Ares Real Estate Income Trust Inc. (ZARE) stock intrinsic value fair value estimate & owner earnings analysis

Ares Real Estate Income Trust owns a mix of U.S. rental property. At the end of 2025 it held 143 consolidated properties with about 30.5 million square feet in 34 markets. These include 24 apartment communities (7,381 units, mostly in Florida, Texas, Georgia, Arizona and the Carolinas), 83 industrial buildings, 18 shopping centers, 6 office buildings, two fully leased data centers in the Washington, D.C./Baltimore area, and self-storage and other properties. It also owns stakes in joint ventures (credit-lease, data-center, industrial and real-estate-debt partnerships, some in Europe) and a book of real-estate loans. An Ares affiliate manages the company for a fee of 1.1% of net asset value a year ($51.3 million in 2025). The manager also earns a performance allocation of 12.5% of returns above a 5% hurdle ($16.5 million in 2025). The shares do not trade on an exchange. The company sells and buys them back through its own programs. How the company grows explains what it earns for owners. Ares became sponsor in July 2021. Since then, much of the growth has been paid for by selling fractional interests in properties to outside investors, known as Delaware statutory trust (DST) interests, and leasing those properties back. The company can later buy the interests back with operating-partnership units. At the end of 2025 it owed $2.33 billion to these investors and $3.0 billion to lenders, 56% of it at floating rates. Revenue grew from $218 million in 2021 to $499 million in 2025. Cash left over for owners did not grow with it, because interest, lease payments to DST investors, management fees and upkeep absorbed nearly all of it. Over the same period, average shares and units outstanding rose from 174 million to 342 million, and reached 437 million in the second quarter of 2026. What owners actually earn: we measure the cash the business produces for owners after keeping its properties in repair. That is operating cash flow without working-capital swings, minus the manager's performance allocation (a real cost, paid in cash or units), minus the part of capital spending needed to maintain the properties. Property purchases count as growth investment and are not charged. Two adjustments mattered. First, a $193.9 million purchase of loans held for resale passed through operating cash flow in 2024 and reversed in 2025, so we removed both. Second, the $23.7 million performance allocation earned in 2022 but paid in cash in 2023 is charged to 2022. Gains on property sales and non-cash value changes on the DST obligations are left out. On this basis, owners earned about 3 cents a share in 2021, about minus 1 cent in 2022 and 2023, minus 9 cents in 2024 and minus 5 cents in 2025. We anchor on the median for 2021-2025, the years under the current sponsor and strategy, which is about minus 1 cent a share. The first half of 2026 looks similar: operating cash flow of $26.8 million against capital spending of $29.0 million. From 2016 to 2018 the company earned 17-38 cents a share, but it was then a smaller fund with more offices, and it has since been largely rebuilt. Base case (-$0.06): Same-store property income stays roughly flat. In 2025 it fell 2.1%: apartment income dropped 6.9% on higher costs and rent concessions, and industrial rose 0.6%. For five years, new purchases have been financed at costs that roughly match the income they bring, and we assume that continues. Owners' earnings stay near minus 1 cent a share for ten years, and we see nothing specific to lift them after that. On this basis the company appears to owe slightly more than its cash earnings are worth, by about 6 cents a share, or roughly $25 million across all shares and units. Bear case (-$0.48): The risks already disclosed play out. Of $1.68 billion of floating-rate debt, only $861.6 million is capped, and each quarter-point rise in rates costs about $3.4 million a year. Same-store income keeps falling at the 2025 pace. Offices stay 76.5% leased (the Austin building is 44.9% leased). Fixed DST lease payments ($112.7 million due in the next twelve months) and $442.0 million of unfunded investment commitments keep absorbing cash. Owners' earnings fall to about minus 8 cents a share by year five, close to the 2024 level, and the shortfall is covered by borrowing or selling property. In this case the company appears to owe more than it is worth by about 48 cents a share, or roughly $210 million. Bull case ($1.82): The company's own levers work. Industrial rents keep resetting higher (same-store industrial rent per square foot rose from $7.44 to $7.80 in 2025). Most commercial leases already carry fixed or inflation-linked increases. The $1.53 billion of 2025 purchases and the data centers contribute for full years. Cash from the joint ventures keeps rising, as it did from $4.5 million in 2024 to $19.5 million in 2025. Empty office and other space gets leased. Owners' earnings rise about 1.5 cents a share a year to about 14 cents by year ten, and the properties keep earning at that level, since the capital spending that maintains them is already deducted. What these numbers leave out: the company's own appraisals value its properties at $7.57 billion, against $3.0 billion of loans and $2.33 billion owed to DST investors. We give appraised values no credit. The company has no plan to sell its portfolio, and owners receive cash earnings, not appraisals. If the properties were sold at those values, the result would be very different. In 2025 the company paid about $95 million of distributions, far more than the business earned for owners, and funded the gap with new share sales and borrowing. Two items could not be fully reconciled. In 2024, $26.4 million of loan interest was accrued but not received in cash; counting it would bring that year to about break-even. In 2025, joint-venture income of $48.6 million was well above the $19.5 million received in cash. Neither changes the finding that earnings are close to zero. This estimate would be wrong if owners' earnings reached at least 5 cents a share for two years in a row. Earnings at that level, if they lasted, would be worth about 83 cents a share, and would show that growth has started to pay off for existing owners.