September 30, 2016, we recorded a $587,000 impairment charge related to a consolidated office property located in the Chicago, IL market ("40 Boulevard"), which we acquired in January 2007credit, term loans and we held through a joint venture in which we were not the managing partner. We held an 80% ownership interest in 40 Boulevard. We sold 40 Boulevard in March 2016. Prior to the disposition, the net book value of 40 Boulevard exceeded the contract sales price less the cost to sell by approximately $587,000. Accordingly, we recorded an impairment charge to reduce the net book value of 40 Boulevard to our estimate of its fair value less the cost to sell.

~~The fair value measurement for the impairment charges related to Hanover, Sunset Hills~~mortgage note agreements contain various property-level covenants, including customary affirmative and 40 Boulevard was based on the contract sales price less selling costs. We considered the Level 3 inputs used in determining the fair value of these real property investments to be significant. As such, the investments fall under the Level 3 category of the fair value hierarchy as defined in ASC Topic 820, ~~Fair Value Measurements and Disclosures~~ ~~("ASC Topic 820").~~

In the calculation of our monthly NAV, our real estate assets are carried at fair value using valuation methodologies consistent with ASC Topic 820. As a result, the timing of valuation changes recorded in our NAV will not necessarily be the same as for impairment charges recorded to our consolidated financial statements prepared pursuant to GAAP. Since we determine our NAV monthly, impairment charges pursuant to GAAP will likely always be delayed and potentially significantly delayed compared to the change in fair value of our properties included in the calculation of our monthly NAV.

~~Rental Revenue~~

The following table summarizes the adjustments to rental revenue related to the amortization of above-market lease assets, below-market lease liabilities, and straight-line rental adjustments for the three and nine months ended September 30, 2017 and 2016.negative covenants. In addition, the ~~following table summarizes tenant recovery income received from tenants for real estate taxes, insurance~~line of credit and ~~other property operating expenses~~term loan agreements contain certain corporate-level financial covenants, including leverage ratio, fixed charge coverage ratio and ~~recognized as rental revenue (amounts~~tangible net worth thresholds. We were in ~~thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Straight-line rent adjustments $ (109 ) $ (296 ) $ (464 ) $ (742 )
Above-market lease assets (641 ) (1,402 ) (2,155 ) (3,930 )
Below-market lease liabilities 1,355
1,529
4,138
4,608
Total increase to rental revenue $ 605
$ (169 ) $ 1,519
$ (64 )
Tenant recovery income ⁽¹⁾
$ 9,865
$ 10,623
$ 30,911
$ 31,183

~~(1)~~

Tenant recovery income presented in this table excludes real estate taxes that were paid directly by our tenants that are subject to triple net lease contracts. Such payments totaled approximately $580,000 and $1.0 million during the three months ended September 30, 2017 and 2016, respectively, and approximately $1.7 million and $3.3 million during the nine months ended September 30, 2017 and 2016, respectively.

~~Concentration of Credit Risk~~

~~The following is a summary of amounts related to the top five tenants based on annualized base rent,~~compliance with our debt covenants as of September 30, ~~2017 (dollar amounts and square feet in thousands):~~

Tenant Locations Industry
Annualized Base Rent ⁽¹⁾
% of Total Annualized Base Rent Square Feet % of Total Portfolio Square Feet
Charles Schwab & Co, Inc ⁽²⁾
2 Securities, Commodities, Fin. Inv./Rel. Activities $ 23,650
15.1 % 602
7.9 %
Stop & Shop 13 Food and Beverage Stores 13,498
8.6 % 803
10.5 %
Novo Nordisk 1 Chemical Manufacturing 4,721
3.0 % 167
2.2 %
Seton Health Care 1 Hospitals 4,339
2.8 % 156
2.0 %
Shaw's Supermarket 4 Food and Beverage Stores 4,055
2.6 % 240
3.1 %
21 $ 50,263
32.1 % 1,968
25.7 %


~~(1)~~	~~Annualized base rent represents the annualized monthly base rent of executed leases as of September 30, 2017.~~

~~(2)~~

The amount presented for Charles Schwab & Co., Inc. ("Schwab") reflects the total annualized base rent for our two leases in place with Schwab as of September 30, 2017. One of these leases, which expired on September 30, 2017, entailed the lease of all 594,000 square feet of our 3 Second Street office property (defined below in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources") and accounted for $23.5 million or 15.0% of our annualized base rent as of September 30, 2017. Schwab did not renew this lease. Schwab had subleased 100% of 3 Second Street to 25 sub-tenants through September 2017. We have executed leases directly with 15 of these subtenants that comprise 389,000 square feet or 65% of 3 Second Street that effectively extend their leases beyond the Schwab lease expiration. These direct leases will expire between September 2020 and September 2032.

The top tenant in the table above comprises 15.1% of annualized base rent as of September 30, 2017. However, due to the expiration of the Schwab lease at 3 Second Street on September 30, 2017, Schwab is no longer in the top 25 tenants based on future minimum rental revenue. Alternatively, based on future minimum rental revenue as of September 30, 2017, our top five tenants rank as follows: 1) Mizuho Bank Ltd., 2) Stop & Shop, 3) Shaw's Supermarket, 4) WeWork LLC, and 5) Trinet Group, Inc.

Our properties in New Jersey, Massachusetts, California, and Texas accounted for approximately 20%, 19%, 15%, and 11% respectively, of our total gross investment in real property portfolio as of September 30, 2017. A deterioration of general economic or other relevant conditions, changes in governmental laws and regulations, acts of nature, demographics or other factors in any of those states or the geographical region in which they are located could result in the loss of tenants, a decrease in the demand for our properties and a decrease in our revenues from those markets, which in turn may have a disproportionate and material adverse effect on our results of operations and financial condition.

~~4. DEBT OBLIGATIONS~~

~~The following table describes our borrowings as of September 30, 2017 and December 31, 2016 (dollar amounts in thousands):~~

Principal Balance as of Weighted Average Stated Interest Rate as of
Gross Investment Amount Securing Borrowings as of ⁽¹⁾
September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016
Fixed-rate mortgages ⁽²⁾
$ 128,934
$ 290,970
3.9 % 4.9 % $ 188,880
$ 462,954
Floating-rate mortgages ⁽³⁾
353,100
52,500
3.5 % 2.3 % 530,949
70,485
Total secured borrowings 482,034
343,470
3.6 % 4.5 % 719,829
533,439
Line of credit ⁽⁴⁾
202,000
236,000
2.9 % 2.3 % N/A
N/A
Term loans ⁽⁵⁾
475,000
475,000
3.5 % 3.2 % N/A
N/A
Total unsecured borrowings 677,000
711,000
3.3 % 2.9 % N/A
N/A
Total borrowings $ 1,159,034
$ 1,054,470
3.4 % 3.4 % N/A
N/A
Less: net debt issuance costs (8,059 ) (6,295 )

Add: mark-to-market adjustment on assumed debt 526
626

Total borrowings (net basis) $ 1,151,501
$ 1,048,801


~~(1)~~	“Gross Investment Amount” as used here and throughout this document represents the allocated gross basis of real property after certain adjustments. Gross Investment Amount for real property (i) includes the effect of intangible lease liabilities, (ii) excludes accumulated depreciation and amortization, and (iii) includes the impact of impairments.


~~(2)~~	~~Amount as of September 30, 2017 and December 31, 2016 includes a floating-rate mortgage note that was~~ ~~subject to an interest rate spread of 1.60% over one-month LIBOR, which we have effectively fixed using an interest rate swap at 3.051% for the term of the borrowing.~~


~~(3)~~	As of September 30, 2017, our floating rate mortgage notes were subject to a weighted average interest rate spread of 2.30% over one-month LIBOR. As of December 31, 2016, our floating rate mortgage note was subject to an interest rate spread of 1.65% over one-month LIBOR.

~~(4)~~

As of September 30, 2017 and December 31, 2016, borrowings under our line of credit were subject to interest at a floating rate of 1.70% and 1.55% over one-month LIBOR, respectively. However, as of December 31, 2016, we had effectively fixed the interest rate of approximately $12.1 million of the total of $236.0 million in borrowings using interest rate swaps, resulting in a weighted average interest rate on the total line of credit of 2.28%.

~~(5)~~

As of September 30, 2017 and December 31, 2016, borrowings under our term loans were subject to interest at a weighted average floating rate of 1.75% and 1.60% over one-month LIBOR, respectively. However, we have effectively fixed the interest rate of approximately $350.0 million in borrowings using interest rate swaps, resulting in a weighted average interest rate on the total term loans of 3.45% and 3.17% as of September 30, 2017 and December 31, 2016, respectively.

~~Mortgage Notes~~

As of September 30, 2017, six mortgage notes were interest-only and four mortgage notes were fully amortizing with outstanding principal balances of approximately $456.1 million and $25.9 million, respectively. None of our mortgage notes are currently recourse to us except the 655 Montgomery mortgage note (defined below), which is subject to a limited guaranty provided by us for certain outstanding leasing costs as of September 6, 2017 (the "Outstanding Leasing Costs"). Our recourse liability in connection with the Outstanding Leasing Costs will decrease as we subsequently fund the Outstanding Leasing Costs. Other than this limited guarantee, the assets and credit of each of our consolidated properties pledged as collateral for our mortgage notes are not available to satisfy our debt and obligations unless we first satisfy the mortgage note payable on the respective underlying property.

~~Revolving Credit Facility and Five-Year Term Loan~~

Through a syndicate of 14 lenders (the "BofA Lenders") led by Bank of America, N.A., as Administrative Agent ("BofA"), we have a $675 million senior unsecured term loan and revolving line of credit (the “Facility”). The Facility provides us with the ability from time to time to increase the size of the Facility up to a total of $900 million less the amount of any prepayments under the term loan component of the Facility, subject to receipt of lender commitments and other conditions.

The Facility consists of a $400 million revolving line of credit (the “Revolving Credit Facility”) and a $275 million senior unsecured five-year term loan (the “Term Loan”). The Revolving Credit Facility contains a sublimit of $50 million for letters of credit and a sublimit of $50 million for swing line loans. The primary interest rate for the Revolving Credit Facility is based on LIBOR, plus a margin ranging from 1.40% to 2.30%, depending on our consolidated leverage ratio. The maturity date of the Revolving Credit Facility is January 31, 2019 and contains one one-year extension option that we may exercise upon (i) payment of an extension fee equal to 0.15% of the sum of the amount outstanding under the Revolving Credit Facility and the unused portion of the Revolving Credit Facility at the time of the extension, and (ii) compliance with the other conditions set forth in the credit agreement. The primary interest rate within the Term Loan is based on LIBOR, plus a margin ranging from

1.35% to 2.20%, depending on our consolidated leverage ratio. The maturity date of the Term Loan is January 31, 2018 and contains two one-year extension options that we may exercise upon (i) payment of an extension fee equal to 0.125% of the sum of the amount outstanding under the Term Loan at the time of each extension, and (ii) compliance with the other conditions set forth in the credit agreement.

Borrowings under the Facility are available for general business purposes including, but not limited to, refinancing of existing indebtedness and financing the acquisition of permitted investments, including commercial properties. As of September 30, 2017 and December 31, 2016, the unused portion of the Facility was approximately $94.1 million and $164.0 million, respectively, and we had full access to the unused portion of the Facility.

~~Seven-Year Term Loan~~

Through a syndicate of six lenders led by Wells Fargo Bank, National Association as Administrative Agent and Regions Bank as Syndication Agent, we have a $200 million seven-year term loan credit agreement (the “$200 million Term Loan”). The primary interest rate within the $200 million Term Loan is based on LIBOR, plus a margin ranging from 1.65% to 2.55%, depending on our consolidated leverage ratio. The maturity date of the $200 million Term Loan is February 27, 2022 with no extension options.

Borrowings under the $200 million Term Loan are available for general business purposes including, but not limited to financing the acquisition of permitted investments, including commercial properties.

~~As of September 30, 2017, we were in compliance with all our debt covenants, including those under the Facility and the $200 million Term Loan.~~

~~Mortgage Note Borrowing~~

~~Duringthe nine months ended September 30, 2017, we entered into three mortgage note borrowings. The following table describes the new borrowings in more detail (dollar amounts in thousands):~~

Borrowings Date Borrowed Principal Balance Fixed or Floating Interest Rate
Stated Interest Rate ⁽¹⁾
Contractual Maturity Date Extension Options Collateral Type Collateral Market
3 Second Street ⁽²⁾
1/10/2017 $ 127,000
Floating 3.50 % 1/10/2020 2 one-year extension Office Property Northern New Jersey
Centerton Square ⁽³⁾
6/5/2017 75,000
Floating 3.48 % 7/10/2019 2 one-year extension Retail Property Philadelphia, PA
655 Montgomery ⁽⁴⁾
9/6/2017 $ 98,600
Floating 3.98 % 9/7/2020 2 one-year extension Office Property San Francisco, CA
Total/weighted average borrowings $ 300,600
3.65 %


~~(1)~~	~~For floating-rate mortgage note borrowings, the stated interest rate is as of September 30, 2017.~~

~~(2)~~

On January 10, 2017, we received proceeds of $127.0 million from the $146.6 million 3 Second Street mortgage note, and we can request the remaining proceeds anytime prior to October 10, 2019 as reimbursement for certain approved capital expenditures, tenant improvement costs and leasing commissions. As of September 30, 2017, the term loan was subject to an interest rate spread of 2.25% over one-month LIBOR. As a result of this borrowing, we entered into an interest rate protection agreement ("Interest Rate Cap") with a notional amount of $146.6 million and a LIBOR strike rate of 3.00%. See Note 5 for additional discussion related to the Interest Rate Cap.

~~(3)~~

On June 5, 2017, we received proceeds of $75.0 million from the $81.3 million Centerton Square mortgage note, and we can obtain the remaining proceeds subject to meeting certain financial ratios. As of September 30, 2017, the term loan was subject to an interest rate spread of 2.25% over one-month LIBOR. As a result of this borrowing, we entered into an Interest Rate Cap with a notional amount of $81.3 million and a LIBOR strike rate of 3.00%. See Note 5 for additional discussion related to the Interest Rate Cap.

~~(4)~~

On September 6, 2017, we received proceeds of $98.6 million from the $110.6 million 655 Montgomery mortgage note, and we can request the remaining proceeds anytime prior to March 6, 2020 as reimbursement for certain approved capital expenditures, tenant improvement costs and leasing commissions, subject to certain terms and conditions. As of September 30, 2017, the term loan was subject to an interest rate spread of 2.75% over one-month LIBOR. As a result of this borrowing, we entered into an Interest Rate Cap with a notional amount of $110.6 million and a LIBOR strike rate of 3.00%. See Note 5 for additional discussion related to the Interest Rate Cap.

~~Repayment of Mortgage Note~~

During the nine months ended September 30, 2017, we repaid four mortgage note borrowings in full during the respective free-prepayment periods prior to their scheduled maturities using proceeds from our Facility or our 3 Second Street borrowing. The following table describes these repayments in more detail (dollar amounts in thousands):

໿

Debt Obligation Repayment Date Balance Repaid/Extinguished Interest Rate Fixed or Floating Stated Interest Rate Contractual Maturity Date Collateral Type Collateral Market
Eastern Retail Portfolio 1/10/2017 $ 110,000
Fixed 5.51 % 6/11/2017 Retail Property
Various ⁽¹⁾
Wareham 5/8/2017 24,400
Fixed 6.13 % 8/8/2017 Retail Property Greater Boston
Kingston 6/1/2017 10,574
Fixed 6.33 % 11/1/2017 Retail Property Greater Boston
Sandwich 6/1/2017 15,825
Fixed 6.33 % 11/1/2017 Retail Property Greater Boston
Total/weighted average borrowings $ 160,799
5.74 %


~~(1)~~	~~The Eastern Retail Portfolio was collateralized by three retail properties located in Raleigh, NC, Philadelphia, PA and Greater Boston.~~

໿

~~The following table reflects our contractual debt maturities as of September 30, 2017, specifically our obligations under our mortgage notes and unsecured borrowings (dollar amounts in thousands):~~

As of September 30, 2017
Mortgage Notes Unsecured Borrowings Total
Year Ending December 31, Number of Borrowings Maturing Outstanding Principal Balance Number of Borrowings Maturing Outstanding Principal Balance Outstanding Principal Balance
2017 — $ 424
— $ —
$ 424
2018 — 2,698
1 275,000
277,698
2019 1 78,698
1 202,000
280,698
2020 2 229,460
— —
229,460
2021 1 12,764
— —
12,764
2022 1 3,660
1 200,000
203,660
2023 2 77,899
— —
77,899
2024 — 1,034
— —
1,034
2025 1 71,094
— —
71,094
2026 — 1,157
— —
1,157
Thereafter 2 3,146
— —
3,146
Total 10 $ 482,034
3 $ 677,000
$ 1,159,034
Less: net debt issuance costs (4,614 ) (3,445 )
Add: mark-to-market adjustment on assumed debt 526
—

Total borrowings (net basis) $ 477,946
$ 673,555

~~5. DERIVATIVES AND HEDGING ACTIVITIES~~

~~Risk Management Objective of Using Derivatives~~

~~We maintain risk management control systems to monitor~~2023.

Derivative Instruments

To manage interest rate risk ~~attributable to both~~for certain of our ~~outstanding and forecasted~~variable-rate debt, obligations. We generally seek to limit the impact of interest rate changes on earnings and cash flows by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on our secured and unsecured floating rate borrowings. While this hedging strategy is designed to minimize the impact on our net income (loss) and cash provided by operating activities from changes in interest rates, the overall returns on our investments may be reduced. Our board of directors has established policies and procedures regarding our use of derivative instruments for hedging or other purposes to achieve these risk management objectives.

~~Cash Flow Hedges of Interest Rate Risk~~

~~Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective,~~ we ~~primarily~~ use interest rate ~~swaps~~derivative instruments as part of our ~~interest rate~~ risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by either providing a fixed interest rate or capping the variable interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from ~~counterparties~~a counterparty in exchange for us making fixed-rate payments over the life of the interest rate swap agreements without exchange of the underlying notional ~~amounts. We have entered into and plan to enter into certain~~amount. Interest rate caps involve the receipt of variable amounts from a counterparty at the end of each period in which the interest rate ~~derivatives with~~exceeds the ~~goal of mitigating our exposure to adverse fluctuations in the interest payments on our one-month LIBOR-indexed debt.~~agreed fixed price. Certain of our ~~floating rate~~variable-rate borrowings are not hedged, and therefore, to an extent, we have ongoing exposure to interest rate movements.

~~The effective portion of changes in the fair value of derivatives~~

For derivative instruments that are designated and ~~that~~ qualify as cash flow hedges, ~~under ASC Topic 815~~the gain or loss is recorded inas a component of accumulated other comprehensive income (loss) ~~income~~(“AOCI”) on the condensed consolidated balance sheets and is ~~subsequently~~ reclassified into earnings inas interest expense for the same period that the hedged ~~forecasted~~ transaction affects ~~earnings.~~earnings, which is when the interest expense is recognized on the related debt. During the next 12 months, we estimate that approximately ~~$1.3~~$17.2 million will be reclassified as ~~an increase~~a decrease to interest expense related to active effective hedges of existing floating-rate ~~debt, and~~debt.

As of September 30, 2023, we ~~estimate that approximately $1.9 million will be reclassified as an increase to interest expense related to effective~~have two interest rate ~~swaps where the hedging instrument has been terminated. The ineffective portion of the change~~cap derivative instruments that are not designated as cash flow hedges and therefore, changes in fair value are recognized through income. As a result, in periods with high interest rate volatility, we may experience significant fluctuations in our net income (loss).

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The following table summarizes the ~~derivatives is recognized directly in earnings.~~

~~The table below presents a reconciliation of the beginning~~location and ~~ending balances, between December 31, 2016 and September 30, 2017,~~fair value of our ~~accumulated other comprehensive loss (“AOCI”), net of amounts attributable to noncontrolling interests, related to~~consolidated derivative instruments on our condensed consolidated balance sheets:


	Number of			Fair Value
($ in thousands)	Contracts	Notional Amount (1)			Other Assets	Other Liabilities
As of September 30, 2023
Interest rate swaps designated as cash flow hedges	12	$	650,000	$	19,860	$	—
Interest rate caps designated as cash flow hedges	4		300,000		18,349
Interest rate caps not designated as cash flow hedges	2		207,600		292		—
Total derivative instruments	18	$	1,157,600	$	38,501	$	—
As of December 31, 2022
Interest rate swaps designated as cash flow hedges	12	$	650,000	$	20,279	$	—
Interest rate caps not designated as cash flow hedges	2		207,600		4,169		—
Total derivative instruments	14	$	857,600	$	24,448	$	—

(1)

Excludes $127.0 million of notional amount for one interest rate cap agreement entered into in September 2023 with an effective date in October 2023. This interest rate cap agreement is replacing a separate interest rate cap agreement with a $127.0 million notional amount that is expiring in October 2023.

The following table presents the ~~effective portion~~effect of our ~~cash flow hedges as presented~~consolidated derivative instruments on our condensed consolidated financial ~~statements, as well as amounts related to our available-for-sale securities (amounts in thousands):~~

statements:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022
Derivative instruments designated as cash flow hedges:
Gain recognized in AOCI	$	5,346	$	17,114	$	15,492	$	27,976
Amount reclassified from AOCI (out of) into interest expense		(5,252)		331		(12,346)		3,282
Total interest expense presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded		33,967		42,255		109,394		100,439
Derivative instruments not designated as cash flow hedges:
Unrealized (loss) gain on derivative instruments recognized in other income (expenses) (1)	$	(1,497)	$	1,691	$	(3,822)	$	4,223
Realized gain on derivative instruments recognized in other income (expenses) (2)		1,421		—		3,835		—

(Losses) and Gains on Cash Flow Hedges Unrealized (Losses) and Gains on Available-For-Sale Securities Accumulated Other Comprehensive Loss
Beginning balance as of December 31, 2016 $ (5,849 ) $ (1,056 ) $ (6,905 )
Other comprehensive (loss) income:
Amount of loss reclassified from AOCI into
interest expense (effective portion)
(net of tax benefit of $0) 3,815
—
3,815
Change in fair value recognized in AOCI
(effective portion) (net of tax benefit of $0) (1,455 ) —
(1,455 )
Net current-period other comprehensive income 2,360
—
2,360
Attribution of and other adjustments to AOCI attributable to noncontrolling interests (121 ) 48
(73 )
Ending balance as of September 30, 2017 $ (3,610 ) $ (1,008 ) $ (4,618 )

~~Fair Values~~

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

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

6. DST PROGRAM

We have a program to raise capital through private placement offerings by selling beneficial interests (“DST Interests”) in specific Delaware statutory trusts holding real properties (the “DST Program”). Under the DST Program, each private placement offers interests in one or more real properties placed into one or more Delaware statutory trusts by the Operating Partnership or its affiliates (“DST Properties”).

In order to facilitate additional capital raise through the DST Program, we have made and may continue to offer loans (“DST Program Loans”) to finance a portion of ~~Derivative Instruments~~

~~The valuation~~the sale of DST Interests in the trusts holding DST Properties to potential investors. As of September 30, 2023 and December 31, 2022, our DST Program Loans had a combined carrying value of $116.2 million and $81.9 million, respectively, a weighted-average interest rate ~~derivatives is determined~~of 5.00% and 4.47%, respectively, and a weighted-average maturity of 8.3 years and 9.2 years, respectively. We include our investments in DST Program Loans separately on our condensed consolidated balance sheets in the DST Program Loans line item and we include income earned from DST Program Loans in other income and expenses on our condensed consolidated statements of operations. Credit loss reserves associated with our DST Program Loans were immaterial as of and for the periods ended September 30, 2023 and 2022.

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The following table presents our DST Program activity for the three and nine months ended September 30, 2023 and 2022:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)		2023		2022		2023		2022
DST Interests sold	$	158,399	$	212,118	$	351,906	$	654,781
DST Interests financed by DST Program Loans		12,881		17,286		40,196		45,318
Income earned from DST Program Loans (1)		1,386		942		3,652		2,443
(Decrease) increase in financing obligation liability appreciation (2)		(3,023)		12,189		1,761		24,721
Rent obligation incurred under master lease agreements (2)		14,851		12,708		42,785		33,565

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

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

The Operating Partnership retains a fair market value purchase option giving it the right, but not the obligation, to acquire the interests in the Delaware statutory trusts from the investors at a later time in exchange for OP Units. We record DST Interests as financing obligation liabilities for accounting purposes. If we exercise our option to reacquire a DST property by issuing OP Units in exchange for DST Interests, we relieve the related financing obligation liability and DST Program Loans and record the issuance of the OP Units as an issuance of equity. During the nine months ended September 30, 2023 and 2022, 9.8 million OP Units and 15.8 million OP Units, respectively, were issued in exchange for DST Interests, for a net investment of $84.7 million and $136.9 million, respectively, in accordance with our Umbrella Partnership Real Estate Investment Trust (“UPREIT”) structure.

7. FAIR VALUE

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

Fair Value Measurements on a Recurring Basis

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


							Total
(in thousands)	Level 1		Level 2		Level 3		Fair Value
As of September 30, 2023
Assets:
Derivative instruments	$	—	$	38,501	$	—	$	38,501
Available-for-sale debt securities		—		15,034		92,166		107,200
Total assets measured at fair value	$	—	$	53,535	$	92,166	$	145,701
As of December 31, 2022
Assets:
Derivative instruments	$	—	$	24,448	$	—	$	24,448
Available-for-sale debt securities		—		14,896		—		14,896
Total assets measured at fair value	$	—	$	39,344	$	—	$	39,344

The following methods and assumptions were used to estimate the ~~expected cash flows~~fair value of each ~~derivative. This analysis reflects the contractual terms~~class of ~~the derivatives, including the period to maturity,~~financial instrument:

Derivative Instruments. The derivative instruments are interest rate swaps and ~~uses~~interest rate caps whose fair value is estimated using market-standard valuation models. Such models involve using market-based observable ~~market-based~~ inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

~~To comply with the provisions of ASC 820, we~~ We incorporate credit valuation adjustments to appropriately reflect both our ~~own~~ nonperformance risk and the respective counterparty’s nonperformance risk in the fair value ~~measurements.~~ measurements, which we have concluded are not material to the valuation. Due to these derivative instruments being unique and not actively traded, the fair value is classified as Level 2. See “Note 5” above for further discussion of our derivative instruments.

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Available-for-Sale Debt Securities. The available-for-sale debt securities are either preferred equity investments in real estate properties or CRE CLOs. The fair value for CRE CLOs are estimated using third-party broker quotes, which provide valuation estimates based upon contractual cash flows, observable inputs comprising credit spreads and market liquidity. We incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are not material to the valuation. Due to these CRE CLOs being unique and not actively traded, the fair value is classified as Level 2. The preferred equity investments are unlikely to have readily available market quotations. In ~~adjusting~~such cases, the initial value will generally be determined using the acquisition price of such investment if acquired, or the par value of such investment if originated. Following the initial measurement, fair value is estimated by utilizing or reviewing certain of the following: (i) market yield data, (ii) discounted cash flow modeling, (iii) collateral asset performance, (iv) local or macro real estate performance, (v) capital market conditions, (vi) debt yield, debt-service coverage and/or loan-to-value ratios, and (vii) borrower financial condition and performance. The inputs used in estimating the fair value of these preferred equity investments are generally considered Level 3. As of September 30, 2023, we had one preferred equity investment without a readily available market quotation.

The following table presents our ~~derivative~~financial instruments measured at fair value on a recurring basis using Level 3 inputs:


	Available-For-Sale
($ in thousands)	Debt Securities		Total
Balance as of December 31, 2022	$	—	$	—
Purchases and contributions		90,331		90,331
Capitalized interest		2,764		2,764
Loan origination fees received		(1,022)		(1,022)
Amortization of loan origination fees (1)		93		93
Balance as of September 30, 2023	$	92,166	$	92,166

(1)	Included in debt-related income on the condensed consolidated statements of operations.

The following tables presents the quantitative inputs and assumptions used for ~~the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.~~

~~The majority of the inputs used to value our derivative instruments fall within~~items categorized in Level 23 of the fair value ~~hierarchy. However, the credit valuation adjustments associated with our derivative instruments utilize Level 3 inputs, such~~hierarchy as ~~estimates~~ of ~~current credit spreads, to evaluate the likelihood~~September 30, 2023:

Valuation

Unobservable

Weighted-Average

Impact to Valuation from

($ in thousands)

Fair Value

Technique

Inputs

Rate

an Increase to Input

Assets:

Available-for-sale debt securities

92,166

Yield Method

Market Yield

13.3

Decrease

Table of ~~potential default by us~~contents

Financial Assets and ~~our counterparties.~~ Liabilities Not Measured at Fair Value

As of September 30, 2017, we had assessed the significance of the impact of the credit valuation adjustments and had determined that it was not significant to the overall valuation of our derivative instruments. As a result, we have determined that our derivative valuations are classified in Level 2 of the fair value hierarchy.

~~As of September 30, 2017~~2023 and December 31, 2016, we had 10 and 11 outstanding interest rate swaps, respectively, that were designated as cash flow hedges of interest rate risk, with a total notional amount of $383.0 million and $395.1 million, respectively. In addition, as of September 30, 2017 and December 31, 2016, we had one interest rate swap with a total notional amount of $52.5 million that will become effective in July 2018 and mature in July 2021, which was designated as a cash flow hedge of interest rate risk.

As of September 30, 2017, we had three outstanding interest rate caps that were not accounted for as hedges, with a total notional amount of $338.5 million. Derivatives not accounted for as hedges are not speculative and are used to hedge our exposure to interest rate movements and other identified risks but do not meet2022, the ~~strict requirements for hedge accounting. In certain instances, we elected not to apply hedge accounting.~~

The table below presents the gross fair value of our derivative instruments as well as their classification on our accompanying condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016 (amounts in thousands, except for footnoted information):

Fair Value of Asset Derivatives as of Fair Value of Liability Derivatives as of
Balance Sheet Location September 30, 2017 December 31, 2016 Balance Sheet Location September 30, 2017 December 31, 2016
Derivatives accounted for as hedges:
Interest rate contracts
Other assets, net ⁽¹⁾
$ 1,960
$ 2,135

Other liabilities ⁽¹⁾
$ (1,687 ) $ (2,777 )
Derivatives not accounted for as hedges:
Interest rate contracts
Other assets, net ⁽¹⁾
$ 17
$ —

Other liabilities ⁽¹⁾
$ —
$ —
Total derivatives $ 1,977
$ 2,135
$ (1,687 ) $ (2,777 )

~~(1)~~

Although our derivative contracts are subject to master netting arrangements which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on our accompanying condensed consolidated balance sheets. If we did net our derivative fair values on our accompanying condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, there would be no impact.

~~Effect of Derivative Instruments on the Statements of Operations and Comprehensive (Loss) Income~~

The table below presents the effect of our derivative financial instruments on our accompanying financial statements for the three and nine months ended September 30, 2017 and 2016 (amounts in thousands):

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Derivatives Accounted For as Hedges
Derivative type Interest rate contracts Interest rate contracts Interest rate contracts Interest rate contracts
Amount of (loss) gain recognized in OCI (effective portion) $ (123 ) $ 1,747
$ (1,455 ) $ (13,350 )
Location of loss reclassified from accumulated OCI into income (effective portion) Interest expense Interest expense Interest expense Interest expense
Amount of loss reclassified from accumulated OCI into income (effective portion) $ 1,071
$ 1,154
$ 3,815
$ 3,470
Location of loss recognized in income (ineffective portion and amount excluded from effectiveness testing) Other (expense) and income Other (expense) and income Other (expense) and income Other (expense) and income
Amount of loss recognized in income (ineffective portion and amount excluded from effectiveness testing) $ —
$ —
$ —
$ —
Derivatives Not Accounted For as Hedges
Derivative type Interest rate cap N/A Interest rate cap N/A
Amount of loss recognized in income $ (14 ) $ —
$ (114 ) $ —
Location of loss recognized in income Other (expense) and income N/A Other (expense) and income N/A

~~Credit-Risk-Related Contingent Features~~

As of September 30, 2017, the fair value of derivatives in a net liability position, which included accrued interest but excluded any credit valuation adjustments related to these agreements, was approximately $1.8 million. As of September 30, 2017, we have not posted any collateral related to these agreements. If we had breached any of these provisions at September 30, 2017, we could have been required to settle our obligations under the agreements at their termination value of $1.8 million.

~~6. FAIR VALUE OF FINANCIAL INSTRUMENTS~~

We use the framework established in ASC Topic 820, to measure the fair value of our financial instruments as disclosed in the table below. The fair values estimated below are indicative of certain interest rate and other assumptions as of September 30, 2017 and December 31, 2016, and may not take into consideration the effects of subsequent interest rate or other assumption fluctuations, or changes in the values of underlying collateral. The fair values of cash and cash equivalents, restricted cash, ~~accounts receivable, and~~tenant receivables, accounts payable and accrued expenses and distributions payable approximate their carrying values because of the short-term nature of these instruments.

The table below ~~presents the~~includes fair values for certain of our financial instruments for which it is practicable to estimate fair value. The carrying ~~amounts~~values and ~~estimated~~ fair values of ~~our other~~these financial instruments ~~other than derivatives which are disclosed in Note 5,~~were as ~~of September 30, 2017 and December 31, 2016 (amounts in thousands):~~

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follows:


		As of September 30, 2023				As of December 31, 2022
	Level in Fair	Carrying		Fair		Carrying		Fair
(in thousands)	Value Hierarchy	Value (1)		Value		Value (1)		Value
Assets:
Debt-related investments	3	$	226,914	$	221,012	$	263,122	$	260,841
DST Program Loans	3		116,195		111,467		81,897		79,049
Liabilities:
Line of credit	3	$	398,000	$	398,000	$	235,000	$	235,000
Term loans	3		800,000		800,000		800,000		800,000
Mortgage notes	3		600,504		554,708		587,916		541,558

As of September 30, 2017 As of December 31, 2016
Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value
Assets:
Fixed-rate debt-related investments, net $ 11,259
$ 11,594
$ 15,209
$ 15,784
Liabilities:
Fixed-rate mortgage notes ⁽¹⁾
$ 128,341
$ 130,557
$ 290,329
$ 291,624
Floating-rate mortgage notes 349,605
352,022
51,918
51,942
Floating-rate unsecured borrowings ⁽²⁾
673,555
677,000
706,554
711,000


(1)	~~Amount includes a floating-rate mortgage note that was~~ ~~subject to an interest rate spread of 1.60% over one-month LIBOR, which we have effectively fixed using an interest rate swap at 3.051% for~~The carrying value reflects the ~~term of the borrowing.~~


~~(2)~~	As of September 30, 2017 and December 31, 2016, we have effectively fixed the interest rate of approximately $350.0 million in unsecured borrowings using interest rate swaps. Please see Note 4 for further discussion.principal amount outstanding.

The ~~methodologies used and key assumptions made to estimate~~initial value of debt-related investments will generally be determined using the acquisition price of such investment if acquired, or the par value of such investment if originated. Following the initial measurement, fair ~~values~~value is estimated by utilizing or reviewing certain of the following: (i) market yield data, (ii) discounted cash flow modeling, (iii) collateral asset performance, (iv) local or macro real estate performance, (v) capital market conditions, (vi) debt yield, debt-service coverage and/or loan-to-value ratios, and (vii) borrower financial ~~instruments, other than derivatives disclosed in Note 5, described in the above table are as follows:~~

~~Debt-Related Investments~~ ~~— The fair~~condition and performance. Fair value of ~~our performing debt-related investments are~~DST Program Loans, line of credit, term loans and mortgage notes is estimated ~~using~~based on a discounted cash flow ~~methodology. This method discounts estimated future cash flows using rates management determines best reflect~~methodology, taking into consideration various factors including current market ~~interest~~ rates ~~that would be offered for loans~~and conditions and similar agreements with ~~similar characteristics~~comparable loan-to-value ratios and credit ~~quality. Credit spreads~~profiles, as applicable. Debt instruments with near-term maturities are generally valued at par.

8. EQUITY

Public Offerings

We intend to conduct a continuous public offering that will not have a predetermined duration, subject to continued compliance with the rules and ~~market interest rates used~~regulations of the SEC and applicable state laws. On May 3, 2022, the SEC declared our registration statement on Form S-11 with respect to ~~determine~~our fourth public offering of up to $10.0 billion of shares of its common stock effective, and the ~~fair value of these instruments are based on unobservable Level 3 inputs which management has determined to be its best estimate of current market values.~~

~~Mortgage Notes and Other Borrowings~~ ~~— The fair value~~fourth public offering commenced the same day. We ceased selling shares of our ~~mortgage notes~~common stock under our third public offering of up to $3.0 billion of shares immediately upon the effectiveness of the registration statement for the fourth public offering. Under the fourth public offering, we are offering up to $8.5 billion of shares of our common stock in the primary offering and ~~other borrowings are estimated using a discounted cash flow analysis, based on~~up to $1.5 billion of shares of our ~~estimate~~common stock pursuant to our distribution reinvestment plan, in any combination of ~~market interest rates. Credit spreads relating~~Class T shares, Class D shares, Class S shares and Class I shares. We may reallocate amounts between the primary offering and distribution reinvestment plan.

Pursuant to our public offerings, we offered and continue to offer shares of our common stock at the “transaction price,” plus applicable upfront selling commissions and dealer manager fees. The “transaction price” generally is equal to the ~~underlying instruments~~NAV per share of our common stock most recently disclosed. Our NAV per share is calculated as of the last calendar day of each month for each of our outstanding classes of stock, and will be available generally within 15 calendar days after the end of the applicable month. Shares issued pursuant to our distribution reinvestment plan are ~~based~~offered at the transaction price, as indicated above, in effect on ~~unobservable Level 3 inputs, which~~the distribution date. We may update a previously disclosed transaction price in cases where we ~~have determined~~believe there has been a material change (positive or negative) to be our ~~best estimate of current market spreads of similar instruments.~~

~~7. STOCKHOLDERS’ EQUITY~~

~~Common Stock~~

NAV per share relative to the most recently disclosed monthly NAV per share.

During the nine months ended September 30, ~~2017,~~2023, we ~~completed two self-tender offers pursuant to which we accepted for purchase~~raised gross proceeds of approximately ~~11.8~~$103.9 million ~~unclassified~~from the sale of approximately 11.9 million shares of our common stock ~~which were formally designated as Class E shares on September 1, 2017 as part of the Restructuring, at a weighted average purchase price of $7.50 per share for an aggregate cost~~in our ongoing public offerings, including proceeds from our distribution reinvestment plan of approximately ~~$88.2~~$24.3 million.

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Common Stock

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


	Class T	Class S	Class D	Class I	Class E	Total
(in thousands)	Shares	Shares	Shares	Shares	Shares	Shares
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022
Balance as of June 30, 2022	21,672	46,163	7,947	64,741	54,578	195,101
Issuance of common stock:
Primary shares	2,994	2,303	135	3,483	—	8,915
Distribution reinvestment plan	109	211	39	321	181	861
Share-based compensation	—	—	—	27	—	27
Redemptions of common stock	(49)	(531)	(188)	(417)	(1,102)	(2,287)
Conversions	(14)	—	—	14	—	—
Balance as of September 30, 2022	24,712	48,146	7,933	68,169	53,657	202,617
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023
Balance as of June 30, 2023	28,741	49,750	7,227	68,105	51,047	204,870
Issuance of common stock:
Primary shares	416	457	58	448	—	1,379
Distribution reinvestment plan	150	250	38	361	188	987
Share-based compensation	—	—	—	35	—	35
Redemptions of common stock	(430)	(1,350)	(294)	(2,507)	(1,679)	(6,260)
Conversions	(44)	27	(15)	40	(8)	—
Balance as of September 30, 2023	28,833	49,134	7,014	66,482	49,548	201,011
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022
Balance as of December 31, 2021	16,425	35,757	6,749	54,406	56,328	169,665
Issuance of common stock:
Primary shares	8,183	12,627	1,628	13,666	—	36,104
Distribution reinvestment plan	301	604	114	928	569	2,516
Share-based compensation	—	—	—	27	—	27
Redemptions of common stock	(82)	(842)	(558)	(973)	(3,240)	(5,695)
Conversions	(115)	—	—	115	—	—
Balance as of September 30, 2022	24,712	48,146	7,933	68,169	53,657	202,617
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
Balance as of December 31, 2022	26,884	49,237	7,871	69,142	52,974	206,108
Issuance of common stock:
Primary shares	2,923	2,426	134	3,552	—	9,035
Distribution reinvestment plan	423	709	115	1,031	541	2,819
Share-based compensation	—	—	—	35	—	35
Redemptions of common stock	(1,234)	(3,289)	(723)	(7,781)	(3,959)	(16,986)
Conversions	(163)	51	(383)	503	(8)	—
Balance as of September 30, 2023	28,833	49,134	7,014	66,482	49,548	201,011

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Distributions

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


	Amount
			Common Stock
	Declared per		Distributions		Other Cash		Reinvested in		Distribution		Gross
(in thousands, except per share data)	Common Share (1)		Paid in Cash		Distributions (2)		Shares		Fees (3)		Distributions (4)
2023
March 31	$	0.09375	$	9,912	$	5,271	$	8,009	$	1,461	$	24,653
June 30		0.09375		9,896		5,510		7,974		1,463		24,843
September 30		0.10000		10,335		6,451		8,431		1,430		26,647
Total	$	0.28750	$	30,143	$	17,232	$	24,414	$	4,354	$	76,143
2022
March 31	$	0.09375	$	8,837	$	3,018	$	6,876	$	1,030	$	19,761
June 30		0.09375		9,299		3,157		7,362		1,259		21,077
September 30		0.09375		9,684		3,972		7,732		1,399		22,787
December 31		0.09375		9,859		4,559		7,923		1,478		23,819
Total	$	0.37500	$	37,679	$	14,706	$	29,893	$	5,166	$	87,444

(1)

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

(2)	Consists of distribution fees paid to Ares Wealth Management Solutions, LLC (the “Dealer Manager”) with respect to OP Units and distributions paid to holders of OP Units and other noncontrolling interest holders.

(3)

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

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

Redemptions and Repurchases

Below is a summary of redemptions and repurchases pursuant to our share redemption program for the nine months ended September 30, ~~2017 (shares~~2023 and ~~dollar amounts~~2022. All eligible redemption requests were fulfilled for the periods presented. Eligible redemption requests are requests submitted in ~~thousands):~~good order by the request submission deadline set forth in the share redemption program. Our board of directors may modify or suspend our current share redemption programs if it deems such action to be in the best interest of our stockholders.


	For the Nine Months Ended September 30,
(in thousands, except for per share data)	2023		2022
Number of shares redeemed or repurchased		16,986		5,695
Aggregate dollar amount of shares redeemed or repurchased	$	145,934	$	48,783
Average redemption or repurchase price per share	$	8.59	$	8.57

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Class E Class T Class S Class D Class I Total
Shares
Amount ⁽¹⁾
Shares
Amount ⁽¹⁾
Shares
Amount ⁽¹⁾
Shares
Amount ⁽¹⁾
Shares
Amount ⁽¹⁾
Shares
Amount ⁽¹⁾
Balances,
December 31, 2016 112,325
$ 1,298,189
2,001
$ 14,758
N/A

N/A
2,271
$ 16,381
34,039
$ 243,049
150,636
$ 1,572,377
Issuance of common stock:

Shares sold —
—
125
975
17
125
265
1,996
1,264
9,515
1,671
12,611
Distribution reinvestment plan 1,546
11,615
48
360
—
—
56
420
804
6,038
2,454
18,433
Stock-based compensation ⁽²⁾
—
—
—
—
—
—
—
—
(99 ) (878 ) (99 ) (878 )
Redemptions and repurchases of common stock (12,718 ) (95,404 ) (82 ) (615 ) —
—
(84 ) (632 ) (1,828 ) (13,718 ) (14,712 ) (110,369 )
Balances,
September 30, 2017 101,153
$ 1,214,400
2,092
$ 15,478
17
$ 125
2,508
$ 18,165
34,180
$ 244,006
139,950
$ 1,492,174

~~8. RELATED PARTY TRANSACTIONS~~

~~Advisory Agreement~~

~~Our day-to-day activities are managed by our Advisor, a related party, under~~

9. REDEEMABLE NONCONTROLLING INTERESTS

The Operating Partnership’s net income and loss will generally be allocated to the terms and conditions of an advisory agreement (as amended from time to time, the "Advisory Agreement"). Our Advisor is considered to be a related party as certain indirect owners and employees of our Advisor serve as two of our directors and all of our executive officers. The responsibilities of our Advisor cover all facets of our business, and include the selection and underwriting of our real property and debt-related investments, the negotiations for these investments, the asset management and financing of these investmentsgeneral partner and the ~~oversight of real property dispositions.~~

~~Effective September 1, 2017, we, our~~limited partners in accordance with the respective percentage interest in the OP Units issued by the Operating Partnership.

The Operating Partnership issued OP Units to the Advisor and ~~our Advisor entered into the Twelfth Amended and Restated Advisory Agreement, which among other things:~~

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10. NONCONTROLLING INTERESTS

OP Units

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


	For the Nine Months Ended September 30,
(in thousands)	2023		2022
Balance at beginning of period		55,079		27,180
Issuance of units		9,845		15,814
Redemption of units		(3,175)		(536)
Balance at end of period		61,749		42,458

Subject to certain restrictions and limitations, the holders of OP Units may redeem all or a portion of their OP Units for either: shares of the equivalent class of common stock, cash or a combination of both. If we elect to redeem OP Units for shares of our common stock, we will generally deliver one share of our common stock for each such OP Unit redeemed (subject to any redemption fees withheld), and such shares may, subsequently, only be redeemed for cash in accordance with the terms of our share redemption program. If we elect to redeem OP Units for cash, the cash delivered per unit will equal the then-current NAV per unit of the applicable class of OP Units (subject to any redemption fees withheld), which will equal the then-current NAV per share of our corresponding class of shares. During the three months ended September 30, 2023 and 2022, the aggregate amount of OP Units redeemed was $11.2 million and $1.1 million, respectively. During the nine months ended September 30, 2023 and 2022, the aggregate amount of OP Units redeemed was $27.3 million and $4.5 million, respectively. The estimated maximum redemption value (unaudited) as of September 30, 2023 and December 31, 2022 was $509.7 million and $488.3 million, respectively.

11. RELATED PARTY TRANSACTIONS

Summary of Fees and Expenses

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



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				Payable as of
(in thousands)	2023		2022		2023		2022		September 30, 2023		December 31, 2022
Selling commissions and dealer manager fees (1)	$	161	$	1,144	$	1,121	$	3,424	$	—	$	—
Ongoing distribution fees (1)(2)		2,232		1,869		6,576		4,743		708		748
Advisory fees—fixed component		9,661		8,980		28,822		24,351		3,255		2,868
Performance participation allocation (3)		—		3,710		—		22,088		—		23,747
Other expense reimbursements—Advisor (4)(5)		3,258		2,962		10,113		8,308		3,973		4,192
Other expense reimbursements—Dealer Manager		87		99		247		269		85		109
Property accounting fee (6)		478		508		1,448		811		166		478
DST Program selling commissions, dealer manager and distribution fees (1)		2,827		5,994		7,570		19,178		294		241
Other DST Program related costs—Advisor (5)		2,529		4,234		6,087		12,675		162		146
Total	$	21,233	$	29,500	$	61,984	$	95,847	$	8,643	$	32,529

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

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(2)

The distribution fees are payable monthly in arrears. Additionally, we accrue for future estimated amounts payable related to ongoing distribution fees. The future estimated amounts payable of approximately $60.6 million and $60.9 million as of September 30, 2023 and December 31, 2022, respectively, are included in other liabilities on the condensed consolidated balance sheets.

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

(4)

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

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

(6)

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

Certain of the ~~sale~~expense reimbursements described in the table above include a portion of ~~an asset~~the compensation expenses of officers and employees of the ~~ability of our~~ Advisor or its affiliates related to ~~share in or earn real estate commissions and separately agreed to pay our Advisor $1.4 million in consideration of disposition services rendered prior to September 1, 2017 and~~activities for which the Advisor ~~has~~did not otherwise ~~been paid~~receive a ~~fee;~~separate fee. Amounts incurred related to these compensation expenses for the three months ended September 30, 2023, and

~~ceased reimbursing our Advisor~~ 2022 were approximately $3.0 million and $2.6 million, respectively. Amounts incurred related to these compensation expenses for the nine months ended September 30, 2023, and 2022 were approximately $9.3 million and $7.9 million, respectively. No reimbursement is made for compensation ~~paid to~~of our named executive ~~officers.~~

~~The~~officers unless the named executive officer is providing stockholder services, as outlined in the advisory agreement.

Advisory Agreement

Ares Real Estate Income Trust Inc., the Operating Partnership and the Advisor previously entered into that certain Amended and Restated Advisory Agreement ~~may be renewed for~~(2022), effective as of May 1, 2022 (the “2022 Advisory Agreement”). The term of the 2022 Advisory Agreement continued through April 30, 2023, subject to an unlimited number of successive one-year ~~terms.~~renewals. Ares Real Estate Income Trust Inc., the Operating Partnership and the Advisor renewed the 2022 Advisory Agreement on substantially the same terms through April 30, 2024, by entering into the Amended and Restated Advisory Agreement (2023) (the “2023 Advisory Agreement”), effective as of April 30, 2023.

On June 3, 2023, Ares Real Estate Income Trust Inc., the Operating Partnership and the Advisor amended and restated the 2023 Advisory Agreement by entering into the Second Amended and Restated Advisory Agreement (2023) (the “Amended Advisory Agreement”). The ~~current term~~Amended Advisory Agreement amends the 2023 Advisory Agreement to provide that if the Company engages affiliates of the Advisor (“Product Specialists”) to provide certain specialist services to the Company, the Operating Partnership or any of their subsidiaries pursuant to a separate agreement approved by the Company’s independent directors, the fees and expense reimbursements paid to the Product Specialist will not be subject to the provisions of the Advisory Agreement ~~expires on June 30, 2018. Per~~or affect the compensation and expense reimbursements paid to the Advisor and its affiliates for services provided pursuant to the Advisory Agreement. Other immaterial changes were also made in the Amended Advisory Agreement.

Limited Partnership Agreement

On June 3, 2023, Ares Real Estate Income Trust Inc. and AREIT Incentive Fee LP, an affiliate of our Advisor, replaced the then-current limited partnership agreement of the Operating Partnership by entering into a Twelfth Amended and Restated Limited Partnership Agreement (the “Amended OP Agreement”). The Amended OP Agreement authorizes Ares Real Estate Income Trust Inc., as general partner, to cause the Operating Partnership to issue profits interests in the Operating Partnership in multiple series via award letters with the rights and obligations of such profits interests set forth in such award letters or an exhibit thereto. Other immaterial changes were also made in the Amended OP Agreement.

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Student Housing Investment Arrangement

The changes in the Amended Advisory Agreement and Amended OP Agreement were made in contemplation of a Project Specialist arrangement in student housing investments. Under this arrangement, affiliates of Timberline Real Estate Ventures (“Timberline”), a fully integrated, operationally focused privately held real estate operator and investment manager specializing in the development, acquisition and operation of student housing, multifamily, and mixed-use retail/residential communities, will enter into a joint venture with affiliates of the Advisor to create a Product Specialist (collectively, with its affiliated entities, the “Student Housing Product Specialist”). The Company will, through the Operating Partnership and their subsidiaries, enter into the agreements described in further detail below with the Student Housing Product Specialist in connection with student housing investments. More specifically, for each student housing investment by the Company made through the Student Housing Product Specialist, the Student Housing Product Specialist will be retained under a management services agreement, engaged as property manager under a property management agreement and receive a profits interest through the Operating Partnership in such investment. The Advisor or its affiliates will have an economic interest in these agreements except the profits interests, with respect to which the Advisor and its affiliates will have no economic interest.

Each such student housing investment will be made through a subsidiary of the Company (each, an “AREIT TREV Vehicle”) that will be 100% owned, managed and controlled by the Company as the managing member of the operating company. The Company will have the sole authority to make and approve all decisions and take all actions with respect to and on behalf of each AREIT TREV Vehicle, subject to certain limited fundamental decisions which will require the consent of both the Company and the Student Housing Product Specialist. The Student Housing Product Specialist will be the non-economic administrative member of each AREIT TREV Vehicle, required to participate in and oversee the day-to-day business, affairs, management, operation and administration of the AREIT TREV Vehicle and be responsible for implementing the business plan and budget approved by the Company and otherwise implementing the Company’s decisions. If there is any material default or breach by the Student Housing Product Specialist of its obligations under the ARES TREV Vehicle’s operating agreement or the management services agreement (described below) that remains uncured (beyond any applicable notice and cure periods), the Company will have the right to remove the Student

Housing Product Specialist as the administrative member and terminate the management services agreement, the property management agreement and the profits interest.

Pursuant to a management services agreement, in consideration for ~~asset~~the sourcing of student housing investments by the Student Housing Product Specialist, the Student Housing Product Specialist will be paid a reasonable market rate acquisition fee by the AREIT TREV Vehicle. In addition, in consideration of supervision of property management by the Student Housing Product Specialist, as well as management of the Company investment and certain accounting and tax reporting duties, the Student Housing Product Specialist will be paid a property management oversight fee by the AREIT TREV Vehicle based on reasonable market rates for such duties. To the extent that renovation work with respect to a Company investment is approved by the Company, the Student Housing Project Specialist will be paid a reasonable market rate construction management fee. If the Student Housing Product Specialist is removed as the administrative member of the applicable AREIT TREV Vehicle, or if there is an uncured breach under the management services ~~performed, we pay our Advisor an advisory fee comprised of two separate components: (1) a fixed amount that accrues~~

~~monthly in an amount equal to 1/12th of 1.10% of (a)~~agreement, the ~~applicable monthly NAV per Fund Interest (defined as our Class E shares, Class T shares, Class S shares, Class D shares, Class I shares, and OP Units held by third parties) times~~Company may terminate the ~~weighted-average number of Fund Interests for such month and (b)~~management services agreement without penalty. Additionally, the consideration received by us or our affiliate for selling Interests (defined below) in DST Properties (defined below) to third party investors, net of up-front fees and expense reimbursements payable out of gross sale proceeds frommanagement services agreement will terminate automatically on its terms (without penalty) upon the sale of the applicable property.

At the closing of each of our student housing investments, the AREIT TREV Vehicle will enter into a property management agreement with the Student Housing Project Specialist pursuant to which it will perform property management services in exchange for a property management fee consistent with the local market where our applicable investment is located as well as its size, scope and rental rates and otherwise consistent with an agreed fee schedule; provided that such ~~Interests, including but~~fees will be payable on a percentage of revenue basis, considering local market rates, total number of beds and overall gross potential rent, subject to reasonable market rate minimum per investment. If (a) the Student Housing Project Specialist is removed as the administrative member of the applicable AREIT TREV Vehicle or (b) there is a bad act (e.g., gross negligence, willful misconduct) or an uncured breach by the Student Housing Project Specialist under the property management agreement, the Company may terminate the agreement without penalty. The Company may also terminate the property management agreement for convenience upon 30 days prior written notice to the Student Housing Project Specialist or if certain operating performance metrics of the property are not ~~limited~~met, and the property management agreement automatically terminates on its terms upon the sale of the applicable property; however, if any of the foregoing terminations occurs prior to ~~sales commissions, dealer manager~~the one year anniversary of the effective date, property management fees through the first year anniversary will be due to the Student Housing Project Specialist.

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With respect to each student housing investment made under this arrangement, an affiliate of the Student Housing Project Specialist will receive a profits interest through the Operating Partnership, with respect to which the Advisor and ~~non-accountable expense allowances,~~its affiliates will have no economic interest.

As of and ~~(2)~~for the periods ended September 30, 2023, there have been no student housing investments made through this arrangement nor have any fees been incurred with the Student Housing Product Specialist.

Performance Participation Allocation

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

The performance participation allocation is a ~~performance component~~performance-based amount that will be paid to the Advisor. This amount is calculated on the basis of the overall investment return provided to holders of Fund Interests (i.e., our outstanding shares and OP Units held by third-party investors) in any calendar year such that the Advisor will receive the lesser of (1) 12.5% of (a) the annual total return amount less (b) any loss carryforward, and (2) the amount equal to (x) the annual total return amount, less (y) any loss carryforward, less (z) the amount needed to achieve an annual total return amount equal to 5% of the NAV per Fund Interest at the beginning of such year (the “Hurdle Amount”). The foregoing calculations are calculated on a per Fund Interest basis and multiplied by the ~~weighted average~~weighted-average Fund Interests outstanding during the year.

The “annual total return amount” referred to above means all distributions paid or accrued per Fund Interest plus any change in NAV per Fund Interest since the end of the prior calendar year, adjusted to exclude the negative impact on annual total return resulting from our payment or obligation to pay, or distribute, as applicable, In no event will the performance ~~component of~~participation allocation be less than zero. Accordingly, if the ~~advisory fee as well as ongoing distribution fees (i.e., our ongoing class-specific fees).~~

~~The “loss carryforward” referred to above will track any negative annual total return amounts from prior years and offset the positive~~ annual total return amount ~~for purposes~~exceeds the Hurdle Amount plus the amount of any loss carryforward, then the Advisor will earn a performance participation allocation equal to 100% of such excess, but limited to 12.5% of the ~~calculation~~annual total return amount that is in excess of the ~~performance component of~~loss carryforward. Additionally, the ~~advisory fee. The loss carryforward is zero as of September 30, 2017.~~

~~Additionally, our~~ Advisor will provide us with a waiver of a portion of its fees generally equal to the amount of the performance component that would have been payable with respect to the Class E shares and the Series 1 Class E OP Units held by third parties until the NAV of such shares or units exceeds $10.00 ~~per~~a share or unit, the benefit of which will be shared among all holders of Fund Interests.

In addition, pursuant to the Advisory Agreement, we will pay directly, or reimburse our Advisor and our Dealer Manager (defined below) if they pay on our behalf any issuer organizational and offering expenses (meaning organizational and offering expenses other than underwriting compensation) relating to any public offerings as and when incurred. After the termination

The allocation of the primary portion of the offering and again after termination of the distribution reinvestment plan portion of the offering, our Advisor has agreed to reimburse us to the extent that total cumulative organization and offering expenses (including underwriting compensation) that we incur exceed 15% of our gross proceeds from the applicable offering.

The Advisory Agreement also provides that we must reimburse our Advisor for any private offering organization and offering expenses, such as those of the DST Program (defined below), it incurs on our behalf, including Advisor personnel costs, unless it has agreed to receive a fee in lieu of reimbursement.

Subject to certain limitations, we reimburse our Advisor and its affiliates for all of the costs they incur in connection with the services they provide to us under the Advisory Agreement, including, without limitation, our allocable share of the Advisor's overhead, which includes butperformance participation interest is ~~not limited to the Advisor's rent, utilities and personnel costs.~~

~~Public Offering Dealer Manager Agreement~~

Black Creek Capital Markets, LLC (f/k/a Dividend Capital Securities LLC) (our “Dealer Manager”), a related party, is distributing the shares of our common stock in our public offering on a “best efforts” basis. Our Dealer Manager is a member of the Financial Industry Regulatory Authority, Inc., or FINRA. Our Dealer Manager coordinates our distribution effort and manages our relationships with participating broker-dealers and financial advisors and provides assistance in connection with compliance matters relating to marketing our public offering.

On September 1, 2017, we entered into a Third Amended and Restated Dealer Manager Agreement (the “Third Amended Dealer Manager Agreement”) with our Dealer Manager. The Dealer Manager served as dealer manager for the Prior Offering and will serve as dealer manager for the Follow-On Offering. The purpose of the Third Amended Dealer Manager Agreement is to modify the compensation we pay to our Dealer Manager. As amended, the Third Amended Dealer Manager Agreement may be made to apply to future offerings by naming them in a schedule to the agreement, with the consent of the Company and our Dealer Manager.

Under the Third Amended Dealer Manager Agreement, the Dealer Manager receives upfront selling commissions of up to 3.0%, and dealer manager fees of 0.5%, of the transaction price of each Class T share sold in our ongoing public primary offering, however such amounts may vary at certain participating broker-dealers provided that the sum will not exceed 3.5% of the transaction price. The Dealer Manager is entitled to receive upfront selling commissions of up to 3.5% of the transaction price of each Class S share sold in our ongoing public primary offering. No upfront selling commissions or dealer manager fees will be paid with respect to purchases of Class D shares, Class I shares or shares of any class sold pursuant to our distribution reinvestment plan.

~~In addition, Subject to FINRA limitations on underwriting compensation, we will pay the Dealer Manager distribution fees:~~

with respect to our outstanding Class T shares, equal to 0.85% per annum of the aggregate NAV of our outstanding Class T shares, consisting of an advisor distribution fee and a dealer distribution fee; we expect generally that the advisor distribution fee will equal 0.65% per annum and the dealer distribution fee will equal 0.20% per annum, of the aggregate NAV for each Class T share; however, with respect to certain Class T shares, the advisor distribution fee and the dealer distribution fee may be other amounts, provided that the sum of such fees will always equal 0.85% per annum of the NAV of such shares;

~~with respect to our outstanding Class S shares, equal to 0.85% per annum of the aggregate NAV of our outstanding Class S shares; and~~

~~with respect to our outstanding Class D shares, equal to 0.25% per annum of the aggregate NAV of our outstanding Class D shares.~~

~~We will not pay a distribution fee with respect to our outstanding Class E or Class I shares.~~

The distribution fees will be paid monthly in arrears. The Dealer Manager will reallow (pay) all or a portion of the distribution fees to participating broker-dealers and servicing broker-dealers, and will waive distribution fees to the extent a participating broker-dealer or servicing broker-dealer is not eligible to receive it unless the Dealer Manager is serving as the broker of record with respect to such shares. The distribution fees are calculated based on the NAV of all our outstanding Class T, Class S and Class D shares, including shares issued under our distribution reinvestment plan. In calculating our distribution fees, we will use our most recently disclosed monthly NAV before giving effect to the monthly distribution fee or distributions on our shares.

We will cease paying the distribution fees with respect to individual Class T, Class S and Class D shares when they are no longer outstanding, including as a result of conversion to Class I shares. Each Class T, Class S or Class D share held within a stockholder’s account shall automatically and without any action on the part of the holder thereof convert into a number of Class I shares at the Applicable Conversion Rate (as defined below) on the earliest of (a) a listing of any shares of our common stock on a national securities exchange, (b) our merger or consolidation with or into another entity, or the sale or other disposition of all or substantially all of our assets and (c) the end of the month in which the Dealer Manager in conjunction with our transfer agent determines that the total upfront selling commissions, upfront dealer manager fees and ongoing distribution fees paid with respect to all shares of such class held by such stockholder within such account (including shares purchased through a distribution reinvestment plan or received as stock dividends) equals or exceeds 8.75% (or a lower limit set forth in any applicable agreement between the Dealer Manager and a participating broker-dealer, provided that the Dealer Manager advises our transfer agent of the lower limit in writing) of the aggregate purchase price of all shares of such class held by such stockholder within such account and purchased in a primary offering (i.e., an offering other than a distribution reinvestment plan).

In addition, after termination of a primary offering registered under the Securities Act, each Class T, Class S or Class D share sold in that primary offering, each Class T, Class S or Class D share sold under a distribution reinvestment plan pursuant to the same registration statement that was used for that primary offering, and each Class T, Class S or Class D share received as a stock dividend with respect to such shares sold in such primary offering or distribution reinvestment plan, shall automatically and without any action on the part of the holder thereof convert into a number of Class I shares at the Applicable Conversion Rate,ultimately determined at the end of ~~the month in which we, with the assistance of the Dealer Manager, determine that all underwriting compensation~~each calendar year and will be paid or incurred with respect to the offerings covered by that registered statement from all sources, determined pursuant to the rules and guidance of FINRA, would be in excess of 10%of the aggregate purchase price of all shares sold for our account through that primary offering.

As used above, the “Applicable Conversion Rate” means (a) with respect to Class T shares, a ratio whereby the numerator is the most recently disclosed monthly Class T NAV per share and the denominator is the most recently disclosed monthly Class I NAV per share, (b) with respect to Class S shares, a ratio whereby the numerator is the most recently disclosed monthly Class S NAV per share and the denominator is the most recently disclosed monthly Class I NAV per share, and (c) with respect to Class D shares, a ratio whereby the numerator is the most recently disclosed monthly Class D NAV per share and the denominator is the most recently disclosed monthly Class I NAV per share. For each class of shares, the NAV per share shall be calculated as described in the most recent valuation procedures approved by our board of directors. Because we currently expect to allocate ongoing distribution fee expenses to our Class T, Class S and Class D shares through their distributions, and not through their NAV per share, we currently expect the Applicable Conversion Rate to remain 1:1 for our Class T, Class S and Class D shares.

Pursuant to the Third Amended Dealer Manager Agreement, we pay directly, or reimburse the Advisor and the Dealer Manager if they pay on our behalf, certain additional items of underwriting compensation, including legal fees of the Dealer Manager, costs reimbursement for registered representatives of participating broker-dealers to attend educational conferences

~~sponsored by us or the Dealer Manager, attendance fees for registered persons associated with the Dealer Manager to attend seminars conducted by participating broker-dealers, and promotional items.~~

~~Independent Director RSU Awards~~

On December 5, 2013, our board of directors approved revised compensation for our independent directors. In connection with the revised compensation plan, at each annual meeting of stockholders the independent directors will automatically, upon election, each receive an annual $10,000 grant of Restricted Stock Units ("RSUs") with respect to Class I shares of our common stock, with the number of RSUs based on the NAV per Class I share as of the end of the day of the annual meeting.

~~Restricted Stock Unit Agreements~~

We have entered into Restricted Stock Unit Agreements (the “Advisor RSU Agreements”) with our Advisor. The purposes of our Advisor RSU Agreements are to promote an alignment of interests among our stockholders, our Advisor and the personnel of our Advisor and its affiliates, and to promote retention of the personnel of our Advisor and its affiliates. Each restricted stock unit that we grant pursuant to our Advisor RSU Agreements (the "Company RSUs") will, upon vesting, be settled in one share of our Class I common stock. The Company RSUs are subject to specified vesting and settlement provisions and, upon settlement in Class I ~~shares of Company common stock, require offsets of advisory fees and expenses otherwise payable from~~OP units or cash, at the ~~Company to our Advisor as described further below based on the NAV per Class I share on the grant date~~election of the applicable Company RSU. Pursuant to the terms of the Advisor RSU Agreements, we have granted our Advisor approximately 842,000 Company RSUs. On April 13, 2017, we entered into an amendment to the Advisor RSU Agreements pursuant to which the Advisor agreed that approximately 208,000 of the RSUs originally granted under the Agreements would not vest (the "Relinquished RSUs"). Because the underlying shares will not vest and be delivered to the Advisor, no offset of advisory fees and expenses otherwise payable from the Company to the Advisor will occur with respect to the Relinquished RSUs. However, in consideration for the Advisor's agreement, we agreed to reduce future offsets of advisory fees and expenses in connection with vesting and settlement of other RSUs by approximately $33,000, which amount reflects an increase in net asset value per Class I share since the grants of certain of the Relinquished RSUs. As of September 30, 2017, approximately 123,000 Company RSUs remained unvested and unsettled.

As of September 30, 2017, our Advisor did not have any shares of Class I common stock issued upon settlement of Company RSUs that remained subject to fee offset. The Advisor is expected to redistribute a significant portion of the Company RSUs and/or shares to senior level employees of our Advisor and its affiliates that provide services to us, although the terms of such redistributions (including the timing, amount and recipients) remain solely in the discretion of our Advisor. The ~~weighted average grant-date NAV per Class I share with respect to the unsettled Company RSUs is $7.29~~performance hurdle was not achieved as of September 30, ~~2017.~~

~~Vesting and Payment Offset~~

~~Following specified vesting provisions, an equal percentage~~2023, therefore no performance participation allocation expense was recognized in our condensed consolidated statements of the Company RSUs vest on each of the applicable vesting dates. On each vesting date, an offset amount (each, an “Offset Amount”) will be calculated and deducted on a pro rata basis over the next 12 months from the cash payments otherwise due and payable to our Advisor under our then-current Advisory Agreementoperations for any fees or expense reimbursements. Each Offset Amount equals the number of Company RSUs vesting on such date multiplied by the NAV per Class I share publicly disclosed by us (the “Class I NAV”) as of the end of the applicable grant date (the “Grant Date NAV per Class I Share”). Each Offset Amount is always calculated based on the Grant Date NAV per Class I Share, even beyond the initial grant and vesting date. At the end of each 12-month period following each vesting date, if the Offset Amount has not been fully realized by offsets from the cash payments otherwise due and payable to our Advisor under the Advisory Agreement, our Advisor shall promptly pay any shortfall to us.

~~The chart below shows the grant dates, vesting dates, number of unvested shares as of September 30, 2017, and Grant Date NAV per Class I Share (share amounts in thousands).~~

Award Grant Date Vesting Dates Number of Unvested Shares Grant Date NAV per Class I Share
Company RSU 2/25/2015 4/13/2018 66
$ 7.18
Company RSU 2/4/2016 4/15/2019 57
7.41
Total/ weighted average 123
$ 7.29

~~Termination~~

The Advisor RSU Agreements will automatically terminate upon termination or non-renewal of the Advisory Agreement by any party for any reason. In addition, upon a change in control of us, then either our Advisor or we may

immediately terminate the Advisor RSU Agreements. Further, our Advisor may immediately terminate the Advisor RSU Agreements if we exercise certain rights under the Advisor RSU Agreements to replace the Company RSUs with another form of compensation.

Upon termination of the Advisor RSU Agreements, our Advisor will promptly pay any unused offset amounts to us or, at our Advisor’s election, return Class I shares in equal value based on the Class I NAV as of the date of termination of the Advisor RSU Agreements. In addition, upon termination of the Advisor RSU Agreements, all unvested Company RSUs will be forfeited except that, unless the Advisor RSU Agreements were terminated at the election of our Advisor following a change in control of us or as a result of a premature termination of the Advisory Agreement at our election for cause (as defined in the Advisory Agreement) or upon the bankruptcy of our Advisor, then following such forfeiture of Company RSUs, our Advisor will have the right to acquire from us the number of Class I shares equal to the number of Company RSUs forfeited, in return for a purchase price equal to such number of Class I shares multiplied by the Grant Date NAV per Class I Share. The Advisor must notify us of its election to exercise the foregoing acquisition right within 30 days following the termination of the Advisor RSU Agreements, and the parties will close the transaction within 60 days following the termination of the Advisor RSU Agreements.

~~Dividend Equivalent Payments~~

If our board of directors declares and we pay a cash dividend on Class I shares for any period in which the Company RSUs are outstanding (regardless of whether such Company RSUs are then vested), our Advisor will be entitled to dividend equivalents (the “Dividend Equivalents”) with respect to that cash dividend equal to the cash dividends that would have been payable on the same number of Class I shares as the number of Company RSUs subject to the Advisor RSU Agreements had such Class I shares been outstanding during the same portion of such period as the Company RSUs were outstanding. Any such Dividend Equivalents may be paid in cash or Class I shares, at our Advisor’s election.

~~Restricted Stock Grant~~

Effective February 2, 2017, we granted approximately 58,000 restricted shares of Class I common stock to certain employees of our Advisor and its affiliates at a price of $7.56 per share, of which 25% vested on the grant date with the remaining 75% vesting ratably over the next three anniversaries of the grant date. During the nine months ended September 30, ~~2017, approximately 38,000 shares of restricted stock vested at a weighted average price of $7.55, based on our NAV per share~~2023. As the performance hurdle was achieved as of September 30, 2022, we recognized approximately $3.7 million for the ~~vesting dates. During~~three months ended September 30, 2022 and $22.1 million for the nine months ended September 30, ~~2017, we recorded approximately $258,000 within “general and administrative expenses”~~2022 of performance participation allocation expense in ~~the accompanying~~our condensed consolidated statements of operations. ~~Our~~

12. NET INCOME (LOSS) PER COMMON SHARE

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



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	2023		2022		2023		2022
Net loss attributable to common stockholders—basic	$	(14,410)	$	(24,872)	$	(39,164)	$	(9,449)
Net loss attributable to redeemable noncontrolling interests		(146)		(253)		(390)		(67)
Net loss attributable to noncontrolling interests		(4,477)		(4,996)		(11,304)		(2,378)
Net loss attributable to common stockholders—diluted	$	(19,033)	$	(30,121)	$	(50,858)	$	(11,894)
Weighted-average shares outstanding—basic		201,968		200,667		204,968		190,199
Incremental weighted-average shares effect of conversion of noncontrolling interests		64,519		42,327		59,853		36,095
Weighted-average shares outstanding—diluted		266,487		242,994		264,821		226,294
Net loss per share attributable to common stockholders:
Basic	$	(0.07)	$	(0.12)	$	(0.19)	$	(0.05)
Diluted	$	(0.07)	$	(0.12)	$	(0.19)	$	(0.05)

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13. SUPPLEMENTAL CASH FLOW INFORMATION

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


	For the Nine Months Ended September 30,
(in thousands)	2023		2022
Supplemental disclosure of non-cash investing and financing activities:
Distributions reinvested in common stock	$	24,260	$	21,555
(Decrease) increase in accrued future ongoing distribution fees		(306)		21,371
Increase in DST Program Loans receivable through DST Program capital raising		40,196		45,318
Redeemable noncontrolling interest issued as settlement of performance participation allocation		—		15,327
Issuances of OP Units for DST Interests		84,725		136,905

Restricted Cash

Restricted cash consists of lender and property-related escrow accounts. The following table presents the components of the beginning of period and end of period cash, cash equivalents and restricted ~~stock generally vests ratably over a period~~cash reported within the condensed consolidated statements of ~~three to four years.~~

~~Private Placements of Delaware Statutory Trust Interests~~

~~Private Placements~~

~~In March 2016, we, through our~~cash flows:


	For the Nine Months Ended September 30,
(in thousands)	2023		2022
Beginning of period:
Cash and cash equivalents	$	13,336	$	10,605
Restricted cash		3,850		3,747
Cash, cash equivalents and restricted cash	$	17,186	$	14,352
End of period:
Cash and cash equivalents	$	14,503	$	24,245
Restricted cash		4,149		3,788
Cash, cash equivalents and restricted cash	$	18,652	$	28,033

14. COMMITMENTS AND CONTINGENCIES

Litigation

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

Environmental Matters

A majority of the properties we acquire have been or will be subject to environmental reviews either by us or the previous owners. In addition, we may incur environmental remediation costs associated with certain land parcels we may acquire in ~~private placements exempt from registration under~~connection with the ~~Securities Act~~development of ~~1933, as amended (“Private Placements”), through~~land. We have acquired or may in the ~~sale of beneficial interests (“Interests”)~~future acquire certain properties in ~~specific Delaware statutory trusts holding real properties, including properties currently indirectly~~urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous materials. We may purchase various environmental insurance policies to mitigate our ~~Operating Partnership (the “2016 DST Program”). From 2006 through 2009,~~exposure to environmental liabilities. We are not aware of any environmental liabilities that we ~~through~~believe would have a material adverse effect on our ~~subsidiaries, conducted similar private placement offerings~~business, financial condition, or results of ~~fractional interests in which it raised a total~~operations as of ~~$183.1 million in gross proceeds. These fractional interests were all subsequently acquired by our Operating Partnership in exchange for an aggregate of 17.7 million OP Units.~~ September 30, 2023.

Unfunded Commitments

As of September 30, ~~2017,~~2023, we had ~~sold approximately $8.4~~unfunded commitments of $208.1 million to fund various investments in ~~Interests~~real estate debt and securities and investments in unconsolidated joint venture partnerships.

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15. SEGMENT FINANCIAL INFORMATION

Our five reportable segments are office properties, retail properties, residential properties, industrial properties, and investments in real estate debt and securities. We have determined that investments in real estate debt and securities is a reportable segment, and we expect that the segment will continue to be of significance. As such, we have broken out investments in real estate debt and securities as a reportable segment in the ~~2016~~tables below for all current and prior periods presented. Factors used to determine our reportable segments include the physical and economic characteristics of our properties and/or investments and the related operating activities. Our chief operating decision makers rely on net operating income, among other factors, to make decisions about allocating resources and assessing segment performance. Net operating income is the key performance metric that captures the unique operating characteristics of each segment. Net investment in real estate properties, investments in real estate debt and securities, restricted cash, tenant receivables, straight-line rent receivables and other assets directly assignable to a property or investment are allocated to the segment groupings. Corporate items that are not directly assignable to a property, such as investments in unconsolidated joint venture partnerships and DST Program ~~which we include in "other liabilities" in our accompanying condensed consolidated balance sheets. In September 2017, we, through our Operating Partnership, made certain modifications~~Loans, are not allocated to ~~the 2016 DST Program to reflect the Restructuring and to modify certain fees related to the Private Placements~~segment groupings, but are reflected as described below (the “2017 DST Program”). As of September 30, 2017, we have not sold any Interests in the 2017 DST Program. The 2016 DST Program together with the 2017 DST Program may be referred to herein as the DST Program.

Each Private Placement will offer Interests in one or more real properties placed into one or more Delaware statutory trust(s) by our Operating Partnership or its affiliates (“DST Properties”). We anticipate that these Interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Internal Revenue Code of 1986, as amended. Additionally, properties underlying Interests sold to investors pursuant to such Private Placements will be leased-back by an indirect wholly owned subsidiary of our Operating Partnership on a long term basis of up to 29 years. The lease agreements are expected to be fully guaranteed by our Operating Partnership. Additionally, our Operating Partnership will retain a fair market value purchase option (“FMV Option”) giving it the right, but not the obligation, to acquire the Interests from the investors at a later time in exchange for OP Units.

~~DST Program Dealer Manager Agreement~~

In connection with the DST Program, in March 2016, Black Creek Exchange LLC (f/k/a Dividend Capital Exchange LLC) (“BCX”), a wholly owned subsidiary of our taxable REIT subsidiary that is wholly owned by our Operating Partnership, entered into a Dealer Manager Agreement with our Dealer Manager, pursuant to which our Dealer Manager agreed to conduct Private Placements for Interests reflecting an indirect ownership of up to $500 million of Interests. BCX will pay certain up-front fees and reimburse certain related expenses to the Dealer Manager with respect to capital raised through any such Private Placements. BCX is obligated to pay our Dealer Manager a dealer manager fee of up to 1.5% of gross equity proceeds raised and a commission of up to 5% of gross equity proceeds raised through the Private Placements. The Dealer Manager may re-allow such commissions and a portion of such dealer manager fee to participating broker dealers.

In addition, we, or our subsidiaries, are obligated to pay directly or reimburse our Advisor and our Dealer Manager if they pay on our behalf, any organization and offering expenses (other than selling commissions and the dealer manager fee) as and when incurred. These expenses may include reimbursements for the bona fide due diligence expenses of participating broker-dealers, supported by detailed and itemized invoices, and similar diligence expenses of investment advisers, legal fees of our Dealer Manager, reimbursements for customary travel, lodging, meals and reasonable entertainment expenses of registered persons associated with our Dealer Manager, the cost of educational conferences held by us, including costs reimbursement for registered persons associated with our Dealer Manager and registered representatives of participating broker-dealers to attend educational conferences sponsored by us, and attendance fees and costs reimbursement for registered persons associated with our Dealer Manager to attend seminars conducted by participating broker-dealers and promotionalreconciling items.

We intend to recoup the costs of the selling commissions and dealer manager fees described above as well as some or all of our organization and offering expenses associated with the Private Placements through a purchase price “mark-up” of the initial estimated fair value of the DST Properties to be sold to investors, thereby placing the economic burden of these up-front fees on the investors purchasing such Interests. Under the 2016 DST Program, the purchase price mark-ups total up to 8% of the gross equity proceeds raised in the Private Placements. In addition, under the 2016 DST Program, we will be paid, by investors purchasing Interests, a non-accountable reimbursement equal to 1.0% of gross equity proceeds for real estate transaction costs that we expect to incur in selling or buying these Interests, and, investors purchasing Interests will be required to pay their share of title, transfer tax and other expenses as well as their own respective closing costs upon the initial sale of the interests. Under the 2017 DST Program, we have increased the purchase price mark-ups to 9.25% and eliminated the 1% out of pocket fee and additional charges for the investor’s share of title, transfer tax and other expenses. Under the 2017 DST Program, investors remain responsible for their own respective closing costs upon the initial sale of the interests.

~~Limited Partnership Agreement~~

In connection with the launch of the 2016 DST Program, the Company, on behalf of itself as general partner and on behalf of all the limited partners thereto, entered into the Fifth Amended and Restated Limited Partnership Agreement of our Operating Partnership, dated as of March 2, 2016, which was amended on August 2, 2016, and further amended on September 19, 2016 and March 2, 2017 (the “Prior Agreement”). The Prior Agreement amended the prior operating partnership agreement by establishing two series of Class E OP Units, with different redemption and registration rights. The currently existing third-party holders of Class E OP Units now hold Series 1 Class E OP Units, and continue to have the same redemption and registration rights they had previously, which include the right, in certain circumstances to require our Operating Partnership to redeem the OP Units for Class E shares of the Company or cash. Any purchasers of Interests in the 2016 DST Program that ultimately acquire OP Units through the FMV Option will acquire Series 2 Class E OP Units, which will have similar redemption and registration rights to those of the holders of Series 1 Class E OP Units, except that their redemption rights will in certain circumstances require our Operating Partnership to redeem the OP Units for either Class I shares of the Company or cash (as determined by our Operating Partnership in its sole discretion). In addition, the Prior Agreement provides that a redemption fee of 1.5% of the shares otherwise payable to a limited partner upon redemption of Series 2 Class E Units will be paid to an affiliate of the DST Manager (defined below). Holders of Series 1 or Series 2 Class E OP Units cannot require us to redeem their Series 1 or Series 2 Class E OP Units with cash.

Effective September 1, 2017, we entered into a Sixth Amended and Restated Limited Partnership Agreement (the "Amended and Restated Limited Partnership Agreement"). The Amended and Restated Limited Partnership Agreement reflects our Operating Partnership’s new name, revised OP Units that correspond to our revised share classes, and other ministerial changes. It also provides redemption rights for holders of Class I OP Units (which we may issue to third parties in the future). Any purchasers of Interests in the 2017 DST Program that ultimately acquire OP Units through the FMV Option will acquire Class I OP Units, which may be redeemed for either Class I shares of the Company or cash (as determined by our Operating Partnership in its sole discretion). In addition, the Amended and Restated Limited Partnership Agreement provides that a redemption fee of 1.5% of the shares otherwise payable to a limited partner upon redemption of Class I Units will be paid to an

~~affiliate of the DST Manager (defined below). Holders of Class I OP Units cannot require us to redeem their Class I Units with cash.~~

~~Delaware Statutory Trust Agreement~~

BC Exchange Manager LLC, a wholly owned subsidiary of our Operating Partnership, is engaged to act as the manager of each Delaware statutory trust holding a DST Property, but will assign all of its rights and obligations as manager (including fees and reimbursements received) to an affiliate of the Advisor or a subsidiary thereof. Although the intention is to sell 100% of the interests to third parties, BCX may hold an interest for a period of time and therefore could be subject to the following description of fees and reimbursements paid to the DST Manager. The DST Manager will have primary responsibility for performing administrative actions in connection with the trust and any DST Property and has the sole power to determine when it is appropriate for a trust to sell a DST Property. The DST Manager will be entitled to the following payments from the trust: (i) a management fee equal to a stated percentage (e.g., 1.0%) of the gross rents payable to the trust, with such amount to be set on a deal-by-deal basis, (ii) a disposition fee of 1.0% of the gross sales price of any DST Property sold to a third party, and (iii) reimbursement of certain expenses associated with the establishment, maintenance and operation of the trust and DST Properties. Additionally, the DST Manager or its affiliate may earn a 1.0% loan fee for any financing arrangement sourced, negotiated and executed in connection with the DST Program. Furthermore, to the extent that the Operating Partnership exercises its fair market value purchase option to acquire the interests from the investors at a later time in exchange for OP Units, and such investors subsequently submit such OP Units for redemption pursuant to the terms of our Operating Partnership, a redemption fee of 1.5% of the amount otherwise payable to a limited partner upon redemption will be paid to an affiliate of our Advisor.

~~Summary of Fees and Other Amounts~~

The following table ~~summarizes fees and other amounts earned~~reflects our total consolidated assets by our Advisor and its related parties in connection with services performed for us during the three and nine months ended September 30, 2017 and 2016 (amounts in thousands, except footnoted information):

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Advisory fees ⁽¹⁾
$ 3,274
$ 3,681
$ 10,215
$ 11,118
Other reimbursements paid to our Advisor ⁽²⁾
2,203
1,928
6,507
6,232
Other reimbursements paid to our Dealer Manager 151
155
489
237
Advisory fees related to the disposition of real properties ⁽³⁾
1,477
271
1,763
2,078
Development management fee ⁽⁴⁾
—
—
—
31
Primary dealer fee ⁽⁵⁾
—
—
—
1,697
Selling commissions 4
7
29
73
Dealer manager fees 79
99
306
274
Distribution fees 27
18
65
52
Total $ 7,215
$ 6,159
$ 19,374
$ 21,792

~~(1)~~

Amounts reported for the three months ended September 30, 2017 and 2016 include approximately $153,000 and $284,000, respectively, that we were not obligated to pay in consideration of the issuance of Company RSUs to our Advisor. Amounts reported for the nine months ended September 30, 2017 and 2016 include approximately $596,000 and $849,000, respectively, that we were not obligated to pay in consideration of the issuance of Company RSUs to our Advisor.

~~(2)~~

Other reimbursements paid to our Advisor for the three months ended September 30, 2017 and 2016 include approximately $1.6 million and $1.6 million, respectively, and include approximately $5.1 million and $5.2 million for the nine months ended September 30, 2017 and 2016, respectively, to reimburse a portion of the salary, bonus and benefits for employees of our Advisor, including our executive officers, for services provided to us for which our Advisor does not otherwise receive a separate fee. The balance of such reimbursements are made up primarily of other general overhead and administrative expenses, including, but not limited to, allocated rent paid to both third parties and affiliates of our advisor, equipment, utilities, insurance, travel and entertainment, and other costs. As of the Restructuring Date, we no longer reimburse salary, bonus and benefits of our named executive officers. However, we will reimburse our Advisor for bonuses of our named executive officers for services provided to us prior to the Restructuring Date upon the final determination and payment of such bonuses to our named executive officers during the first quarter of 2018.


~~(3)~~	During the three months ended September 30, 2017, we paid the Advisor $1.4 million in consideration for disposition services rendered prior to September 1, 2017 and for which the Advisor has not otherwise been paid a fee.


~~(4)~~	~~Pursuant to our amended Advisory Agreement, our Advisor no longer receives a development management fee in exchange for providing development management services.~~


~~(5)~~	Amounts reported represent primary dealer fees we paid to our Dealer Manager based on the gross proceeds raised by participating broker-dealers pursuant to certain selected dealer agreements. Of the primary dealer fee earned during the nine months ended September 30, 2016, our Dealer Manager reallowed

~~approximately $1.5 million to participating third-party broker-dealers and retained approximately $170,000. We currently do not intend to pay additional primary dealer fees in the Follow-On Offering.~~

~~See the accompanying condensed consolidated balance sheets for the amounts we owed to our Advisor and affiliates of our Advisor for such services and reimbursement of certain expenses~~business segment as of September 30, ~~2017~~2023 and December 31, ~~2016. Pursuant~~2022:


	As of
(in thousands)	September 30, 2023		December 31, 2022
Assets:
Office properties	$	386,448	$	377,546
Retail properties		511,636		537,147
Residential properties		1,608,727		1,495,532
Industrial properties		1,339,472		1,248,255
Investments in real estate debt and securities		325,400		275,335
Corporate		314,788		240,909
Total assets	$	4,486,471	$	4,174,724

The following table is a reconciliation of our reported net income (loss) attributable to the Advisory Agreement, effective September 1, 2017, we accrue the advisory fee on a monthly basis and pay our Advisor amounts due subsequent to each month-end. Prior to September 1, 2017, we accrued the advisory fee on a daily basis. In addition, we recorded a liability of approximately $1.9 million for dealer manager and distribution fees that we estimate that we may paycommon stockholders to our Dealer Manager in future periods for shares of our common stock sold in our Follow-On Offering as of September 30, 2017. We anticipate that our Dealer Manager will reallow substantially all of such fees to third-party broker dealers.

~~9. NET (LOSS) INCOME PER COMMON SHARE~~

~~Reconciliations of the numerator and denominator used to calculate basic~~ net ~~(loss)~~operating income ~~per common share to the numerator and denominator used to calculate diluted net (loss) income per common share~~ for the three and nine months ended September 30, ~~2017~~2023 and ~~2016 are described in the~~2022:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022
Net loss attributable to common stockholders	$	(14,410)	$	(24,872)	$	(39,164)	$	(9,449)
Real estate-related depreciation and amortization		32,146		36,713		99,201		101,067
General and administrative expenses		2,974		3,155		8,991		7,786
Advisory fees		9,661		8,980		28,822		24,351
Performance participation allocation		—		3,710		—		22,088
Acquisition costs and reimbursements		2,032		1,176		5,050		3,898
Impairment loss on debt-related investment held for sale		—		—		3,780		—
Equity in loss (income) from unconsolidated joint venture partnerships		1,078		(1,590)		3,727		(2,298)
Interest expense		33,967		42,255		109,394		100,439
Gain on sale of real estate property		—		(11,303)		(36,884)		(94,827)
Loss on extinguishment of debt and financing commitments, net		—		—		700		—
Loss (gain) on derivative instruments		76		(1,691)		(13)		(4,223)
Provision for current expected credit losses		(1,048)		—		2,950		—
Other income and expenses		(1,298)		(843)		(3,330)		(1,843)
Net loss attributable to redeemable noncontrolling interests		(146)		(253)		(390)		(67)
Net loss attributable to noncontrolling interests		(4,477)		(4,996)		(11,304)		(2,378)
Net operating income	$	60,555	$	50,441	$	171,530	$	144,544

Table of contents

The following table ~~(amounts in thousands, except per share information):~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
Numerator 2017 2016 2017 2016
Net (loss) income $ (2,145 ) $ 3,318
$ 8,097
$ 51,690
Net loss (income) attributable to noncontrolling interests 185
(353 ) (1,591 ) (4,826 )
Net (loss) income attributable to common stockholders (1,960 ) 2,965
6,506
46,864
Dilutive noncontrolling interests share of net (loss) income (165 ) 230
526
3,639
Numerator for diluted earnings per share – adjusted net (loss) income $ (2,125 ) $ 3,195
$ 7,032
$ 50,503
Denominator

Weighted average shares outstanding-basic 139,925
158,688
144,998
161,274
Incremental weighted average shares effect of conversion of OP units 11,814
12,264
11,920
12,486
Weighted average shares outstanding-diluted 151,739
170,952
156,918
173,760
NET (LOSS) INCOME PER COMMON SHARE -BASIC AND DILUTED $ (0.01 ) $ 0.02
$ 0.04
$ 0.29

໿

~~10. SEGMENT INFORMATION~~

We have three reportable operating segments, which include our three real property operating sectors (office, industrial, and retail), and we measure our profit and loss of our operating segments based on net operating income (“NOI”). We organize and analyze the operations andsets forth consolidated financial results of each of these segments independently, due to inherently different considerations for each segment. Such considerations include, but are not limited to, the nature and characteristics of the investment, investment strategies and objectives. Specifically, the physical characteristics of our buildings, the related operating characteristics, the geographic markets, and the type of tenants are inherently different for each of our segments. The following tables set forth revenue and the components of NOI of our segmentsby segment for the three and nine months ended September 30, ~~2017~~2023 and ~~2016 (amounts in thousands):~~

໿

For the Three Months Ended September 30,
Revenues NOI
2017 2016 2017 2016
Office $ 27,099
$ 31,082
$ 15,730
$ 20,657
Industrial 1,538
1,449
1,194
968
Retail 20,841
20,727
15,038
15,196
Total $ 49,478
$ 53,258
$ 31,962
$ 36,821

For the Nine Months Ended September 30,
Revenues NOI
2017 2016 2017 2016
Office $ 84,163
$ 96,034
$ 50,253
$ 64,785
Industrial 4,438
4,694
3,172
3,345
Retail 63,421
60,776
47,077
44,986
Total $ 152,022
$ 161,504
$ 100,502
$ 113,116

2022:


									Debt and
(in thousands)	Office		Retail		Residential		Industrial		Securities		Consolidated
For the Three Months Ended September 30, 2023
Rental revenues	$	12,942	$	15,131	$	30,437	$	23,859	$	—	$	82,369
Debt-related income		—		—		—		—		8,837		8,837
Rental expenses		(6,554)		(4,089)		(14,546)		(5,462)		—		(30,651)
Net operating income	$	6,388	$	11,042	$	15,891	$	18,397	$	8,837	$	60,555
Real estate-related depreciation and amortization	$	4,054	$	4,016	$	10,256	$	13,820	$	—	$	32,146
For the Three Months Ended September 30, 2022
Rental revenues	$	13,065	$	15,303	$	28,047	$	20,573	$	—	$	76,988
Debt-related income		—		—		—		—		1,548		1,548
Rental expenses		(6,296)		(4,421)		(12,261)		(5,117)		—		(28,095)
Net operating income	$	6,769	$	10,882	$	15,786	$	15,456	$	1,548	$	50,441
Real estate-related depreciation and amortization	$	3,746	$	4,140	$	13,490	$	15,337	$	—	$	36,713
For the Nine Months Ended September 30, 2023
Rental revenues	$	39,292	$	43,937	$	88,108	$	66,196	$	—	$	237,533
Debt-related income		—		—		—		—		21,787		21,787
Rental expenses		(19,626)		(11,448)		(41,806)		(14,910)		—		(87,790)
Net operating income	$	19,666	$	32,489	$	46,302	$	51,286	$	21,787	$	171,530
Real estate-related depreciation and amortization	$	12,220	$	12,094	$	29,695	$	45,192	$	—	$	99,201
For the Nine Months Ended September 30, 2022
Rental revenues	$	39,845	$	48,879	$	70,225	$	54,038	$	—	$	212,987
Debt-related income		—		—		—		—		5,862		5,862
Rental expenses		(18,259)		(12,826)		(30,265)		(12,955)		—		(74,305)
Net operating income	$	21,586	$	36,053	$	39,960	$	41,083	$	5,862	$	144,544
Real estate-related depreciation and amortization	$	11,986	$	13,268	$	37,882	$	37,931	$	—	$	101,067

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

~~The following table is a reconciliation of our reported net (loss) income attributable to common stockholders to our NOI for the three and nine months ended September~~

30 ~~2017 and 2016 (amounts in thousands):~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Net (loss) income attributable to common stockholders $ (1,960 ) $ 2,965
$ 6,506
$ 46,864
Debt-related income (194 ) (235 ) (654 ) (710 )
Real estate depreciation and amortization expense 16,927
19,989
53,661
60,022
General and administrative expenses 2,760
2,234
7,034
7,192
Advisory fees, related party 3,274
3,681
10,215
11,118
Acquisition-related expenses —
136
—
661
Impairment of real estate property —
2,090
1,116
2,677
Other expense and (income) 664
(2,308 ) 862
(2,297 )
Interest expense 11,346
10,011
31,193
31,394
Gain on extinguishment of debt and financing commitments —
—
—
(5,136 )
Gain on sale of real property (670 ) (2,095 ) (11,022 ) (43,495 )
Net (loss) income attributable to noncontrolling interests (185 ) 353
1,591
4,826
Net operating income $ 31,962
$ 36,821
$ 100,502
$ 113,116

~~The following table reflects our total assets by business segment as~~

Table of ~~September 30, 2017 and December 31, 2016 (amounts in thousands):~~

On October 13, 2017, we, our Advisor and our Dealer Manager entered into a selected dealer agreement (the “Selected Dealer Agreement”) with Morgan Stanley Smith Barney LLC (“Morgan Stanley”). Pursuant to the Selected Dealer Agreement, Morgan Stanley will act as a selected dealer under the Third Amended Dealer Manager Agreement with the Dealer Manager whereby Morgan Stanley will offer and sell shares of our common stock pursuant to the Company’s Follow-On Offering registered pursuant to Post-Effective Amendment No. 10 to our Follow-On Registration Statement, which was filed on September 1, 2017. The Selected Dealer Agreement may be amended to apply to future registered offerings as well.

Pursuant to the Selected Dealer Agreement, Morgan Stanley will offer and sell shares in the Offering on the terms described in the section of the prospectus contained in the Follow-On Registration Statement entitled “Plan of Distribution,” which is incorporated herein by reference.

Subject to certain limitations set forth in the Selected Dealer Agreement, we, our Dealer Manager and our Advisor, jointly and severally, agreed to indemnify Morgan Stanley, its affiliates and their respective officers, directors, partners, members, shareholders, employees and agents against certain losses, claims, damages or liabilities arising directly out of or relating to certain untrue or alleged untrue statements of material fact or omissions or alleged omissions of material fact in the prospectus, registration statement and sales materials used in connection with the Follow-On Offering and applications to qualify the shares for sale under the securities laws of certain jurisdictions, certain other written information approved or supplied by us, the Dealer Manager or the Advisor in connection with the Follow-On Offering, a material breach by us, the Dealer Manager or the Advisor of any of the representations, warranties or agreements in the Selected Dealer Agreement, a material breach by us or the Dealer Manager of any of the representations, warranties or agreements in the Dealer Manager Agreement, or any willful misconduct, fraud or gross negligence by us, the Dealer Manager or the Advisor in the performance of or failure to perform its obligations under the Selected Dealer Agreement.

The information set forth above with respect to the Selected Dealer Agreement does not purport to be complete in scope and is qualified in its entirety by the full text of the Selected Dealer Agreement, which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.8.

~~Forward-Looking Statements~~

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Some of the ~~factors~~risks and uncertainties that may cause our actual results, performance or achievements to ~~vary are general economic and business (particularly real estate and capital market) conditions being less favorable than expected,~~differ materially from those expressed or implied by forward-looking statements include, among others, the business opportunities that may be presented to and pursued by us, changes in laws or regulations (including changes to laws governing the taxation of REITs), risk of acquisitions, availability and creditworthiness of prospective tenants, availability of capital (debt and equity), interest rate fluctuations, competition, supply and demand for properties in our current and any proposed market areas, tenants’ ability to pay rent at current or increased levels, accounting principles, policies and guidelines applicable to REITs, environmental, regulatory and/or safety requirements, tenant bankruptcies and defaults, the availability and cost of comprehensive insurance, including coverage for terrorist acts, and other factors, many of which are beyond our control. following:

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

the business opportunities that may be presented to and pursued by us, changes in laws or regulations (including changes to laws governing the taxation of real estate investment trusts (“REITs”));

●

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

●

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

●

environmental, regulatory and/or safety requirements; and

●

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

For a further discussion of these ~~factors~~ and other ~~risk~~ factors, ~~that could lead to actual results materially different from those described in the forward-looking statements,~~ see risk factors contained under (i) the heading "Risk Factors" in Post-Effective Amendment No. 10 to our Registration Statement on Form S-11 (File No. 333-197767), filed with the Securities and Exchange Commission (the "Commission") on September 1, 2017 and available at ~~www.sec.gov, which are incorporated herein by reference and update the risk factors under the same heading~~Part I, Item 1A, “Risk Factors” in our ~~Annual Report on~~2022 Form 10-K; and (ii) Part II, Item 1A of this Quarterly Report on Form 10-Q. These new risk factors are equally applicable to all of our current investors, regardless of which class of our common stock they own.

10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

Table of our Quarterly Report on Form 10-Q provides an overview of what management believes to be the key elements for understanding (i) our company and how we manage our business, (ii) how we measure our performance and our operating results, (iii) our liquidity and capital resources, and (iv) the financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.contents

~~Overview~~

~~Black Creek Diversified Property Fund~~

OVERVIEW

General

Ares Real Estate Income Trust Inc. ~~(f/k/a Dividend Capital Diversified Property Fund Inc.)~~ is a ~~Maryland corporation~~NAV-based perpetual life REIT that was formed on April 11, 2005, ~~to invest~~as a Maryland corporation. We are primarily focused on investing in and operating a diverse portfolio of real property. As of September 30, 2023, our consolidated real property portfolio consisted of 95 properties, totaling approximately 19.6 million square feet located in 33 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, one residential property, 161 net lease properties and ~~real estate related investments. As used herein, “the Company,” “we,” “our”~~10 data center investments as of September 30, 2023. Unless otherwise noted, these unconsolidated properties and ~~“us” refer~~investments are excluded from the presentation of our portfolio data herein.

We have operated and elected to ~~Black Creek Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.~~

~~We operate in such a manner so as to qualify~~be treated as a ~~real estate investment trust (“REIT”)~~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 ~~Umbrella Partnership Real Estate Investment Trust (“UPREIT”)~~UPREIT organizational structure to hold all or substantially all of our assets through our operating partnership, Black Creek Diversified Property Operating Partnership L.P. (f/k/a Dividend Capital Total Realty Operating Partnership, L.P.) (our “Operating Partnership”). Furthermore, our Operating Partnership wholly owns a taxable REIT subsidiary, BCD TRS Corp. (f/k/a DCTRT Leasing Corp.), through which we execute certain business transactions that might otherwise have an adverse impact on our status as a REIT if such business transactions were to occur directly or indirectly through ourthe Operating Partnership.

As a NAV-based perpetual life REIT, we intend to conduct ongoing public primary offerings of our common stock on a perpetual basis. We ~~are~~also intend to conduct an externally managed REIT and have no employees. Our day-to-day activities are managed by Black Creek Diversified Total Advisors LLC (f/k/a Dividend Capital Total Advisors LLC) (our “Advisor”), a related party, under the terms and conditions of an advisory agreement (as amended fromongoing distribution reinvestment plan offering for our stockholders to reinvest distributions in our shares. From time to time, we intend to file new registration statements on Form S-11 with the ~~“Advisory Agreement”).~~

~~The primary sources~~SEC to register additional shares of common stock so that we may continuously offer shares of common stock pursuant to Rule 415 under the Securities Act. During the nine months ended September 30, 2023, we raised gross proceeds of approximately $103.9 million from the sale of approximately 11.9 million shares of our ~~revenue~~common stock in our ongoing public offerings, including proceeds from our distribution reinvestment plan of approximately $24.3 million. See “Note 8 to the Condensed Consolidated Financial Statements” for more information about our public offerings.

Additionally, we have a program to raise capital through private placement offerings by selling DST Interests. These private placement offerings are exempt from registration requirements pursuant to Section 4(a)(2) of the Securities Act. We anticipate that these interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Code. Similar to our prior private placement offerings, we expect that the DST Program will give us the opportunity to expand and ~~earnings include rent received from customers~~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 ~~operating leases at our properties, including reimbursements from customers~~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 interests in the Delaware statutory trusts. During the nine months ended September 30, 2023, we sold $351.9 million of gross interests related to the DST Program, $40.2 million of which were financed by DST Program Loans. See “Note 6 to the Condensed Consolidated Financial Statements” for ~~certain operating costs. Our primary expenses include rental expenses, depreciation and amortization expenses, general and administrative expenses, advisory fees and interest expenses.~~

additional detail regarding the DST Program.

We currently ~~have three business segments, consisting of investments~~operate in ~~(i)~~four reportable property segments: office, ~~property, (ii) industrial property,~~retail, residential and (iii) retail property. We may have additional segments in the future to the extent we enter into additional real property sectors, such as multifamily, hospitality, and other real property types. For a discussion of our business segments and the associated revenue and net operating income by segment, see Note 10 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q. We also have investments in real estate related-debt investments (which we refer to as “debt-related investments”).

industrial. The following table summarizes our ~~investments in~~ real ~~properties,~~property portfolio by property segment ~~using our estimated fair value of these investments~~ as of September 30, ~~2017 (amounts in thousands):~~

໿

2023:


						Average
				% of Total		Effective Annual						% of
($ and square feet in thousands,	Number of	Number of	Rentable	Rentable		Base Rent per		%		Aggregate		Aggregate
except for per square foot data)	Markets (1)	Real Properties	Square Feet	Square Feet		Square Foot (2)		Leased		Fair Value		Fair Value
Office properties	7	8	1,572	8.0	%	$	35.03	70.1	%	$	562,050	11.9	%
Retail properties	8	18	2,318	11.8			19.69	97.5			691,050	14.6
Residential properties	9	16	4,645	23.7			28.06	92.8			1,802,150	38.0
Industrial properties	28	53	11,089	56.5			6.98	99.2			1,680,950	35.5
Total real property portfolio	33	95	19,624	100.0	%	$	15.04	95.2	%	$	4,736,200	100.0	%

Geographic Markets Number of Properties Net Rentable Square Feet
% Leased ⁽¹⁾
Aggregate Fair Value
Office properties 13
16
3,429
83.3 % $ 1,190,050
Industrial properties 4
4
1,389
88.3 % 86,550
Retail properties 9
33
3,751
95.7 % 1,006,500
Real properties
20 ⁽²⁾

53
8,569
89.5 % $ 2,283,100


(1)	~~Percentage leased is based on executed leases as~~Reflects the number of ~~September 30, 2017.~~


~~(2)~~	~~The~~unique markets by property segment and in total. As such, the total number of ~~our geographic~~ markets does not equal the sum of the number of ~~geographic~~ markets by property segment as ~~we have more than one segment~~certain property segments are located in ~~certain geographic markets.~~the same market.

(2)	Amount calculated as total annualized base rent, which includes the impact of any contractual tenant concessions (cash basis) per the terms of the lease, divided by total lease square footage as of September 30, 2023.

~~We may target investments in four primary property categories~~

Table of office, industrial, retail and multifamily. Although we may own properties in each of these categories, we are not tied to specific allocation targets and we may not always have significant holdings, or any holdings at all, in each category. For example, we do not currently own multifamily real estate assets, although we intend to consider multifamily investment opportunities in the future and our ownership of industrial real estate assets is less than 5% of our portfolio ascontents

As of September 30, ~~2017. From 2013 through 2016,~~2023, we had six floating-rate debt-related investments with a weighted-average interest rate of 10.4% and a weighted-average remaining life of 1.4 years. As of September 30, 2023, the aggregate outstanding principal was $226.9 million, the aggregate carrying amount was $218.2 million and total aggregate commitments were up to $332.9 million.

As of September 30, 2023, we had two available-for-sale debt securities, which were comprised of one CRE CLO investment and one preferred equity investment. As of September 30, 2023, the aggregate fair value of these investments was $107.2 million.

We currently focus our investment ~~strategy~~activities primarily ~~focused on multi-tenant~~across the major U.S. property sectors (industrial, residential (which includes and/or may include multi-family and other types of rental housing such as manufactured, student and single-family rental housing), office (which includes and/or may include medical office and ~~necessity-oriented, multi-tenant retail investments located~~life science laboratories) and retail). To a lesser extent, we strategically invest in ~~what we believe are strong markets poised for~~and/or intend to invest in geographies outside of the U.S., which may include Canada, the United Kingdom, Europe and other foreign jurisdictions, and in other sectors such as triple net lease, real estate debt (which may include mortgages and subordinated interests), real estate-related securities, properties in sectors adjacent to our primary investment sectors and/or infrastructure, to create a diversified blend of current income and long-term ~~growth. However, our current,~~value appreciation. Our near-term investment strategy ~~intends~~is likely to prioritize new investments in the industrial and ~~multifamily and de-emphasize investments~~residential sectors due to relatively attractive fundamental conditions. We also intend to continue to hold an allocation of properties in ~~retail and office. We are currently working on selling certain non-strategic~~the office and retail ~~assets. If successful,~~sectors, the disposition of these assets will help us to increase our allocation to industrial and multifamily real estate assets and our shorter term liquidity. However, there can be no assurance that we will be successful in this investment strategy, including with respect to any particular asset class. To a lesser extent we may invest in other types of real estate including, but not limited to, hospitality, medical offices, student housing and unimproved land. We anticipate that the majority of our real property investments will be made in the United States, although we may also invest in Canada and Mexico, and potentially elsewhere on a limited basis, to the extent that opportunities exist that may help us meet our investment objectives.

Any future and near-term obligations are expected to be funded primarily through the use of cash on hand, cash generated from operations, proceeds from our public offerings and other equity offerings, proceeds from the sale of existing investments, and the issuance and assumption of debt obligations.

~~Cash on hand~~ ~~— As of September 30, 2017, we had approximately $5.8 million of cash and cash equivalents.~~

~~Cash available under our credit facility~~ ~~— As of September 30, 2017, the unused portion of our line of credit was approximately $94.1 million, all~~latter of which ~~was available to us.~~

~~Cash generated from operations~~ ~~— During the nine months ended September 30, 2017, we generated approximately $53.8 million from operations of our real properties and income from debt-related investments.~~

~~Proceeds from offerings of equity securities~~ — We currently maintain a public offering of our shares of common stock. During the nine months ended September 30, 2017, we raised approximately $19.4 million in proceeds from the sale of shares in our current follow-on public offering, which commenced on September 16, 2015, including approximately $6.8 million under the distribution reinvestment plan. Additionally, during the nine months ended September 30, 2017, we received approximately $11.6 million in proceeds from the distribution reinvestment plan offering of our unclassified shares of common stock, which we refer to as “Class E” shares (the “Class E DRIP Offering”). Additionally, during the nine months ended September 30, 2017, we had raised approximately $5.9 million in proceeds from the sale of beneficial interests in specific Delaware statutory trusts holding real properties, which we include in "other liabilities" in our accompanying condensed consolidated balance sheets.

We believe that our existing cash balance, cash generated from operations, proceeds from our public offerings and our ability to sell investments and to issue debt obligations remains adequate to meet our expected capital obligations for the next twelve months.

~~Significant Transactions During the Nine Months Ended September 30, 2017~~

~~Restructuring~~

On September 1, 2017 (the “Restructuring Date”), we amended our charter and restructured our outstanding share classes as part of a broader restructuring (the "Restructuring"). Many aspects of the Restructuring are described in Post- Effective Amendment No. 10 to our Follow-On Registration Statement, which was filed on the Restructuring Date and is ~~available on the website of the Commission at the address~~ ~~www.sec.gov~~ ~~and incorporated herein by reference. As part of the Restructuring, we, among other things:~~