FAIR VALUE

9 Months Ended

Sep. 30, 2025

7. FAIR VALUE

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

Fair Value Measurements on a Recurring Basis

The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2025 and December 31, 2024:


							Total
(in thousands)	Level 1		Level 2		Level 3		Fair Value
As of September 30, 2025
Assets:
Derivative instruments	$	—	$	7,062	$	—	$	7,062
Investments in unconsolidated joint venture partnerships		—		—		40,520		40,520
Debt-related investments		—		—		133,224		133,224
Available-for-sale debt securities		—		2,791		136,452		139,243
DST Program Loans		—		—		145,343		145,343
Total assets measured at fair value	$	—	$	9,853	$	455,539	$	465,392
Liabilities:
Derivative instruments	$	—	$	1,721	$	—	$	1,721
Financing obligations		—		—		1,903,385		1,903,385
Total liabilities measured at fair value	$	—	$	1,721	$	1,903,385	$	1,905,106
As of December 31, 2024
Assets:
Derivative instruments	$	—	$	20,693	$	—	$	20,693
Investments in unconsolidated joint venture partnerships		—		—		38,386		38,386
Debt-related investments		—		—		28,844		28,844
Available-for-sale debt securities		—		13,370		123,187		136,557
DST Program Loans		—		—		71,068		71,068
Total assets measured at fair value	$	—	$	34,063	$	261,485	$	295,548
Liabilities:
Financing obligations	$	—	$	—	$	878,386	$	878,386
Total liabilities measured at fair value	$	—	$	—	$	878,386	$	878,386

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

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

Investments in Unconsolidated Joint Venture Partnerships. We have elected the fair value option on certain investments in unconsolidated joint venture partnerships. We separately value the real estate assets held by the unconsolidated joint venture partnerships to arrive at a fair value for our investments in unconsolidated joint venture partnerships. The fair value of real estate assets held by the unconsolidated joint venture partnerships is estimated using a direct capitalization methodology that is based on applying a capitalization rate to the estimated rental income to be generated by the real estate assets of the unconsolidated joint venture partnerships. The capitalization rate used in estimating the fair value of these investments is considered Level 3.

Debt-Related Investments. Our debt-related investments are unlikely to have readily available market quotations. In such cases, we will generally determine the initial value based on the acquisition price of such investments, if we acquire the investment, or the par value of such investment, if we originate the investment. 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. These inputs are generally considered Level 3.

Available-for-Sale Debt Securities. The available-for-sale debt securities are either preferred equity investments in real estate properties, CRE CLOs or CMBS. The fair value for CRE CLOs and CMBS 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 and CMBS 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 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.

DST Program Loans. The estimate of fair value of DST Program Loans takes into consideration various factors including current market rates and conditions and similar agreements with comparable loan-to-value ratios and credit profiles, as applicable. DST Program Loans with near-term maturities are generally valued at par. The inputs used in estimating the fair value of these financial assets are generally considered Level 3.

Financing Obligations. The estimate of fair value of financing obligations takes into consideration various factors including current market rates and conditions, leasing and other activity at the underlying DST Program investments, remaining master lease payments to DST investors, and the current portion of DST Program offerings sold to DST investors. The inputs used in estimating the fair value of these financial liabilities are generally considered Level 3.

The following table summarizes our financial assets measured at fair value on a recurring basis using Level 3 inputs for the nine months ended September 30, 2025:


	Investments in
	Unconsolidated Joint		Debt-Related		Available-For-Sale		DST Program
(in thousands)	Venture Partnerships		Investments		Debt Securities		Loans		Total
Balance as of December 31, 2024	$	38,386	$	28,844	$	123,187	$	71,068	$	261,485
Purchases and contributions		—		103,226		—		74,258		177,484
Paid-in-kind interest		—		1,405		13,056		—		14,461
Distributions received		(2,908)		—		—		—		(2,908)
Gain (loss) on financial assets		2,596		(251)		—		17		2,362
Foreign currency gain on investment		2,446		—		—		—		2,446
Amortization of loan origination fees (1)		—		—		209		—		209
Balance as of September 30, 2025	$	40,520	$	133,224	$	136,452	$	145,343	$	455,539

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

The following table summarizes our financial assets measured at fair value on a recurring basis using Level 3 inputs for the nine months ended September 30, 2024:


	Investments in
	Unconsolidated Joint		Debt-Related		Available-For-Sale		DST Program
(in thousands)	Venture Partnerships		Investments		Debt Securities		Loans		Total
Balance as of December 31, 2023	$	—	$	—	$	107,392	$	7,753	$	115,145
Purchases and contributions		33,187		27,974		—		46,572		107,733
Paid-in-kind interest		—		268		11,462		—		11,730
Distributions received		(128)		—		—		—		(128)
Gain (loss) on financial assets		4,664		—		—		(164)		4,500
Foreign currency loss on investment		1,896		—		—		—		1,896
Amortization of loan origination fees (1)		—		—		209		—		209
Balance as of September 30, 2024	$	39,619	$	28,242	$	119,063	$	54,161	$	241,085

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

The following table summarizes our financial liabilities measured at fair value on a recurring basis using Level 3 inputs for the nine months ended September 30, 2025:


	Financing
(in thousands)	Obligations
Balance as of December 31, 2024	$	878,386
DST Interests sold, net of upfront fees		988,387
Unrealized loss on financing obligations		36,612
Balance as of September 30, 2025	$	1,903,385

The following table summarizes our financial liabilities measured at fair value on a recurring basis using Level 3 inputs for the nine months ended September 30, 2024:


	Financing
(in thousands)	Obligations
Balance as of December 31, 2023	$	102,045
DST Interests sold, net of upfront fees		551,140
Unrealized gain on financing obligations		(8,968)
Balance as of September 30, 2024	$	644,217

The following table presents the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of September 30, 2025:


			Valuation	Unobservable	Impact to Valuation from
(in thousands)		Fair Value	Technique	Inputs	an Increase to Input
Assets:
Investments in unconsolidated joint venture partnerships	$	40,520	Direct Capitalization	Capitalization Rate		Decrease
Debt-related investments		133,224	Yield Method	Market Yield		Decrease
Available-for-sale debt securities (1)		136,452	Yield Method	Market Yield		Decrease
DST Program Loans		145,343	Yield Method	Market Yield		Decrease
Liabilities:
Financing obligations	$	1,903,385	Discounted Cash Flow	Discount Rate Exit Capitalization Rate		Decrease Decrease

(1)	As of September 30, 2025, the market yield used in determining the fair value of our available-for-sale debt security was 13.3%.

The following table presents the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of December 31, 2024:


			Valuation	Unobservable	Impact to Valuation from
(in thousands)		Fair Value	Technique	Inputs	an Increase to Input
Assets:
Investments in unconsolidated joint venture partnerships	$	38,386	Direct Capitalization	Capitalization Rate		Decrease
Debt-related investments		28,844	Yield Method	Market Yield		Decrease
Available-for-sale debt securities (1)		123,187	Yield Method	Market Yield		Decrease
DST Program Loans		71,068	Yield Method	Market Yield		Decrease
Liabilities:
Financing obligations	$	878,386	Discounted Cash Flow	Discount Rate Exit Capitalization Rate		Decrease Decrease

(1)	As of December 31, 2024, the market yield used in determining the fair value of our available-for-sale debt security was 13.3%.

Financial Assets and Liabilities Not Measured at Fair Value

As of September 30, 2025 and December 31, 2024, the fair values of cash and cash equivalents, restricted cash, tenant receivables, accounts payable and accrued expenses and distribution fees payable approximate their carrying values because of the short-term nature of these instruments. The table below includes fair values for certain of our financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:


		As of September 30, 2025				As of December 31, 2024
	Level in Fair	Carrying		Fair		Carrying		Fair
(in thousands)	Value Hierarchy	Value (1)		Value		Value (1)		Value
Assets:
Debt-related investments (2)	3	$	46,592	$	44,627	$	384,759	$	383,490
DST Program Loans (2)	3		49,785		49,759		49,785		49,583
Liabilities:
Line of credit	3	$	226,232	$	226,232	$	548,228	$	548,228
Term loans	3		1,000,000		1,000,000		800,000		800,000
Mortgage notes	3		1,359,666		1,356,028		1,368,946		1,340,398
Secured financings on debt-related investments	3		109,642		109,642		—		—

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

(2)	Only includes instruments for which we have not elected the fair value option and do not record at fair value on the condensed consolidated balance sheets.

The 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 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 estimate of fair value of DST Program Loans, line of credit, term loans, mortgage notes and secured financings on debt-related investments takes into consideration various factors including current market rates and conditions and similar agreements with comparable loan-to-value ratios and credit profiles, as applicable. Debt instruments with near-term maturities are generally valued at par.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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+ Details

Ares Real Estate Income Trust Inc. 10-Q