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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

or

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number: 000-54372

 

 

Industrial Income Trust Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Maryland		27-0477259
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
518 Seventeenth Street, 17th Floor Denver, CO		80202
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code:

(303) 228-2200

 

 

Indicate by check mark whether the 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  x    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  x    No  ¨

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

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		x		Smaller Reporting Company		¨

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

As of November 3, 2011, there were 52,440,669 shares of the registrant’s common stock outstanding.

 

 

 

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INDUSTRIAL INCOME TRUST INC.

TABLE OF CONTENTS

 

				Page
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements:
		Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010			1
		Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010			2
		Consolidated Statement of Equity for the Nine Months Ended September 30, 2011			3
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010			4
		Notes to Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			23
Item 4.		Controls and Procedures			23
PART II.		OTHER INFORMATION
Item 1A.		Risk Factors			25
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 6.		Exhibits			28
Signatures					29

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED BALANCE SHEETS

 

(in thousands, except per share data)		September 30, 2011				December 31, 2010
		(unaudited)
ASSETS
Land		$	163,364			$	68,823
Building and improvements			494,428				132,618
Intangible lease assets			95,064				25,884
Construction in progress			538				—
Total investment in properties			753,394				227,325
Less accumulated depreciation and amortization			(16,919	)			(1,771	)
Net investment in properties			736,475				225,554
Investment in unconsolidated joint venture			47,603				—
Cash and cash equivalents			18,275				27,634
Restricted cash			782				7
Straight-line rent and accounts receivable, net			3,058				366
Notes receivable			5,912				—
Deferred acquisition costs			601				2,289
Deferred financing costs, net			3,785				2,114
Other assets			10,281				3,207
Total assets		$	826,772			$	261,171
LIABILITIES AND EQUITY
Liabilities
Accounts payable and other accruals		$	6,347			$	1,601
Debt			423,771				125,713
Tenant prepaids and security deposits			5,678				1,139
Due to affiliates			6,526				6,852
Distributions payable			6,670				1,786
Intangible lease liabilities, net			926				1,166
Other liabilities			234				14
Total liabilities			450,152				138,271
Commitments and contingencies (Note 10)
Equity
Stockholders’ equity:
Preferred stock, $0.01 par value - 200,000 shares authorized, none issued and outstanding			—				—
Common stock, $0.01 par value - 1,000,000 shares authorized, 47,986 and 15,697 shares issued and outstanding, respectively			480				157
Additional paid-in capital			421,117				134,474
Accumulated deficit			(44,753	)			(11,814	)
Accumulated other comprehensive (loss) income			(225	)			82
Total stockholders’ equity			376,619				122,899
Noncontrolling interests			1				1
Total equity			376,620				122,900
Total liabilities and equity		$	826,772			$	261,171

See accompanying Notes to Consolidated Financial Statements.

 

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INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
(in thousands, except per share data)		2011				2010				2011				2010
Revenues:
Rental revenues		$	15,901			$	810			$	33,051			$	810
Total revenues			15,901				810				33,051				810
Operating expenses:
Rental expenses			3,206				191				6,848				191
Organization expenses			—				—				—				1
Real estate-related depreciation and amortization			7,443				262				13,768				262
General and administrative expenses			1,101				385				2,708				1,247
Asset management fees, related party			1,486				105				3,137				113
Acquisition-related expenses, related party			1,464				2,070				8,532				2,322
Acquisition-related expenses			988				746				5,649				840
Total operating expenses			15,688				3,759				40,642				4,976
Other expenses:
Equity in loss of unconsolidated joint venture			(912	)			—				(912	)			—
Interest expense and other			(4,593	)			(138	)			(9,543	)			(134	)
Total other expenses			(5,505	)			(138	)			(10,455	)			(134	)
Net loss			(5,292	)			(3,087	)			(18,046	)			(4,300	)
Net loss attributable to noncontrolling interests			—				—				—				—
Net loss attributable to common stockholders		$	(5,292	)		$	(3,087	)		$	(18,046	)		$	(4,300	)
Weighted-average shares outstanding			42,693				5,442				31,855				2,483
Net loss per common share - basic and diluted		$	(0.12	)		$	(0.57	)		$	(0.57	)		$	(1.73	)

See accompanying Notes to Consolidated Financial Statements.

 

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INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

		Stockholders' Equity
		Common Stock								Additional								Accumulated Other				Noncontrolling				Total
										Paid-In				Accumulated				Comprehensive
(in thousands)		Shares				Amount				Capital				Deficit				(Loss) Income				Interests				Equity
Balance as of December 31, 2010			15,697			$	157			$	134,474			$	(11,814	)		$	82			$	1			$	122,900
Net loss			—				—				—				(18,046	)			—				—				(18,046	)
Unrealized loss on derivative instruments, net			—				—				—				—				(307	)			—				(307	)
Issuance of common stock			32,346				324				320,073				—				—				—				320,397
Offering costs for issuance of common stock			—				—				(32,868	)			—				—				—				(32,868	)
Redemptions of common stock			(57	)			(1	)			(562	)			—				—				—				(563	)
Distributions to stockholders			—				—				—				(14,893	)			—				—				(14,893	)
Balance as of September 30, 2011			47,986			$	480			$	421,117			$	(44,753	)		$	(225	)		$	1			$	376,620

See accompanying Notes to Consolidated Financial Statements.

 

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INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Nine Months Ended September 30,
(dollars in thousands)		2011				2010
Operating activities:
Net loss		$	(18,046	)		$	(4,300	)
Adjustments to reconcile net loss to net cash used in operating activities:
Real estate-related depreciation and amortization			13,768				262
Equity in loss of unconsolidated joint venture			912				—
Straight-line rent and amortization of above- and below-market leases			(1,351	)			5
Amortization of financing costs and other			474				—
Changes in operating assets and liabilities:
Accounts receivable and other assets			(3,859	)			(396	)
Accounts payable and other liabilities			4,581				1,841
Due to affiliates, exclusive of offering costs for issuance of common stock			(410	)			(811	)
Accrued acquisition costs			(506	)			322
Net cash used in operating activities			(4,437	)			(3,077	)
Investing activities:
Real estate acquisitions			(490,076	)			(114,500	)
Acquisition deposits			(602	)			(500	)
Additions to real estate			(2,090	)			—
Investment in unconsolidated joint venture			(48,515	)			—
Notes receivable			(5,912	)			—
Change in restricted cash			(775	)			(1,725	)
Purchases of office equipment			(145	)			(11	)
Net cash used in investing activities			(548,115	)			(116,736	)
Financing activities:
Proceeds from issuance of mortgage notes			183,992				64,160
Repayments of mortgage notes			(1,653	)			—
Proceeds from line of credit			97,350				—
Repayments of line of credit			(9,000	)			—
Financing costs paid			(2,384	)			(1,636	)
Proceeds from issuance of common stock			313,987				73,852
Offering costs for issuance of common stock			(32,981	)			(6,694	)
Distributions paid to common stockholders			(5,556	)			(301	)
Redemptions of common stock			(562	)			—
Net cash provided by financing activities			543,193				129,381
Net (decrease) increase in cash and cash equivalents			(9,359	)			9,568
Cash and cash equivalents, at beginning of period			27,634				186
Cash and cash equivalents, at end of period		$	18,275			$	9,754
Supplemental disclosure of cash flow information:
Interest paid		$	7,868			$	4
Supplemental disclosure of noncash items:
Offering proceeds due from transfer agent		$	2,704			$	3,598
Mortgage notes assumed on real estate acquisition			25,952				—
Increase in accrued offering costs			4,458				431
Acquisition deposits applied to real estate acquisitions			2,289				—
Distributions reinvested in common stock			4,453				—

See accompanying Notes to Consolidated Financial Statements.

 

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INDUSTRIAL INCOME TRUST INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.	BASIS OF PRESENTATION

Unless the context otherwise requires, the “Company” refers to Industrial Income Trust Inc. and its consolidated subsidiaries.

The accompanying unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain disclosures normally included in the annual audited financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been omitted. As such, the accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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

Recent Accounting Standards

Recently Adopted Accounting Standards. In January 2010, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”). Certain provisions of ASU 2010-06 became effective for the Company beginning January 1, 2011. Those provisions, which amend the fair value guidance of the FASB Accounting Standards Codification, require companies to disclose separate line items for all purchases, sales, issuances, and settlements in the rollforward of activity for Level 3 fair value measurements. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”). ASU 2010-29 requires an entity to disclose pro forma revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This update also expands the required supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 became effective for the Company beginning January 1, 2011. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards. In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”), which amends the current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. ASU 2011-04 is to be applied prospectively and is effective for the Company beginning January 1, 2012. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position, or liquidity.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), which amends the FASB’s guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. ASU 2011-05 requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. ASU 2011-05 is to be applied retrospectively and is effective for the Company’s quarter ending March 31, 2012. This updated guidance will result in a change in the presentation of the Company’s financial statements but will not have any impact on the Company’s results of operations, financial position, or liquidity.

The Company has determined that all other recently issued accounting standards will not have a material impact on its consolidated financial statements, or do not apply to its operations.

 

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2.	ACQUISITIONS

The Company acquired 100% of the following acquisitions during the nine months ended September 30, 2011:

 

												Intangibles
(dollars in thousands)		Acquisition Date		Land				Buildings and Improvements				Intangible Lease Assets				Above- Market Lease Assets				Below- Market Lease Liabilities				Total Purchase Price (2)
Rock Quarry 1 & 2		January 19, 2011		$	3,106			$	19,625			$	2,727			$	300			$	(83	)		$	25,675
Eagle Falls Distribution Center		January 19, 2011			1,004				6,819				1,218				1,609				—				10,650
Hagerstown Distribution Center		January 27, 2011			5,926				30,154				5,193				—				(123	)			41,150
Regional Distribution Portfolio		June 17, 2011			11,788				89,563				9,775				742				(68	)			111,800
Chicago Industrial Portfolio		Various			13,219				74,401				6,877				2,124				(91	)			96,530
Commerce Park Portfolio		June 29, 2011			10,662				18,474				4,802				105				(45	)			33,998
Other acquisitions (1)		Various			48,836				122,330				27,292				4,588				(350	)			202,696
Total properties				$	94,541			$	361,366			$	57,884			$	9,468			$	(760	)		$	522,499

 

(1)	Consists of 11 individually non-material acquisitions.

(2)	The preliminary allocation of the purchase price was based on the Company’s estimate of the fair value based on all available information and will be finalized during 2011. Total purchase price equals the amount paid, plus any debt assumed.

Intangible lease assets and above-market lease assets are amortized over the remaining lease term. Below-market lease liabilities are amortized over the remaining lease term, including any renewal periods. The weighted-average amortization period for the intangible assets and liabilities acquired in connection with these acquisitions, as of the date of acquisition, was as follows:

 

(years)		Intangibles, net
Rock Quarry 1 & 2			5.1
Eagle Falls Distribution Center			8.1
Hagerstown Distribution Center			5.5
Regional Distribution Portfolio			12.2
Chicago Industrial Portfolio			4.1
Commerce Park Portfolio			1.4
Other acquisitions			6.0

Pro Forma Financial Information

The revenue and net loss from the acquired properties included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2011, and the revenue and net loss of the combined entities had the acquisition dates been January 1, 2010 are presented in the table below. The pro forma financial information is not intended to represent or be indicative of the Company’s consolidated financial results that would have been reported had the acquisition been completed at the beginning of the comparable prior period presented and should not be taken as indicative of its future consolidated financial results.

 

		For the Three Months Ended September 30,								For the Nine Months  Ended September 30,
(dollars in thousands, except per share data)		2011				2010				2011				2010
Actual:
Total revenues		$	10,313			$	—			$	16,113			$	—
Net loss		$	(759	)		$	—			$	(3,965	)		$	—
Pro forma:
Total revenues (1)		$	17,949			$	13,163			$	53,227			$	37,091
Net loss (2)		$	(3,582	)		$	(3,946	)		$	(5,784	)		$	(19,241	)
Net loss per common share - basic and diluted		$	(0.07	)		$	(0.08	)		$	(0.12	)		$	(0.40	)
Weighted-average shares outstanding (3)			47,986				47,986				47,986				47,986

 

(1)

The pro forma total revenues were adjusted to include the Company’s estimate of incremental revenue of $2.0 million and $12.4 million for the three months ended September 30, 2011 and 2010, respectively, and $20.2 million and $36.3 million for the nine months ended September 30, 2011 and 2010, respectively.

(2)

For the three and nine months ended September 30, 2011, the pro forma net loss was adjusted to exclude acquisition-related expenses of $1.9 million and $13.7 million, respectively. For the three months ended September 30, 2010, there were no adjustments for acquisition-related expenses. For the nine months ended September 30, 2010, the pro forma net loss was adjusted to include acquisition-related expenses of $13.3 million.

(3)	The pro forma weighted-average shares outstanding for the three and nine months ended September 30, 2011 and 2010 was calculated as if all shares outstanding as of September 30, 2011 had been issued at the beginning of each period presented.

 

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3.	INVESTMENT IN PROPERTIES

As of September 30, 2011, the Company owned and managed a portfolio of consolidated and unconsolidated properties that included 94 industrial buildings totaling approximately 16.8 million square feet with 205 tenants in 12 major industrial markets throughout the U.S. The “consolidated properties,” which are properties the Company manages and are 100% owned, consisted of 81 buildings totaling approximately 13.2 million square feet. The “unconsolidated properties,” which are properties the Company manages and are 51% owned through an unconsolidated joint venture, consisted of 13 buildings totaling approximately 3.6 million square feet. Refer to “Note 4” for further detail regarding the Company’s investment in an unconsolidated joint venture.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities included the following:

 

		September 30, 2011												December 31, 2010
(dollars in thousands)		Gross				Accumulated Amortization				Net				Gross				Accumulated Amortization				Net
Intangible lease assets		$	81,487			$	(8,957	)		$	72,530			$	23,601			$	(986	)		$	22,615
Above-market lease assets (1)			13,577				(1,573	)			12,004				2,283				(193	)			2,090
Below-market lease liabilities (1)			(1,195	)			269				(926	)			(1,229	)			63				(1,166	)

 

(1)

As of September 30, 2011, the Company recorded a measurement period adjustment to reflect changes in the estimated fair value of the Company’s above- and below-market lease assets and liabilities as a result of finalizing the purchase price allocation for one of the Company’s previous acquisitions. The adjustment recorded was an increase of $1.8 million to above-market lease assets and a decrease of $0.8 million to below-market lease liabilities.

The following table details the estimated net amortization of such intangible lease assets and liabilities, as of September 30, 2011, for the next five years and thereafter:

 

		Estimated Net Amortization
(dollars in thousands)		Intangible Lease Assets				Above- and Below- Market Leases
Remainder of 2011		$	5,106			$	782
2012			17,670				3,029
2013			11,606				1,769
2014			8,960				1,224
2015			7,813				1,124
Thereafter			21,375				3,150
Total		$	72,530			$	11,078

Future Minimum Rent

Future minimum base rental payments, which equal the cash basis of monthly contractual rent, owed to the Company from its tenants under the terms of non-cancelable operating leases in effect as of September 30, 2011, excluding rental revenues from the potential renewal or replacement of existing future leases and from tenant reimbursement revenue, were as follows:

 

		Future Minimum Base
(dollars in thousands)		Rental Payments
Remainder of 2011		$	14,440
2012			65,291
2013			58,248
2014			51,566
2015			45,871
Thereafter			195,490
Total		$	430,906

 

 

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Rental Revenue and Depreciation and Amortization Expense

The following table summarizes straight-line rent adjustments, amortization recognized as an increase (decrease) in 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,
(dollars in thousands)		2011				2010				2011				2010
Increase (Decrease) to Rental Revenue:
Straight-line rent adjustments		$	1,503			$	29			$	2,525			$	29
Above-market lease asset amortization			(772	)			(36	)			(1,380	)			(36	)
Below-market lease liability amortization			92				12				206				12
Real Estate-Related Depreciation and Amortization:
Depreciation expense		$	3,073			$	113			$	5,797			$	113
Intangible lease asset amortization			4,370				149				7,971				149

Concentration of Credit Risk

As of September 30, 2011, the following tenants accounted for more than five percent of the Company’s total consolidated annualized base rent:

 

Tenant		Market				Percent of Annualized Base Rent (1)				Percent of Occupied Square Feet
Hanesbrands Inc.			Southern California				10.2	%			9.9	%
Solo Cup Company			Atlanta				5.7	%			9.8	%
Home Depot U.S.A. Inc.			Baltimore				5.6	%			6.2	%

 

(1)	Annualized base rent is calculated as monthly base rent (cash basis) per the terms of the respective lease as of September 30, 2011, multiplied by 12. There are no free rent concessions under the remaining terms of the leases, all of which have remaining terms in excess of 12 months.

 

4.	INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

In August 2011, the Company, through two of its subsidiaries, entered into a joint venture agreement with a subsidiary of a highly-rated, investment grade institutional investor for purposes of jointly investing in a portfolio of industrial properties located in major U.S. distribution markets. The Company has a 51% ownership interest in the joint venture.

Based on an analysis of the Company’s investment under GAAP guidance, which included a determination that the joint venture is not a variable interest entity and that the requisite substantial participating rights described in the GAAP guidance are held by the partner not affiliated with the Company, the Company has determined not to consolidate the joint venture, and to account for its investment in the joint venture under the equity method. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to reflect the Company’s proportionate share of equity in the joint venture’s income (loss) and distributions, which is included in investment in unconsolidated joint venture on the consolidated balance sheet. The Company recognizes its proportionate share of the ongoing income or loss of the unconsolidated joint venture in equity in loss of unconsolidated joint venture on the consolidated statements of operations.

The Company evaluates its investment in the unconsolidated joint venture for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. To do so, Company calculates the estimated fair value of the investment using various valuation techniques, including, but not limited to, discounted cash flow models, the Company’s intent and ability to retain its investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. If the Company determines the decline in value is other-than-temporary, the Company recognizes an impairment charge to reduce the carrying value of its investment to fair value. No impairment losses were recorded related to the unconsolidated joint venture for the three and nine months ended September 30, 2011.

During September 2011, the unconsolidated joint venture acquired 13 buildings for an aggregate total purchase price of $204.0 million. As of September 30, 2011, the unconsolidated joint venture had net investment in properties of $204.4 million and a non-recourse mortgage note of $112.0 million, which is secured by certain properties of the joint venture. The mortgage note bears a fixed interest rate of 4.25% and has a contractual maturity date of October 1, 2041; however, the expected maturity date, based on the lender’s ability to call the loan, is September 1, 2018. The Company does not guarantee the joint venture’s debt.

 

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5.

DEBT

The Company’s indebtedness as of September 30, 2011 was comprised of mortgage notes and borrowings on the lines of credit, which are secured by deeds of trust and related assignments, security interests in the collateralized and certain cross-collateralized properties, and a security interest in the Company’s gross offering proceeds from its primary public offering. A summary of the Company’s debt is as follows:

 

										Balance as of
		Interest				Interest		Maturity		September 30,				December 31,
(dollars in thousands)		Rate				Rate		Date		2011				2010
Line of credit (1)			3.75	%		Variable		December 2012		$	32,000			$	—
Line of credit (2)			2.75	%		Variable		December 2013			56,350				—
Mortgage note			6.44	%		Fixed		January 2013			10,260				—
Mortgage note			5.51	%		Fixed		June 2015			3,585				—
Mortgage note (3)			4.16	%		Fixed		September 2015			7,560				7,560
Mortgage note			6.24	%		Fixed		July 2016			6,961				—
Mortgage note			5.61	%		Fixed		June 2017			6,424				—
Mortgage note			4.31	%		Fixed		September 2017			29,500				29,877
Mortgage notes (4)			4.45	%		Fixed		June 2018			32,000				—
Mortgage notes (5)			4.95	%		Fixed		October 2020			26,238				26,535
Mortgage note (6)			4.90	%		Fixed		November 2020			7,653				7,741
Mortgage notes (7)			4.81	%		Fixed		November 2020			41,606				—
Mortgage notes (8)			5.68	%		Fixed		January 2021			53,634				54,000
Mortgage notes (9)			4.70	%		Fixed		July 2021			110,000				—
Total debt										$	423,771			$	125,713
Gross book value of properties encumbered by mortgage notes										$	752,199			$	226,096

 

(1)	The interest rate is as of September 30, 2011, and is based on London Interbank Offered Rate (“LIBOR”), plus 3.50%.

(2)	The interest rate is as of September 30, 2011, and is based on LIBOR, plus 2.50%.

(3)

This mortgage note bears interest at a variable interest rate based on one-month LIBOR, plus 2.50% and had an interest rate of 2.75% and 2.76% as of September 30, 2011 and December 31, 2010, respectively. In conjunction with this mortgage note, the Company entered into an interest rate swap agreement that effectively fixed the interest rate of this mortgage note at 4.16% for the full term. Refer to “Derivative Instruments” below for further detail.

(4)	Represents a portfolio of five mortgage notes that have a contractual maturity of June 1, 2041; however, the expected maturity date, based on the lender’s ability to call the loan, is June 1, 2018.

(5)	Represents a portfolio of two mortgage notes that have a contractual maturity of October 1, 2040; however, the expected maturity date, based on the lender’s ability to call the loan, is October 1, 2020.

(6)	This mortgage note has a contractual maturity of November 1, 2040; however, the expected maturity date, based on the lender’s ability to call the loan, is November 1, 2020.

(7)	Represents a portfolio of three mortgage notes that have a contractual maturity of November 1, 2040; however, the expected maturity date, based on the lender’s ability to call the loan, is November 1, 2020.

(8)	Represents a portfolio of two mortgage notes.

(9)	Represents a portfolio of six mortgage notes.

As of September 30, 2011, the principal payments due on the Company’s debt during each of the next five years and thereafter were as follows:

 

(dollars in thousands)		Amount
Remainder of 2011		$	10,653
2012			2,910
2013			90,675
2014			3,404
2015			13,737
Thereafter			300,975
Total principal payments			422,354
Unamortized premium on assumed debt			1,417
Total debt		$	423,771

Lines of Credit

On June 8, 2011, the Company entered into a revolving credit agreement with an initial aggregate commitment of $40.0 million, up to a maximum aggregate amount of $100.0 million. The revolving credit agreement matures in December 2012, and may be extended to June 2013, subject to certain conditions. The interest rate is variable and calculated based on LIBOR, plus 3.50%. The revolving credit agreement is available to finance the acquisition and operation of properties, for refinancing the Company’s other debt obligations,

 

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and for working capital purposes. The Company has pledged and granted a security interest in, and liens upon, the gross proceeds of its primary public offering of shares of its common stock as collateral for any borrowings. As of September 30, 2011, approximately $8.0 million remained available under the line of credit.

On December 23, 2010, the Company entered into a line of credit agreement with an initial aggregate commitment of $100.0 million, up to a maximum aggregate amount of $300.0 million. The line of credit matures in December 2013 and may be extended pursuant to a one-year extension option. The interest rate is variable and calculated based on LIBOR, plus a spread ranging from 2.25% to 2.75%. The line of credit is available to finance the acquisition and operation of qualified properties as well as for working capital and general corporate purposes, within certain restrictions set forth in the loan agreement. Amounts under the line of credit become available when such qualified properties are added as collateral to the loan agreement. As of September 30, 2011, approximately $43.6 million remained available under the line of credit.

Debt Covenants

The Company’s mortgage notes and lines of credit contain various property level covenants, including customary affirmative and negative covenants. In addition, the lines of credit contains certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, tangible net worth, and dividend payout ratio restrictions. The Company was in compliance with all debt covenants as of September 30, 2011.

Derivative Instruments

The Company enters into derivative instruments for risk management purposes only. The Company currently has one derivative designated as a cash flow hedge, which the Company uses to manage its exposure to fluctuations in interest rates. By using such instruments, the Company exposes itself, from time to time, to credit risk and market risk. Credit risk is the failure of either party to the contract to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. The Company minimizes the credit risk by entering into transactions with high-quality counterparties whose credit ratings are evaluated on a quarterly basis. Market risk, as it relates to the Company’s interest-rate derivative, is the adverse effect on the value of a financial instrument that results from changes in interest rates. The Company minimizes market risk by establishing and monitoring parameters that limit the types and degree of market risk that the Company incurs.

On August 31, 2010, the Company entered into a five-year, LIBOR-based interest rate swap agreement to hedge the interest rate on the $7.6 million mortgage note secured by one of the Company’s properties. The interest rate swap has an effective date of August 31, 2010 and will expire on September 1, 2015. The Company entered into the interest rate swap to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time, with the objective of offsetting the variability of its interest expense that arises because of changes in the variable interest rate for the designated interest payments. Accordingly, changes in fair value of the interest rate swap were recorded as a component of accumulated other comprehensive income (“AOCI”) on the consolidated balance sheets. The Company reclassifies the effective gain or loss from AOCI on the consolidated balance sheets to interest expense on the consolidated statements of operations as the interest expense is recognized on the related debt.

The following table summarizes the location and fair value of cash flow hedges on the Company’s consolidated balance sheets:

 

								Fair Value as of
(dollars in thousands)		Notional Amount				Balance Sheet Location		September 30, 2011				December 31, 2010
Interest rate swap		$	7,560			(Other liabilities) / Other assets		$	(225	)		$	82

The following table presents the effect of the Company’s derivative instruments on the Company’s consolidated statements of operations:

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
(dollars in thousands)		2011				2010				2011				2010
Interest rate swap:
Loss recognized in AOCI (effective portion)		$	(230	)		$	(103	)		$	(389	)		$	(103	)
Effective gain reclassified from AOCI into income			29				9				82				9

The interest rate swap has no hedge ineffectiveness, and as a result, no unrealized gains or losses were reclassified into net earnings as a result of hedge ineffectiveness. The Company expects no hedge ineffectiveness in the next 12 months.

 

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6.	FAIR VALUE

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. Fair value measurements are categorized into one of three levels of the fair value hierarchy based on the lowest level of significant input used. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. These estimates may differ from the actual amounts that the Company could realize upon settlement.

The fair value hierarchy is as follows:

Level 1– Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2– Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:

 

•

Quoted prices for similar assets/liabilities in active markets;

 

•

Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);

 

•

Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and

 

•

Inputs that are derived principally from or corroborated by other observable market data.

Level 3 – Unobservable inputs that cannot be corroborated by observable market data.

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

 

(dollars in thousands)		Level 1				Level 2				Level 3				Total Fair Value
September 30, 2011
Liabilities
Derivative instrument		$	—			$	225			$	—			$	225
Total liabilities measured at fair value		$	—			$	225			$	—			$	225
December 31, 2010
Assets
Derivative instrument		$	—			$	82			$	—			$	82
Total assets measured at fair value		$	—			$	82			$	—			$	82

As of September 30, 2011 and December 31, 2010, the Company had no financial instruments that were transferred between Level 1 or Level 2. The Company also had no non-financial assets or liabilities that were required to be measured at fair value on a recurring basis.

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

Derivative Instrument. The derivative instrument is an interest rate swap. The interest rate swap is a standard cash flow hedge whose fair value is estimated using market-standard valuation models. Such models involve using market-based observable inputs, including interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Due to the interest rate swap being unique and not actively traded, the fair value is classified as Level 2. See “Note 5” above for further discussion of the Company’s derivative instrument.

 

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The table below includes fair values for certain financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:

 

		September 30, 2011								December 31, 2010
(dollars in thousands)		Carrying Value				Fair Value				Carrying Value				Fair Value
Assets
Notes receivable		$	5,912			$	5,894			$	—			$	—
Derivative instrument			—				—				82				82
Liabilities
Lines of credit			88,350				88,748				—				—
Mortgage notes			335,421				341,448				125,713				126,284
Derivative instrument			225				225				—				—

In addition to the previously described methods and assumptions for the derivative instrument, the following are the methods and assumptions used to estimate the fair value of the other financial instruments:

Notes Receivable. The fair value is estimated by discounting the expected cash flows on the notes receivable at current rates at which the Company believes similar loans would be made. As of September 30, 2011, the Company had a note receivable of $4.6 million with a maturity date of June 1, 2013 and a note receivable of $1.3 million with a maturity date of August 1, 2013. Amounts outstanding and accrued interest on the notes receivable are due on the respective maturity date.

Lines of Credit. The fair value of the lines of credit is estimated using discounted cash flow analysis based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments.

Mortgage Notes. The fair value of the mortgage notes is estimated using discounted cash flow analysis based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments.

The fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and distributions payable approximate their carrying values because of the short-term nature of these instruments. As such, these assets and liabilities are not listed in the carrying value and fair value table above.

 

7.	COMPREHENSIVE LOSS

Comprehensive loss consists of net loss and other gains and losses affecting stockholders’ equity that are excluded from net loss. Comprehensive loss consisted of:

 

		For the Three Months Ended September 30,								For the Nine Months  Ended September 30,
(dollars in thousands)		2011				2010				2011				2010
Net loss attributable to common stockholders		$	(5,292	)		$	(3,087	)		$	(18,046	)		$	(4,300	)
Unrealized loss on derivative instruments, net			(201	)			(103	)			(307	)			(103	)
Comprehensive loss attributable to common stockholders		$	(5,493	)		$	(3,190	)		$	(18,353	)		$	(4,403	)

 

8.	STOCKHOLDERS’ EQUITY

Initial Public Offering

On May 22, 2009, the Company filed a registration statement with the SEC on Form S-11 in connection with the Company’s initial public offering (the “Offering”). The registration statement was subsequently declared effective on December 18, 2009. Pursuant to such registration statement, the Company is offering for sale up to $2.0 billion in shares of common stock, 75% of which (150.0 million shares) are offered to investors at a price of $10.00 per share, and 25% of which (52.6 million shares) are offered to participants in the Company’s distribution reinvestment plan at a price of $9.50 per share. The Company has the right to reallocate the shares of common stock offered between the Company’s primary offering and the Company’s distribution reinvestment plan. Dividend Capital Securities LLC (the “Dealer Manager”) provides dealer manager services in connection with the Offering. The Offering is a best efforts offering, which means that the Dealer Manager is not required to sell any specific number or dollar amount of shares of common stock in the Offering but will use its best efforts to sell the shares of common stock. The Offering is also a continuous offering that was initially expected to end no later than two years after the initial effective date of the Offering, or December 18, 2011, but will be extended by the Company’s board of directors for up to an additional one year period.

As of September 30, 2011, the Company had raised gross proceeds of $475.5 million from the sale of 48.0 million shares of its common stock in the Offering, including $5.1 million from the sale of 0.5 million shares of its common stock through the Company’s distribution reinvestment plan. As of that date, 154.6 million shares remained available for sale pursuant to the Offering, including 52.1 million shares available for sale through the Company’s distribution reinvestment plan.

 

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Follow-On Offering

On July 1, 2011, the Company filed a registration statement on Form S-11 with the SEC in connection with the proposed offering of up to $2.0 billion in shares of common stock, including $500.0 million in shares which the Company expects will be offered to participants in its distribution reinvestment plan (the “Follow-On Offering”). As of the date of this Quarterly Report on Form 10-Q, the registration statement has not been declared effective by the SEC.

Distributions

The Company intends to accrue and make distributions on a regular basis. The Company calculates individual payments of distributions to each stockholder based upon daily record dates during each quarter so that investors are eligible to earn distributions immediately upon purchasing shares of the Company’s common stock. The distributions are calculated based on common stockholders of record as of the close of business each day in the period.

 

				Amount
Distributions for the Three Months Ended		Payment Date		Declared per Common Share				Paid in Cash				Reinvested in Shares				Total Distributions
2011
March 31, 2011		April 15, 2011		$	0.15625			$	1,818,654			$	1,435,880			$	3,254,534
June 30, 2011		July 15, 2011		$	0.15625				2,795,711				2,173,272				4,968,983
September 30, 2011		October 17, 2011		$	0.15625				3,776,204				2,893,403				6,669,607
Total								$	8,390,569			$	6,502,555			$	14,893,124
2010
March 31, 2010 (1)		July 15, 2010		$	0.15625			$	255			$	528			$	783
June 30, 2010		July 15, 2010		$	0.15625				120,865				179,420				300,285
September 30, 2010		October 15, 2010		$	0.15625				400,584				449,762				850,346
December 31, 2010		January 18, 2011		$	0.15625				941,979				843,861				1,785,840
Total								$	1,463,683			$	1,473,571			$	2,937,254

 

(1)	Distributions were declared for the one day, March 31, 2010, which was the day the Company broke escrow.

Redemptions

Subject to certain restrictions and limitations, at a price equal to or at a discount from the purchase price paid for the shares of common stock being redeemed, a stockholder may redeem shares of the Company’s common stock for cash. Shares of common stock must be held for a minimum of one year, subject to certain exceptions. The Company is not obligated to redeem shares of its common stock under the share redemption program. The Company presently intends to limit the number of shares to be redeemed during any consecutive 12-month period to no more than five percent of the number of shares of common stock outstanding at the beginning of such 12-month period. The Company also intends to limit redemptions in accordance with a quarterly cap. The discount from the purchase price paid for the redeemed shares will vary based upon the length of time that the shares of common stock have been held, as follows:

 

Share Purchase Anniversary		Redemption Price as a Percentage of Purchase Price
Less than one year			No redemption allowed
One year			92.5	%
Two years			95.0	%
Three years			97.5	%
Four years and longer			100.0	%

In the event of the death of a stockholder, such shares will be redeemed at a price equal to 100% of the price paid by the deceased stockholder for the shares without regard to the date of purchase of the shares to be redeemed.

For the nine months ended September 30, 2011, the Company received eligible redemption requests related to 57,471 shares of the Company’s common stock, which the Company redeemed for an aggregate amount of approximately $563,000 using proceeds from the sale of shares pursuant to the Company’s distribution reinvestment plan.

 

9.	RELATED PARTY TRANSACTIONS

The Advisor and Its Affiliates

Various affiliates of the Company are involved in the Offering and in the Company’s operations. The Company relies on Industrial Income Advisors LLC (the “Advisor”) to manage the Company’s day-to-day operating and acquisition activities and to implement the Company’s investment strategy pursuant to the terms of the amended and restated advisory agreement (the “Advisory Agreement”), dated as of May 14, 2010, as extended to December 16, 2011, by and among the Company, Industrial Income Operating Partnership

 

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LP (the “Operating Partnership”), and the Advisor. The Dealer Manager provides dealer manager services. The Advisor and Dealer Manager are affiliated parties that receive compensation in the form of fees and expense reimbursements for services relating to the Offering and for the investment and management of the Company’s assets. For the three and nine months ended September 30, 2011 and 2010, these fees primarily consisted of the following:

Sales Commissions. Sales commissions are payable to the Dealer Manager (all or a portion of which are reallowed to participating unaffiliated broker-dealers) and are equal to up to 7.0% of the gross proceeds from the Offering.

Dealer Manager Fees. Dealer manager fees are payable to the Dealer Manager and are equal to up to 2.5% of the gross proceeds from the Offering.

Acquisition Fees. For each property acquired in the operational stage, the acquisition fee is an amount equal to 2.0% of the purchase price of the property, until such time as the Company has invested an aggregate amount of $500.0 million in properties acquired in the operational stage, at which time the acquisition fee will be reduced to up to 1.0% of the total purchase price of the properties acquired thereafter. The Company reached the $500.0 million aggregate investment threshold during the second quarter of 2011. Accordingly, all acquisition fees incurred during the three months ended September 30, 2011 were incurred at the 1.0% rate. For each property acquired prior to or during the development or construction stage, the acquisition fee will be an amount not to exceed 4.0% of the total project costs.

Asset Management Fees. Asset management fees consist of a monthly fee of one-twelfth of 0.80% of the aggregate cost, including debt, whether borrowed or assumed, and before non-cash reserves and depreciation, of each property asset within the Company’s portfolio.

Organization and Offering Expenses. The Company will reimburse the Advisor for organization and offering expenses up to 1.75% of the gross proceeds from the Offering. The Advisor or an affiliate of the Advisor will be responsible for the payment of the Company’s cumulative organization and offering expenses to the extent the total of such cumulative expenses exceed the 1.75% (i) organization and offering expense reimbursement and (ii) if additional proceeds are raised in subsequent public offerings, the organization and offering expense reimbursement for each such offering, without recourse against or reimbursement by the Company. If the Company is not successful in raising additional amounts of equity proceeds, no additional amounts will be payable by the Company to the Advisor for reimbursement of organization and offering expenses.

Other Expense Reimbursements. In addition to the reimbursement of organization and offering costs, the Company is also obligated, subject to certain limitations, to reimburse the Advisor for certain costs incurred by the Advisor or its affiliates in connection with the services provided to the Company under the Advisory Agreement, provided that the Advisor does not receive a specific fee for the activities which generate the expenses to be reimbursed, such as personnel and overhead expenses. The Advisor may utilize its employees to provide such services and in certain instances those employees may include the Company’s named executive officers.

The table below summarizes the fees and expenses incurred by the Company for services provided by the Advisor and the Dealer Manager related to the services described above, and any related amounts payable:

 

		Incurred
		For the Three Months Ended								For the Nine Months Ended								Incurred and Payable as of
		September 30,								September 30,								September 30,				December 31,
(dollars in thousands)		2011				2010				2011				2010				2011				2010
Expensed:
Acquisition fees		$	1,464			$	2,070			$	8,532			$	2,322			$	—			$	—
Asset management fees			1,486				105				3,137				113				—				—
Total expensed		$	2,950			$	2,175			$	11,669			$	2,435			$	—			$	—
Additional Paid-In Capital:
Sales commissions		$	6,477			$	2,740			$	19,483			$	5,251			$	506			$	291
Dealer manager fees			2,621				1,016				7,969				1,941				223				126
Organization and offering expenses			1,871				710				5,658				1,355				154				489
Other (repayments) expenses			(1,737	)			56				(5,415	)			120				74				150
Total adjustments to additional paid-in capital		$	9,232			$	4,522			$	27,695			$	8,667			$	957			$	1,056

Joint Venture Fees. The unconsolidated joint venture described in “Note 4” may pay fees to the Advisor or its affiliates for providing services to the joint venture. These fees may be paid directly to the Advisor or its affiliates or indirectly, including, without limitation, through the Company, its subsidiaries, or through the joint venture. For both the three and nine months ended September 30, 2011, the joint venture paid to the Advisor approximately $1.1 million in fees for providing a variety of services, including with respect to acquisition and asset management activities. With respect to the Company’s percentage interest in the joint venture, the Company has paid and will pay to the Advisor any additional amount necessary, after taking into account amounts paid directly by the joint venture to the Advisor, to provide that the Advisor receives the total amount of fees payable pursuant to the Advisory Agreement.

 

10.	COMMITMENTS AND CONTINGENCIES

The Company and the Operating Partnership are not presently involved in any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company or its investments.

 

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Environmental Matters

A majority of the properties the Company acquires are subject to environmental reviews either by the Company or the previous owners. In addition, the Company may incur environmental remediation costs associated with certain land parcels it may acquire in connection with the development of land. The Company has acquired certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous material. The Company may purchase various environmental insurance policies to mitigate its exposure to environmental liabilities. The Company is not aware of any environmental liabilities that it believes would have a material adverse effect on its business, financial condition, or results of operations.

 

11.	SUBSEQUENT EVENTS

Status of the Offering

As of November 3, 2011, the Company had raised gross proceeds of $519.4 million from the sale of 52.4 million shares of its common stock in the Offering, including $8.0 million from the sale of 0.8 million shares of its common stock through the Company’s distribution reinvestment plan. As of that date, 150.2 million shares remained available for sale pursuant to the Offering, including 51.8 million shares available for sale through the Company’s distribution reinvestment plan. The Company’s board of directors has authorized the extension of the Offering for up to an additional one year period, expiring on December 18, 2012. In many states, the Company will need to renew the registration statement for the Offering in order to continue the Offering for this period. There is no guarantee that the Company will be able to extend the Offering in all such states. The Company reserves the right to further extend or terminate the Offering at any time.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” or the negative of such terms and other comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions, and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:

 

•

Our ability to raise substantially more offering proceeds and effectively deploy the proceeds raised in our initial public offering in accordance with our investment strategy and objectives;

 

•

The failure of acquisitions to perform as we expect;

 

•

Our failure to successfully integrate acquired properties and operations;

 

•

The availability of cash flows from operating activities for distributions and capital expenditures;

 

•

Defaults on or non-renewal of leases by tenants, lease renewals at lower than expected rent, or failure to lease properties at all or on favorable rents and terms;

 

•

Continued or worsening difficulties in economic conditions generally and the real estate, debt, and securities markets specifically;

 

•

Legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts (“REITs”);

 

•

Our failure to obtain, renew, or extend necessary financing or access the debt or equity markets;

 

•

Conflicts of interest arising out of our relationships with Industrial Income Advisors Group LLC (the “Sponsor”), the Advisor, and their affiliates;

 

•

Risks associated with using debt to fund our business activities, including re-financing and interest rate risks;

 

•

Increases in interest rates, operating costs, or greater than expected capital expenditures;

 

•

Changes to GAAP; and

 

•

Our ability to qualify as a REIT.

Any of the assumptions underlying forward-looking statements could be inaccurate. Our stockholders are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results will differ materially from the expectations expressed in this Quarterly Report on Form 10-Q will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events, changed circumstances, or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report on Form 10-Q, including, without limitation, the risks described under “Risk Factors,” the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report on Form 10-Q will be achieved.

 

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OVERVIEW

General

We were formed as a Maryland corporation on May 19, 2009 to make investments in income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to creditworthy corporate tenants. As of September 30, 2011, we owned and managed a portfolio of consolidated and unconsolidated properties that included 94 industrial buildings totaling approximately 16.8 million square feet with 205 tenants in 12 major industrial markets throughout the U.S. The “consolidated properties,” which are properties the Company manages and are 100% owned, consisted of 81 buildings totaling approximately 13.2 million square feet. The “unconsolidated properties,” which are properties the Company manages and are 51% owned through an unconsolidated joint venture, consisted of 13 buildings totaling approximately 3.6 million square feet.

We have operated and have elected to be treated as a REIT for federal income tax purposes, commencing with the taxable year ended December 31, 2010. We utilize an umbrella partnership real estate investment trust organizational structure to hold all or substantially all of our assets through the Operating Partnership.

On December 18, 2009, we commenced the Offering of up to $2.0 billion in shares of our common stock, 75% of which are being offered at a price of $10.00 per share, and 25% of which are being offered pursuant to our distribution reinvestment plan at a price of $9.50 per share. As of September 30, 2011, we had raised gross proceeds of $475.5 million from the sale of 48.0 million shares of our common stock in the Offering, including $5.1 million from the sale of 0.5 million shares of our common stock through our distribution reinvestment plan.

On July 1, 2011, we filed a registration statement on Form S-11 with the SEC in connection with the proposed offering of up to $2.0 billion in shares of common stock, including $500.0 million in shares which we expect will be offered to participants in its distribution reinvestment plan (the “Follow-On Offering”). As of the date of this Quarterly Report on Form 10-Q, the registration statement has not been declared effective by the SEC.

As of September 30, 2011, we have used, and we intend to continue to use, the net proceeds from the Offering primarily to make investments in real estate assets. We may use the net proceeds from the Offering to make other real estate-related investments and debt investments. The number and type of properties we may acquire and debt and other investments we may make will depend upon real estate market conditions, the amount of proceeds we raise in the Offering, and other circumstances existing at the time we make our investments. We will experience a relative increase in cash balances as additional subscriptions for shares of our common stock are received in connection with the Offering and a relative decrease in liquidity as proceeds from the Offering are used to acquire, develop, and operate properties and to make debt and other investments.

We may acquire assets free and clear of mortgage or other indebtedness by paying the entire purchase price in cash or equity securities, or a combination thereof, and we may selectively encumber all or certain assets with debt. The proceeds from our loans may be used to fund investments, capital expenditures, pay distributions, and general corporate purposes. As of September 30, 2011 and December 31, 2010, the debt leverage ratio of our consolidated real estate assets (calculated as the book value of our debt to total assets) was 51.3% and 48.1%, respectively.

In August 2011, we, through two of our subsidiaries, entered into a joint venture agreement with a subsidiary of a highly-rated, investment grade institutional investor for purposes of jointly investing in a portfolio of industrial properties located in major U.S. distribution markets. We have a 51% ownership interest in the unconsolidated joint venture.

We rely on the Advisor to manage our day-to-day operating and acquisition activities and to implement our investment strategy pursuant to the terms of the Advisory Agreement. The Advisor performs its duties and responsibilities under the Advisory Agreement as a fiduciary of us and our stockholders. The Advisor may, but is not required to, establish working capital reserves from proceeds from the Offering, from cash flow generated by operating assets, or from proceeds from the sale of assets. Working capital reserves are typically utilized to fund tenant improvements, leasing commissions, and major capital expenditures. Our lenders also may require working capital reserves.

Industrial Real Estate Outlook

Industrial property fundamentals continue to mirror global economic conditions. The economic environment has improved over the past two years, including: (i) nine consecutive quarters of positive gross domestic product (“GDP”) growth; (ii) positive trade growth as reflected in port volumes, truck tonnage, and rail carload data; (iii) positive net absorption in certain markets; and (iv) improved access to capital for certain companies. While the strength and sustainability of the recovery remains uncertain, especially with high unemployment levels, we expect demand in the U.S. for industrial warehouse properties to continue to improve with GDP and trade growth. The industrial warehouse sector has generally experienced a challenging leasing environment over the past several years, with increased leasing costs and lower average rental rates due to competitive market availability levels. We believe market rents will trend upward as market occupancies improve. The rentable square footage under lease for our consolidated and unconsolidated properties, excluding our “value-add” properties, was 97.7% and 97.6% as of September 30, 2011 and December 31, 2010, respectively. Properties are considered “value-add” properties when they have certain occupancy levels, lease terms, and/or projected capital improvement requirements that differ from our core operating portfolio characteristics. While we actively seek to lease our vacant space, if economic uncertainty persists, we may experience significant vacancies or be required to reduce rental rates on occupied space.

 

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The domestic and international financial markets experienced significant disruptions in late 2007 that severely impacted the availability and cost of credit. Recently, the volume of mortgage lending for commercial real estate has increased and lending terms have improved; however, such lending activity is significantly less than previous peak levels. Although lending market conditions have improved, we have experienced, and may continue to experience, more stringent lending criteria, which may affect our ability to finance certain property acquisitions. Additionally, for properties for which we are able to obtain financing, the interest rates and other terms on such loans may be unacceptable. We have managed, and expect to continue to manage, our financing strategy under the current mortgage lending environment by considering various lending sources, including the securitization of debt, utilizing fixed interest rate loans, borrowing under our lines of credit, assuming existing mortgage loans in connection with property acquisitions, or entering into interest rate swap agreements, or any combination of the foregoing. If we are unable to obtain suitable financing for future acquisitions or if we are unable to identify suitable properties at attractive prices in the current credit environment, we may have a larger amount of uninvested cash, which may adversely affect our results of operations.

RESULTS OF OPERATIONS

 

		For the Three Months Ended September 30,																For the Nine Months Ended September 30,
										Increase																Increase
										(Decrease)																(Decrease)
(in thousands, except per share data)		2011				2010				2011 vs. 2010								2011				2010				2011 vs. 2010
Revenues:
Rental revenues		$	15,901			$	810			$	15,091				NM	%		$	33,051			$	810			$	32,241				NM	%
Total revenues			15,901				810				15,091				NM				33,051				810				32,241				NM
Operating expenses:
Rental expenses			3,206				191				3,015				NM				6,848				191				6,657				NM
Organization expenses			—				—				—				—				—				1				(1	)			(100.0	)
Real estate-related depreciation and amortization			7,443				262				7,181				NM				13,768				262				13,506				NM
General and administrative expenses			1,101				385				716				NM				2,708				1,247				1,461				NM
Asset management fees, related party			1,486				105				1,381				NM				3,137				113				3,024				NM
Acquisition-related expenses, related party			1,464				2,070				(606	)			(29.3	)			8,532				2,322				6,210				NM
Acquisition-related expenses			988				746				242				32.4				5,649				840				4,809				NM
Total operating expenses			15,688				3,759				11,929				NM				40,642				4,976				35,666				NM
Other expenses:
Equity in loss of unconsolidated joint venture			(912	)			—				(912	)			(100.0	)			(912	)			—				(912	)			(100.0	)
Interest expense and other			(4,593	)			(138	)			(4,455	)			NM				(9,543	)			(134	)			(9,409	)			NM
Total other expenses			(5,505	)			(138	)			(5,367	)			NM				(10,455	)			(134	)			(10,321	)			NM
Net loss			(5,292	)			(3,087	)			(2,205	)			(71.4	)			(18,046	)			(4,300	)			(13,746	)			NM
Net loss attributable to noncontrolling interests			—				—				—				—				—				—				—				—
Net loss attributable to common stockholders		$	(5,292	)		$	(3,087	)		$	(2,205	)			(71.4	)%		$	(18,046	)		$	(4,300	)		$	(13,746	)			NM	%
Weighted-average shares outstanding			42,693				5,442				37,251				NM				31,855				2,483				29,372				NM
Net loss per common share - basic and diluted		$	(0.12	)		$	(0.57	)		$	0.45				78.9	%		$	(0.57	)		$	(1.73	)		$	1.16				67.1	%

NM = Not meaningful

The SEC declared the registration statement for the Offering effective on December 18, 2009. We broke escrow for the Offering on March 31, 2010, and effectively commenced real estate operations on June 30, 2010, in connection with the acquisition of our first property.

As of September 30, 2011, we owned and managed a portfolio of consolidated properties that consisted of 81 industrial buildings comprised of approximately 13.2 million square feet as compared to 21 industrial buildings comprised of approximately 1.6 million square feet as of September 30, 2010. The following table summarizes our acquisition activity of consolidated properties for the periods presented. These acquisitions are consistent with our investment strategy, and were funded with net proceeds from the Offering and debt financings.

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
(in thousands, except buildings)		2011				2010				2011				2010
Number of buildings			18				20				56				21
Approximate purchase price (1)		$	94,090			$	103,367			$	522,499			$	115,967
Approximate rentable square feet			1,682				1,460				9,836				1,586

 

(1)	Exclusive of transfer taxes, due diligence expenses, and other closing costs.

 

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In addition, during the three months ended September 30, 2011, we acquired, through our 51% ownership interest in an unconsolidated joint venture, 13 buildings comprised of approximately 3.6 million square feet for an aggregate total purchase price of $204.0 million.

As we are currently in the acquisition phase of our life cycle and the results of our operations are influenced by the timing of acquisitions and the operating performance of our real estate investments, the results of operations for the three and nine months ended September 30, 2011 and 2010 are not directly comparable. Our results of operations for the three and nine months ended September 30, 2011 are not indicative of those expected in future periods. We expect that revenues and operating expenses related to our investment in properties will increase in future periods as a result of our continued ownership of properties acquired during 2010 and 2011 and as a result of the additive effect of anticipated future acquisitions of industrial properties.

How We Measure Our Performance

We believe that Funds from Operations (“FFO”) and Company-Defined FFO, in addition to net loss and cash flows from operating activities, as defined by GAAP, are useful supplemental performance measures that our management uses to evaluate our operating performance. However, these supplemental, non-GAAP measures are not necessarily indicative of future performance and should not be considered as an alternative to net loss or to cash flows from operating activities and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs. No single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity, and results of operations. In addition, other REITs may define FFO and similar measures differently and choose to treat acquisition-related costs and potentially other accounting line items in a manner different from us due to specific differences in investment and operating strategy or for other reasons.

FFO. As defined by the National Association of Real Estate Investment Trusts (“NAREIT”), FFO is a non-GAAP measure that excludes items such as real estate-related depreciation and amortization. We believe FFO is a meaningful supplemental measure of our operating performance that is useful to investors because depreciation and amortization in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. We use FFO as an indication of our operating performance and as a guide to making decisions about future investments.

Company-Defined FFO. Similar to FFO, Company-Defined FFO is a non-GAAP measure that excludes real estate-related depreciation and amortization, and also excludes one-time acquisition-related costs, including acquisition fees paid to the Advisor. We are currently in the acquisition phase of our life cycle. Management does not include historical acquisition-related expenses in its evaluation of future operating performance, as such costs are not expected to be incurred once our acquisition phase is complete. We use Company-Defined FFO to, among other things: (i) be useful in evaluating and comparing the potential performance of our portfolio after the acquisition phase is complete; and (ii) evaluate potential operating performance to determine exit strategies. We believe our stockholders are best served if the information that is made available to them allows them to align their analyses and evaluation with these same performance metrics used by management in planning and executing our business strategy. We believe that these performance metrics will assist our stockholders in evaluating the potential performance of the portfolio after the completion of the acquisition phase.

The following unaudited table presents a reconciliation of FFO and Company-Defined FFO to net loss:

 

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
(in thousands, except per share data)		2011				2010				2011				2010
Net loss		$	(5,292	)		$	(3,087	)		$	(18,046	)		$	(4,300	)
Net loss per common share		$	(0.12	)		$	(0.57	)		$	(0.57	)		$	(1.73	)
Reconciliation of net loss to FFO:
Add (deduct) NAREIT-defined adjustments:
Real estate-related depreciation and amortization			7,443				262				13,768				262
FFO		$	2,151			$	(2,825	)		$	(4,278	)		$	(4,038	)
FFO per common share		$	0.05			$	(0.52	)		$	(0.13	)		$	(1.63	)
Reconciliation of FFO to Company-Defined FFO:
FFO		$	2,151			$	(2,825	)		$	(4,278	)		$	(4,038	)
Add (deduct) Company adjustments:
Acquisition costs			2,452				2,816				14,181				3,162
Acquisition costs in unconsolidated joint venture			945				—				945				—
Company-Defined FFO		$	5,548			$	(9	)		$	10,848			$	(876	)
Company-Defined FFO per common share		$	0.13			$	(0.00	)		$	0.34			$	(0.35	)
Weighted-average shares outstanding			42,693				5,442				31,855				2,483

The SEC declared our initial registration statement for the Offering effective on December 18, 2009. We broke escrow for the Offering on March 31, 2010, and effectively commenced real estate operations on June 30, 2010 in connection with the acquisition of

 

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our first property. As such, we believe the aggregate FFO of $2.2 million, or $0.05 per share, and the aggregate FFO loss of $4.3 million, or $0.13 per share, for the three and nine months ended September 30, 2011, respectively, as compared to the aggregate distributions declared of $6.7 million, or $0.15625 per share, and $14.9 million, or $0.46875 per share, for the three and nine months ended September 30, 2011, respectively, is not indicative of future performance. See “Capital Resources and Uses of Liquidity – Distributions” below for details concerning our distributions.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our principal uses of funds during the short- and long-term are and will be for the acquisition of properties and other investments, operating expenses, distributions to our stockholders, and payments under our debt obligations. We have three primary sources of capital for meeting our cash requirements: net proceeds from the Offering, debt financings, and cash flows generated by our real estate operations. Over time, we intend to generally fund our cash needs for items other than asset acquisitions from cash flows from operations. Our cash needs for acquisitions and investments will be funded primarily from the sale of shares of our common stock, including those offered for sale through our distribution reinvestment plan, and through debt financings. There may be a delay between the sale of shares of our common stock and our purchase of assets, which could result in a delay in the benefits to our stockholders, if any, of returns generated from our investment operations. The Advisor, subject to the oversight of our board of directors and, under certain circumstances, the investment committee or other committees established by our board of directors, will evaluate potential acquisitions and will engage in negotiations with sellers and lenders on our behalf. Pending investment in property, debt, or other investments, we may decide to temporarily invest any unused proceeds from the Offering in certain investments that are expected to yield lower returns than those earned on real estate assets. These lower returns may affect our ability to make distributions to our stockholders. Potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of assets, and undistributed funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.

We believe that our cash on hand, cash flows from operations, and anticipated financing activities will be sufficient to meet our liquidity needs for the foreseeable future.

Cash Flows. The following table summarizes our cash flows for the following periods:

 

		For the Nine Months Ended September 30,
(dollars in thousands)		2011				2010
Total cash provided by (used in):
Operating activities		$	(4,437	)		$	(3,077	)
Investing activities			(548,115	)			(116,736	)
Financing activities			543,193				129,381
Net (decrease) increase in cash		$	(9,359	)		$	9,568

Cash used in operating activities increased by $1.4 million as compared to the prior period, primarily due to the increases in acquisition-related expenses, rental expenses, and general and administrative expenses as a result of owning and managing a portfolio of 81 industrial buildings comprised of approximately 13.2 million square feet as of September 30, 2011.

Cash used in investing activities increased by $431.4 million as compared to the prior period, primarily due to the acquisition of 56 industrial buildings aggregating 9.8 million square feet for an aggregate purchase price of $522.5 million during the nine months ended September 30, 2011 as compared to 21 industrial buildings aggregating 1.6 million square feet for an aggregate purchase price of $116.0 million during the nine months ended September 30, 2010. In addition, during September 2011, we invested $48.5 million through the unconsolidated joint venture, which completed its first acquisitions in September 2011. As of September 30, 2011, we owned, through our 51% ownership interest in the unconsolidated joint venture, 13 buildings totaling approximately 3.6 million square feet.

Cash provided by financing activities increased by $413.8 million as compared to the prior period as a result of us raising a significant level of net proceeds from the Offering, as well as from a higher level of mortgage note financings and borrowings under our lines of credit in connection with our 2011 acquisitions.

Capital Resources and Uses of Liquidity

In addition to cash flows from operations and cash and cash equivalent balances available, our capital resources and uses of liquidity are as follows:

Lines of Credit. On June 8, 2011, we entered into a revolving credit agreement with an initial aggregate commitment of $40.0 million, up to a maximum aggregate amount of $100.0 million. The revolving credit agreement matures in December 2012, and may be extended to June 2013, subject to certain conditions. The interest rate is variable and calculated based on LIBOR, plus 3.50%. The

 

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revolving credit agreement is available to finance the acquisition and operation of properties, for refinancing our other debt obligations, and for working capital purposes. We have pledged and granted a security interest in, and liens upon, the gross proceeds of our primary public offering of shares of our common stock as collateral for the borrowings. As of September 30, 2011, the Company had $32.0 million outstanding under the line of credit with a weighted-average interest rate of 3.75%; approximately $8.0 million remained available.

On December 23, 2010, we entered into a line of credit agreement with an initial aggregate commitment of $100.0 million, up to a maximum aggregate amount of $300.0 million. The line of credit matures in December 2013, and may be extended pursuant to a one-year extension option. The interest rate is variable and calculated based on LIBOR, plus a spread ranging from 2.25% to 2.75%. The line of credit is available to finance the acquisition and operation of qualified properties as well as for working capital and general corporate purposes, within certain restrictions set forth in the loan agreement. Amounts under the line of credit become available when such qualified properties are added as collateral to the loan agreement. As of September 30, 2011, the Company had $56.4 million outstanding under the line of credit with a weighted-average interest rate of 2.75%; approximately $43.6 million remained available.

Debt Financing. As of September 30, 2011, we had borrowings of $423.8 million outstanding. These borrowings are secured by deeds of trust and related assignments and security interests in the collateralized properties, and have a weighted-average interest rate of 4.55%, which reflects the effect of an interest rate swap agreement. Refer to “Note 5 of Notes to Consolidated Financial Statements” for additional detail relating to the interest rate swap. The proceeds from the debt financings were used to partially finance certain of our acquisitions, and can be used to finance our capital requirements, which may include the funding of future acquisitions, capital expenditures, distributions, and general corporate purposes.

Debt Covenants. Our mortgage notes and lines of credit contain various property level covenants, including customary affirmative and negative covenants. In addition, the lines of credit contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, tangible net worth, and dividend payout ratio restrictions. These covenants may limit our ability to incur additional debt and make borrowings on our lines of credit. We were in compliance with all debt covenants as of September 30, 2011.

Offering Proceeds. As of September 30, 2011, the gross proceeds raised from the Offering were $475.5 million ($425.9 million net of direct selling costs).

Distributions. We intend to continue to accrue and make distributions on a quarterly basis. Until the net proceeds from the Offering are fully invested and from time to time thereafter, we may not generate sufficient Company-Defined FFO to fully cover distributions. Distributions have been paid from sources other than cash flows from operations, such as cash flows from financing activities, which include net proceeds of the Offering and borrowings (including borrowings secured by our assets). Some or all of our future distributions may be paid from sources such as cash flows from financing activities, which include borrowings (including borrowings secured by our assets) and sales of assets, cash resulting from a waiver or deferral of fees otherwise payable to the Advisor or its affiliates and interest income from our cash balances. We have not established a cap on the amount of our distributions that may be paid from any of these sources. Distributions will be authorized at the discretion of our board of directors, and will depend on, among other things, current and projected cash requirements, tax considerations and other factors deemed relevant by our board. On August 30, 2011, our board of directors authorized cash distributions at a quarterly rate of $0.15625 per share of common stock for the fourth quarter of 2011.

Our long-term goal is to have Company-Defined FFO meet or exceed the payment of quarterly distributions to investors. There can be no assurances that we will achieve this goal or that the current distribution rate will be maintained. In the near-term, we expect to continue to be dependent on cash flows from financing activities to pay distributions, which if insufficient could negatively impact our ability to pay distributions or may erode the net asset value.

The following table provides information relating to our distributions and outlines the GAAP sources of funds used to pay cash distributions:

 

				Amount																Source of Distributions Paid in Cash
Distributions for the Three Months Ended		Payment Date		Declared per Common Share				Paid in Cash				Reinvested in Shares				Total Distributions				Provided by Operating Activities				Provided by Financing Activities (2)
2011
March 31, 2011		April 15, 2011		$	0.15625			$	1,818,654			$	1,435,880			$	3,254,534			$	—			$	1,818,654				100	%
June 30, 2011		July 15, 2011		$	0.15625				2,795,711				2,173,272				4,968,983				—				2,795,711				100
September 30, 2011		October 17, 2011		$	0.15625				3,776,204				2,893,403				6,669,607				—				3,776,204				100
Total								$	8,390,569			$	6,502,555			$	14,893,124			$	—			$	8,390,569				100	%
2010
March 31, 2010 (1)		July 15, 2010		$	0.15625			$	255			$	528			$	783			$	—			$	255				100	%
June 30, 2010		July 15, 2010		$	0.15625				120,865				179,420				300,285				—				120,865				100
September 30, 2010		October 15, 2010		$	0.15625				400,584				449,762				850,346				—				400,584				100
December 31, 2010		January 18, 2011		$	0.15625				941,979				843,861				1,785,840				—				941,979				100
Total								$	1,463,683			$	1,473,571			$	2,937,254			$	—			$	1,463,683				100	%

 

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(1)	Distributions were declared for the one day, March 31, 2010, which was the day we broke escrow.

(2)

For the three months ended March 31, 2010 and June 30, 2010, 100% cash distributions provided by financing activities were funded through offering proceeds. For all other periods presented, 100% cash distributions provided by financing activities were funded through proceeds from our debt financings. See the FFO and Company-Defined FFO table above in “How We Measure Our Performance.”

Refer to “Note 8 of Notes to Consolidated Financial Statements” for further detail on distributions.

Redemptions. For the nine months ended September 30, 2011, we received eligible redemption requests related to 57,471 shares of our common stock, which we redeemed for an aggregate amount of approximately $563,000 using proceeds from the sale of shares pursuant to our distribution reinvestment plan. The aggregate amount expended for redemptions under our share redemption program is expected to be subject to certain caps and is not expected to exceed the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan. However, to the extent that the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan are not sufficient to fund redemption requests, subject to a five percent limitation as discussed in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds – Share Redemption Program,” our board of directors may, in its sole discretion, choose to use other sources of funds to redeem shares of our common stock. Such sources of funds could include cash on hand and cash available from borrowings, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders, debt repayment, and purchases of property investments. Our board of directors may, in its sole discretion, amend, suspend, or terminate the share redemption program at any time if it determines that the funds available to fund the share redemption program are needed for other business or operational purposes or that amendment, suspension, or termination of the share redemption program is in the best interests of our stockholders.

SUBSEQUENT EVENTS

Status of the Offering

As of November 3, 2011, we had raised gross proceeds of $519.4 million from the sale of 52.4 million shares of our common stock in the Offering, including $8.0 million from the sale of 0.8 million shares of our common stock through our distribution reinvestment plan. As of that date, 150.2 million shares remained available for sale pursuant to the Offering, including 51.8 million shares available for sale through our distribution reinvestment plan. Our board of directors has authorized the extension of the Offering for up to an additional one year period, expiring on December 18, 2012. In many states, we will need to renew the registration statement for the Offering in order to continue the Offering for this period. There is no guarantee that we will be able to extend the Offering in all such states. We reserve the right to further extend or terminate the Offering at any time.

CONTRACTUAL OBLIGATIONS

A summary of future obligations as of December 31, 2010, was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on February 25, 2011 (“2010 Form 10-K”). Except as otherwise disclosed in “Note 5 of Notes to Consolidated Financial Statements” relating to our principal payments due on our debt for the next five years and thereafter, there were no material changes outside the ordinary course of business.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2011, we had no off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”), which amends the current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. ASU 2011-04 is to be applied prospectively and is effective for us beginning January 1, 2012. The adoption of this guidance is not expected to have a material impact on our results of operations, financial position, or liquidity.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”), which amends the FASB’s guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. ASU 2011-05 requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. ASU 2011-05 is to be applied retrospectively and is effective for our quarter ending March 31, 2012. This updated guidance will result in a change in the presentation of our financial statements but will not have any impact on our results of operations, financial position, or liquidity.

We have determined that all other recently issued accounting standards will not have a material impact on our consolidated financial statements, or apply to our operations.

 

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CRITICAL ACCOUNTING ESTIMATES

Our unaudited consolidated financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our unaudited consolidated financial statements requires significant management judgments, assumptions, and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. For a detailed description of our critical accounting estimates, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2010 Form 10-K. As of September 30, 2011, our critical accounting estimates have not changed from those described in our 2010 Form 10-K, with the exception of the addition of the following critical accounting estimate:

Impairment of Investment in Unconsolidated Joint Venture

We evaluate our investment in the unconsolidated joint venture for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. To do so, we calculate the estimated fair value of the investment using various valuation techniques, including, but not limited to, discounted cash flow models, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. If we determine the decline in value is other-than-temporary, we recognize an impairment charge to reduce the carrying value of our investment to fair value. The aforementioned factors are taken as a whole by management in determining the valuation of our investment. Should the actual results differ from management’s estimates, the valuation could be negatively affected and may result in a negative impact on the consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our primary market risk is exposure to changes in interest rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows, and to lower overall borrowing costs. To achieve these objectives, we primarily borrow on a fixed interest rate basis for longer-term debt and utilize interest rate swap agreements on variable interest rate debt in order to limit the effects of changes in interest rates on our results of operations. As part of our risk management strategy, we enter into interest swap agreements with high-quality counterparties to manage the impact of variable interest rates on interest expense. As of September 30, 2011, our debt instruments were comprised of mortgage notes and borrowings under our lines of credit.

Fixed Interest Rate Debt. As of September 30, 2011, fixed interest rate debt, either directly or through the use of interest rate swap agreements, represented 79.2% of our total debt and consisted of mortgage notes. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed interest rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed interest rate debt. As of September 30, 2011, the fair value and carrying value of our fixed rate debt was $341.4 million and $335.4 million, respectively. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at September 30, 2011. As we expect to hold our fixed interest rate debt instruments to maturity, based on the underlying structure of the debt instrument, and that the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that market fluctuations in interest rates, and the resulting change in fair value of our fixed interest rate debt instruments, would have a significant impact on our cash flows from operations.

Variable Interest Rate Debt. As of September 30, 2011, variable interest rate debt represented 20.8% of our total debt and consisted of borrowings under one of our lines of credit. Interest rate changes in LIBOR could impact our future earnings and cash flows, but would not significantly affect the fair value of the variable interest rate debt instruments. As of September 30, 2011, we were exposed to market risks related to fluctuations in interest rates on $88.4 million of aggregate borrowings. A hypothetical 10% change in the average interest rate on the outstanding balance of our variable interest rate debt as of September 30, 2011 would change our annual interest expense by approximately $54,000.

Derivative Instruments. We currently have one interest rate swap agreement that effectively converted one of our variable interest rate mortgage notes of $7.6 million to a fixed interest rate mortgage note for the full term. See “Note 4 of Notes to Consolidated Financial Statements” for more information concerning our derivative instrument.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the direction of our Chief Executive Officer and Chief Financial Officer and Treasurer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2011. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer and Treasurer have concluded that, as of September 30, 2011, our disclosure controls and procedures were effective.

 

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Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the nine months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of our 2010 Form 10-K, which could materially affect our business, financial condition, and/or future results. The risks described in our 2010 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

With the exception of the additional or revised risk factors set forth below, there have been no material changes to the risk factors disclosed in our 2010 Form 10-K.

RISKS RELATED TO INVESTMENTS IN PROPERTY

Properties that have significant vacancies, especially value-add or other types of discounted real estate assets, may experience delays in leasing up or could be difficult to sell, which could diminish our return on these properties and the return on our stockholders’ investment.

Our investments in value-add properties or other types of discounted properties, may have significant vacancies at the time of acquisition. If vacancies continued for a prolonged period of time beyond the expected lease-up stage that we anticipate will follow any redevelopment or repositioning efforts, we may suffer reduced revenues, resulting in less cash available for distributions to our stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property depends principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction on the resale value of a property could also reduce the return on our stockholders’ investment.

RISKS ASSOCIATED WITH DEBT FINANCING

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders and to otherwise achieve our objectives.

When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage property, discontinue insurance coverage, make distributions under certain circumstances or replace the Advisor as our advisor. In addition, loan documents may limit our ability to replace the property manager or terminate certain operating or lease agreements related to the property. We have entered into a financing agreement that requires us to covenant to raise significant new offering proceeds on an ongoing basis, to the extent there are borrowings outstanding under the agreement. The ability to raise such proceeds depends on the success of our Dealer Manager and on the broker dealers who are selling our shares and is not in our control. Any failure to raise such proceeds could result in a default and the acceleration of the repayment of the debt under such financing agreement. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.

We have entered, and may continue to enter into financing arrangements that require us to use and pledge offering proceeds to secure and repay such borrowings, and such arrangements may adversely affect our ability to make investments and operate our business.

We have entered, and may continue to enter into financing arrangements that require us to use and pledge future proceeds from the Offering or future offerings, if any, to secure and repay such borrowings. Such arrangements may cause us to have less proceeds available to make investments or otherwise operate our business, which may adversely affect our flexibility and our ability to achieve our investment objectives.

RISKS RELATED TO OUR TAXATION AS A REIT

Each of our Subsidiary REITs must individually qualify as a REIT, and failure of any one of our Subsidiary REITs to qualify as a REIT could also cause us to fail to qualify as a REIT.

We indirectly own equity interests in four wholly-owned subsidiaries of the unconsolidated joint venture (“Subsidiary REITs”) and we currently intend to directly or indirectly own additional Subsidiary REITs. We intend that each Subsidiary REIT will elect to be treated, and will qualify, as a REIT. Each Subsidiary REIT is subject to, and must comply with, the same requirements that we must satisfy in order to qualify as a REIT, together with all other rules applicable to REITs. The risks described under the caption “Risks Related to Our Taxation as REIT” in our 2010 Form 10-K also apply to each of the Subsidiary REITs. If a Subsidiary REIT failed to qualify as a REIT, it would be subject to federal income tax at regular corporate rates, and such Subsidiary REIT would remain disqualified as a REIT for four years following the year in which it lost its REIT status. Moreover, we too may fail to qualify as REIT in the event that one or more Subsidiary REITs fails to qualify as a REIT.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Use of Proceeds

As of September 30, 2011, we had raised gross proceeds of $475.5 million from the sale of 48.0 million shares of our common stock in the Offering, including $5.1 million from the sale of 0.5 million shares of our common stock through our distribution reinvestment plan. As of that date, 154.6 million shares remained available for sale pursuant to the Offering, including 52.1 million shares available for sale through our distribution reinvestment plan.

The table below summarizes the direct selling costs incurred by certain of our affiliates in connection with the issuance and distribution of our registered securities and the offering proceeds net of those direct selling costs:

 

(dollars in thousands)		Period of Inception (May 19, 2009) through September 30, 2011
Sales commissions		$	29,389
Dealer manager fees			11,872
Organization and offering expenses			8,383
Total direct selling costs		$	49,644
Offering proceeds, net of direct selling costs		$	425,902

The sales commissions and dealer manager fees are payable to our Dealer Manager, and a substantial portion of the commissions and fees are reallowed to participating broker dealers as commissions and marketing fees and expenses. The organization and offering expense reimbursements are payable to the Advisor. From the organization and offering expense reimbursements, the Advisor may further reimburse our Dealer Manager and participating broker dealers for certain non-accountable expense reimbursements.

As of September 30, 2011, we have acquired, through our wholly-owned subsidiaries or through our 51% ownership interest in an unconsolidated joint venture, 94 industrial buildings totaling approximately 16.8 million square feet for an aggregate total purchase price of approximately $952.7 million, exclusive of transfer taxes, due diligence expenses, and other closing costs. Of the aggregate total purchase price amount, $204.0 million, exclusive of transfer taxes, due diligence expenses, and other closing costs, was acquired by the unconsolidated joint venture.

On July 15, 2010, cash distributions of $121,120 for the first and second quarters of 2010 were funded through offering proceeds. No subsequent cash distributions have been funded through offering proceeds.

Share Redemption Program

Our share redemption program may provide eligible stockholders with limited interim liquidity. The share redemption program will be immediately terminated if our shares of common stock are listed on a national securities exchange or if a secondary market is otherwise established.

After our stockholders have held shares of our common stock for a minimum of one year, our share redemption program may provide a limited opportunity for our stockholders to have their shares of common stock redeemed, subject to certain restrictions and limitations, at a price equal to or at a discount from the purchase price of the shares of our common stock being redeemed and the amount of the discount will vary based upon the length of time that our stockholders have held their shares of our common stock subject to redemption, as described in the following table:

 

Share Purchase Anniversary		Redemption Price as a Percentage of Purchase Price
Less than one year			No redemption allowed
One year			92.5	%
Two years			95.0	%
Three years			97.5	%
Four years and longer			100.0	%

In the event that our stockholders seek to redeem all of their shares of our common stock, shares of our common stock purchased pursuant to our distribution reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of our board of directors. If a stockholder has made more than one purchase of our common stock (other than through our distribution reinvestment plan), the one-year holding period will be calculated separately with respect to each such purchase. In addition, for purposes of the one-year holding period, holders of Operating Partnership Units (“OP Units”) who exchange their OP Units for shares of our common stock shall be deemed to have owned their shares as of the date they were issued their OP Units. Neither the one-year holding period nor the Redemption Caps (as defined below) will apply in the event of the death of a stockholder and such shares will be redeemed at a price equal to 100% of the price paid by the deceased stockholder for the shares without regard to the date of purchase of the shares to be redeemed; provided, however, that any such redemption request with respect to the death of a stockholder must be submitted to us within 18 months after the date of death. Our board of directors reserves the right in its sole

 

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discretion at any time and from time to time to waive the one-year holding period and either of the Redemption Caps (as defined below) in the event of the disability (as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended) of a stockholder; reject any request for redemption for any reason; or reduce the number of shares of our common stock allowed to be redeemed under the share redemption program. A stockholder’s request for redemption in reliance on any of the waivers that may be granted in the event of the disability of the stockholder must be submitted within 18 months of the initial determination of the stockholder’s disability. If our board of directors waives the one-year holding period in the event of the disability of a stockholder, such stockholder will have its shares redeemed at the discounted amount listed in the above table for a stockholder who has held for one year. In all other cases in the event of the disability of a stockholder, such stockholder will have its shares redeemed as described in the above table. Furthermore, any shares redeemed in excess of the Quarterly Redemption Cap (as defined below) as a result of the death or disability of a stockholder will be included in calculating the following quarter’s redemption limitations. At any time we are engaged in an offering of shares of our common stock, the per share price for shares of our common stock redeemed under our redemption program will never be greater than the then-current offering price of our shares of our common stock sold in the primary offering.

We are not obligated to redeem shares of our common stock under the share redemption program. We presently intend to limit the number of shares to be redeemed during any calendar quarter to the “Quarterly Redemption Cap” which will equal the lesser of: (i) one-quarter of five percent of the number of shares of common stock outstanding as of the date that is 12 months prior to the end of the current quarter and (ii) the aggregate number of shares sold pursuant to our distribution reinvestment plan in the immediately preceding quarter, which amount may be less than the Aggregate Redemption Cap described below. Our board of directors retains the right, but is not obligated to, redeem additional shares if, in its sole discretion, it determines that it is in our best interest to do so, provided that we will not redeem during any consecutive 12-month period more than of five percent of the number of shares of common stock outstanding at the beginning of such 12-month period (referred to herein as the “Aggregate Redemption Cap” and together with the Quarterly Redemption Cap, the “Redemption Caps”) unless permitted to do so by applicable regulatory authorities. Although we presently intend to redeem shares pursuant to the above-referenced methodology, to the extent that the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan in any quarter are not sufficient to fund redemption requests, our board of directors may, in its sole discretion, choose to use other sources of funds to redeem shares of our common stock, up to the Aggregate Redemption Cap. Such sources of funds could include cash on hand, cash available from borrowings, cash from the sale of our shares pursuant to our distribution reinvestment plan in other quarters, and cash from liquidations of securities investments, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders, debt repayment, purchases of real property, debt related or other investments, or redemptions of OP Units. Our board of directors has no obligation to use other sources to redeem shares of our common stock under any circumstances. Our board of directors may, but is not obligated to, increase the Aggregate Redemption Cap but may only do so in reliance on an applicable no-action letter issued or other guidance provided by the SEC staff that would not object to such an increase. There can be no assurance that our board of directors will increase either of the Redemption Caps at any time, nor can there be assurance that our board of directors will be able to obtain, if necessary, a no-action letter from SEC staff. In any event, the number of shares of our common stock that we may redeem will be limited by the funds available from purchases pursuant to our distribution reinvestment plan, cash on hand, cash available from borrowings and cash from liquidations of securities or debt related investments as of the end of the applicable quarter.

Our board of directors may, in its sole discretion, amend, suspend, or terminate the share redemption program at any time if it determines that the funds available to fund the share redemption program are needed for other business or operational purposes or that amendment, suspension or termination of the share redemption program is in the best interest of our stockholders. Any amendment, suspension or termination of the share redemption program will not affect the rights of holders of OP Units to cause us to redeem their OP Units for, at our sole discretion, shares of our common stock, cash, or a combination of both pursuant to the Operating Partnership Agreement. In addition, our board of directors may determine at any time to modify the share redemption program to redeem shares at a price other than the price paid for the shares by redeeming the stockholder, such as an estimated value per share or the then current net asset value per share (provided that any current offering will then also be conducted at such share), as calculated in accordance with policies and procedures developed by our board of directors. If our board of directors decides to materially amend, suspend or terminate the share redemption program, we will provide stockholders with no less than 30 days’ prior written notice. During a public offering, we will also include this information in a prospectus supplement or post-effective amendment to the registration statement, as then required under the federal securities laws. Therefore, stockholders may not have the opportunity to make a redemption request prior to any potential suspension, amendment or termination of our share redemption program.

For the nine months ended September 30, 2011, we received eligible redemption requests related to 57,471 shares of our common stock, which we redeemed in full for approximately $563,000 using proceeds from the sale of shares pursuant to our distribution reinvestment plan.

 

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The table below summarizes the redemption activity for the three months ended September 30, 2011:

 

For the Month Ended		Total Number of Shares Redeemed				Average Price Paid per Share				Total Number of Shares Redeemed as Part of Publicly Announced Plans or Programs				Maximum Number of Shares That May Yet Be Redeemed Under the Plans or Programs (1)
July 31, 2011			—			$	—				—				—
August 31, 2011			—				—				—				—
September 30, 2011			35,171				9.66				35,171				—
Total			35,171			$	9.66				35,171				—

 

(1)	We limit the number of shares that may be redeemed under the program as described above.

ITEM 6. EXHIBITS

The exhibits required by this item are set forth on the Exhibit Index attached hereto.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		INDUSTRIAL INCOME TRUST INC.
November 10, 2011		By:		/S/    DWIGHT L. MERRIMAN III
				Dwight L. Merriman III
				Chief Executive Officer
November 10, 2011		By:		/S/    THOMAS G. MCGONAGLE
				Thomas G. McGonagle
				Chief Financial Officer and Treasurer

 

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EXHIBIT INDEX

 

EXHIBIT NUMBER		DESCRIPTION
3.1		Second Articles of Amendment and Restatement of Industrial Income Trust Inc. (the “Issuer”), dated February 9, 2010. Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed with the SEC on March 26, 2010.
3.2		Bylaws of Industrial Income Trust Inc. Incorporated by reference to Exhibit 3.2 to Pre-effective Amendment No. 4 to the Issuer’s Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on December 17, 2009.
4.1		First Amended and Restated Distribution Reinvestment Plan. Incorporated by reference to Appendix C to Post-effective Amendment No. 5 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on July 1, 2011.
4.2		Second Amended and Restated Share Redemption Program effective July 1, 2011. Incorporated by reference to Exhibit 4.3 to Post-effective Amendment No. 5 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on July 1, 2011.
10.1		Agreement of Purchase and Sale and Joint Escrow Instructions, dated July 1, 2011, by and among IIT Acquisitions LLC, a wholly-owned subsidiary of Industrial Income Trust Inc., Ridge Bedford Park I, LLC, Ridge Bedford Park II, LLC, Ridge Bedford Park IV, LLC, Ridge Garland I, L.P., Ridge Farmers Branch I, L.P., Ridge Moreno Valley, LLC, and Ridge Moreno Valley II, LLC. Incorporated by reference to Exhibit 10.76 to Post-effective Amendment No. 5 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on July 1, 2011.
10.2		Agreement of Purchase and Sale and Joint Escrow Instructions, dated July 1, 2011, by and between IIT Acquisitions LLC, a wholly-owned subsidiary of Industrial Income Trust Inc., and Ridge Southridge, L.P. Incorporated by reference to Exhibit 10.77 to Post-effective Amendment No. 5 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on July 1, 2011.
10.3		Assumption of Liability and Modification Agreement, made as of August 4, 2011, by and among U.S. Bank National Association, as trustee, as successor-in-interest to Bank of America National Association, successor by merger to Lasalle Bank National Association, as trustee for the registered holders of Bear Sterns Commercial Mortgage Securities Inc, Commercial Mortgage Pass-Through Certificates, Series 2007-PWR17, Argonne Bridge, LLC and JES Argonne Bridge, LLC, and IIT Woodridge-Maple Point DC II LLC. Incorporated by reference to Exhibit 10.78 to Post-effective Amendment No. 6 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on October 3, 2011.
10.4		Promissory Note issued by Argonne Bridge, LLC and JES Argonne Bridge, LLC to Prudential Mortgage Capital Company, LLC, dated May 31, 2007. Incorporated by reference to Exhibit 10.79 to Post-effective Amendment No. 6 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on October 3, 2011.
10.5		Mortgage and Security Agreement, made as of May 31, 2007, by Argonne Bridge, LLC and JES Argonne Bridge, LLC in favor of Prudential Mortgage Capital Company, LLC. Incorporated by reference to Exhibit 10.80 to Post-effective Amendment No. 6 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on October 3, 2011.
10.6		Agreement of Limited Partnership of IIT North American Industrial Fund I Limited Partnership, dated as of August 18, 2011, by and among IIT North American Industrial Fund I GP LLC, IIT North American Industrial Fund I Limited Partner LLC, and 3NET Indy Investments Inc. Incorporated by reference to Exhibit 10.81 to Post-effective Amendment No. 6 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on October 3, 2011.
10.7		Assumption Agreement, made as of August 25, 2011, by and among U.S. Bank National Association, as trustee, as successor-in-interest to Bank of America, N.A., as trustee, successor to Wells Fargo Bank, N.A., as trustee for the registered holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2006-C27, Crossroads Bolingbrook, LLC and RES Crossroads Bolingbrook, LLC, Robert E. Smietana, John E. Shaffer and Melissa S. Pielet, IIT Bolingbrook - Park 55 DC LLC and Industrial Income Trust, Inc. Incorporated by reference to Exhibit 10.828 to Post-effective Amendment No. 6 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on October 3, 2011.
10.8		Promissory Note issued by Crossroads Bolingbrook, LLC and RES Crossroads Bolingbrook, LLC to Wachovia Bank, National Association, dated June 23, 2006. Incorporated by reference to Exhibit 10.83 to Post-effective Amendment No. 6 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on October 3, 2011.
10.9		Mortgage, Security Agreement and Fixture Filing, made as of June 23, 2006, by Crossroads Bolingbrook, LLC and RES Crossroads Bolingbrook, LLC in favor of Wachovia Bank, National Association. Incorporated by reference to Exhibit 10.84 to Post-effective Amendment No. 6 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on October 3, 2011.

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EXHIBIT NUMBER		DESCRIPTION
31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**		The following materials from Industrial Income Trust Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed on November 10, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements

 

*	Filed herewith.

**

In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.