Black Creek Diversified Property Fund Inc. - FORM 8-K - EX-99.2

Attached files

file	filename
8-K - 8-K - Black Creek Diversified Property Fund Inc.	d689751d8k.htm
EX-99.1 - EX-99.1 - Black Creek Diversified Property Fund Inc.	d689751dex991.htm

Exhibit 99.2

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QUARTERLY EARNINGS

and

SUPPLEMENTAL DISCLOSURE

(unaudited)

Quarter Ended December 31, 2013

www.dividendcapitaldiversified.com

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TABLE OF CONTENTS


COMPANY PROFILE			3

FINANCIAL HIGHLIGHTS			6

BALANCE SHEETS			7

STATEMENTS OF OPERATIONS			8

FUNDS FROM OPERATIONS			9

NET ASSET VALUE			11

FINANCE & CAPITAL			13

REAL PROPERTIES			16

RESULTS OF OPERATIONS			17

LEASING ACTIVITY			19

INVESTMENT ACTIVITY			21

DEFINITIONS			24

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Statements included in this supplemental package 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 which could have a material adverse effect on our operations and future prospects include, but are not limited to: the continuing impact of high unemployment and the slow economic recovery, which is having and may continue to have a negative effect on the following, among other things, the fundamentals of our business, including overall market demand and occupancy, tenant space utilization, and rental rates; the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis; general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); our ability to effectively raise and deploy proceeds from our equity offerings; risks associated with the availability and terms of debt and equity financing and refinancing and the use of debt to fund acquisitions and developments, including the risk associated with interest rates impacting the cost and/or availability of financing and refinancing; the business opportunities that may be presented to and pursued by us, changes in laws or regulations (including changes to laws governing the taxation of real estate investment trusts; changes in accounting principles, policies and guidelines applicable to real estate investment trusts; environmental, regulatory and/or safety requirements; and the availability and cost of comprehensive insurance, including coverage for terrorist acts and earthquakes. 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 supplemental package, whether as a result of new information, future events, changed circumstances or any other reason. You should review the risk factors contained in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 7, 2014.

Please see the section titled “Definitions” at the end of this supplemental package for definitions of terms used in this supplemental package.

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COMPANY PROFILE

The Company

Dividend Capital Diversified Property Fund Inc. is a Maryland corporation formed on April 11, 2005 to invest in a diverse portfolio of real property and real estate related investments. As used herein, “the Company,” “we,” “our” and “us” refer to Dividend Capital Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires. As of December 31, 2013, we held 82 real properties comprising approximately 15.3 million square feet located in 30 geographic markets, and 14 debt related investments. Our operating portfolio was approximately 93.6% leased as of December 31, 2013. Dividend Capital Diversified Property Fund, Inc. has paid quarterly dividends to its stockholders continuously since 2006. We reported a net loss as defined under principles of accounting generally accepted in the United States (“GAAP”) of approximately $1.4 million for the three months ended December 31, 2013. The following table presents information about the operating results and fair value of our real property and debt investment portfolios as of or for the three months ended December 31, 2013 (dollar and square footage amount in thousands).

Snapshot


	Real Properties ⁽¹⁾												Debt Related Investments, Net
As of or for the three months ended December 31, 2013	Total Real Properties			Office			Industrial			Retail			Debt Related Investments, Net
Number of buildings/debt investments		82			26			25			31			14
Square footage		15,250			5,132			7,046			3,072			N/A
Percentage leased at period end		93.6	%		92.7	%		94.2	%		93.6	%		N/A
Net operating income (“NOI”)⁽²⁾	$	44,449		$	24,731		$	8,625		$	11,093		$	2,790
% of total NOI		94.1	%		52.4	%		18.3	%		23.5	%		5.9	%
NOI - cash basis ⁽³⁾	$	42,845		$	24,316		$	8,075		$	10,454		$	2,790
Fair Value ⁽⁴⁾	$	2,525,375		$	1,378,080		$	430,770		$	716,525		$	123,935
% of total Fair Value		95.3	%		52.0	%		16.3	%		27.0	%		4.7	%

(1)

“As of” information includes all real properties that we owned as of December 31, 2013, including a portfolio of 12 operating properties that we had classified as “held for sale” in our financial statements included within our 2013 Annual Report on Form 10-K. Operations information provided here and throughout this document is presented inclusive of amounts related to properties that have been disposed of or classified as held for sale and reclassified as discontinued operations as of December 31, 2013.

(2)	For a reconciliation of NOI to GAAP net income, see section titled “Results of Operations” beginning on page 17.

(3)	For a reconciliation of NOI – Cash Basis to NOI and to GAAP net income, see section titled “Results of Operations” beginning on page 17.

(4)

As determined in accordance with our Valuation Procedures, filed as Exhibit 99.1 to our 2013 Annual Report on Form 10-K. See a discussion of some of the differences between the definition of “fair value” of our real estate assets as used in our Valuation Procedures and in this document versus GAAP values in the section titled “Definitions” beginning on page 24. For a description of key assumptions used in calculating the value of our real properties as of December 31, 2013, please refer to “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of our 2013 Annual Report on Form 10-K.

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COMPANY PROFILE (continued)

As of December 31, 2013, our real property investments were geographically diversified across 30 markets throughout the United States. Our debt related investments are located in six additional markets resulting in a combined portfolio allocation across 36 markets. The following map shows the current allocations of our more significant real property investments across geographic markets within the continental United States by fair value ⁽¹⁾ as of December 31, 2013:

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In addition, we had real property investments, each accounting for 1% or less of the total fair value of our real property portfolio, in the following markets: Central Kentucky, Central Pennsylvania, Cincinnati, OH, Cleveland, OH, Columbus, OH, Denver, CO, Fayetteville, AR, Jacksonville, FL, Little Rock, AR, Louisville, KY, Pittsburgh, PA, and San Antonio, TX.

(1)

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COMPANY PROFILE (continued)

Investor Information


Board of Directors			Management

Richard D. Kincaid		John A. Blumberg	Jeffrey L. Johnson	J. Michael Lynch
Chairman of the Board of Directors		Director	Chief Executive Officer	President

Charles B. Duke		Daniel J. Sullivan	M. Kirk Scott	Austin W. Lehr
Director		Director	Chief Financial Officer and Treasurer	Chief Operating Officer

John P. Woodberry			Joshua J. Widoff
Director			Executive Vice President, Secretary and General Counsel

			Gregory M. Moran
			Executive Vice President

Company Information
Corporate Headquarters	Ticker Symbols:		Investor Relations	Inquiries
518 17th Street, Suite 1700 Denver, Colorado, 80202 CIK	Class E Common Stock Class A Common Stock Class W Common Stock Class I Common Stock	ZDPFEX ZDPFAX ZDPFWX ZDPFIX	Dividend Capital Diversified Property Fund, Inc. 517 17th Street, 17th Floor Denver, CO 80202	For Real Estate inquiries, call 303.228.2200. For inquiries related to our equity capital offering, please contact our distributor,
0001327978			www.dividendcapitaldiversified.com	Dividend Capital Securities, at 866.DCG.REIT (324.7348).

Web Page for Daily NAV				dividend.capital@dividendcapital.com
www.dividendcapitaldiversified.com

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FINANCIAL HIGHLIGHTS

Amounts in thousands, except per share information and percentages.


	As of or for the Three Months Ended															As of or For the Year Ended
Selected Operating Data - Continuing Operations (as adjusted) ⁽¹⁾	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012			December 31, 2013			December 31, 2012
Total revenues	$	60,288		$	60,490		$	66,615		$	69,408		$	69,883		$	256,801		$	277,786
Net (loss) income		(1,452	)		45,331			18,457			(5,866	)		(15,405	)		56,470			(22,371	)

Portfolio Statistics
Buildings		82			82			84			93			94			82			94
Square feet		15,250			15,077			15,464			19,025			19,086			15,250			19,086
Percentage leased at end of period		93.6	%		95.9	%		96.2	%		93.8	%		90.0	%		93.6	%		90.0	%

Earnings Per Share
Net (loss) income per share	$	(0.01	)	$	0.24		$	0.10		$	(0.03	)	$	(0.07	)	$	0.29		$	(0.12	)
Funds from Operations (“FFO”) per share ⁽²⁾	$	0.11		$	0.12		$	0.13		$	0.12		$	0.11		$	0.48		$	0.46
Company-defined FFO per share ⁽²⁾	$	0.12		$	0.12		$	0.13		$	0.12		$	0.12		$	0.49		$	0.49
Weighted average number of common shares outstanding - basic		177,548			178,201			178,176			178,792			179,605			178,196			181,982
Weighted average number of common shares outstanding - diluted		190,942			191,783			192,019			192,927			193,985			191,932			197,244

Net Asset Value (“NAV”) per share ⁽³⁾
At the end of period	$	6.93		$	6.87		$	6.83		$	6.79		$	6.70		$	6.93		$	6.70
High during period	$	6.93		$	6.89		$	6.84		$	6.79		$	6.70		$	6.93		$	6.70
Low during period	$	6.84		$	6.83		$	6.74		$	6.71		$	6.64		$	6.71		$	6.63
Weighted average distributions per share	$	0.0874		$	0.0875		$	0.0875		$	0.0875		$	0.0875		$	0.3498		$	0.4625
Weighted average closing dividend yield - annualized		5.05	%		5.10	%		5.12	%		5.15	%		5.22	%		5.05	%		6.90	%
Weighted average total return for the period		2.24	%		1.72	%		1.93	%		2.60	%		2.29	%		8.75	%		N/A

Consolidated Debt
Leverage ⁽⁴⁾		50	%		49	%		50	%		55	%		55	%		50	%		55	%
Secured borrowings	$	1,023,472		$	969,265		$	1,004,982		$	1,277,957		$	1,319,452		$	1,023,472		$	1,319,452
Secured borrowings as % of total borrowings		77	%		78	%		76	%		80	%		81	%		77	%		81	%
Unsecured borrowings	$	300,000		$	270,000		$	325,000		$	325,000		$	300,000		$	300,000		$	300,000
Unsecured borrowings as % of total borrowings		23	%		22	%		24	%		20	%		19	%		23	%		19	%
Fixed rate borrowings ⁽⁵⁾	$	1,214,892		$	1,060,595		$	1,096,222		$	1,225,839		$	1,239,111		$	1,214,892		$	1,239,111
Fixed rate borrowings as % of total borrowings		92	%		86	%		82	%		76	%		77	%		92	%		77	%
Floating rate borrowings	$	108,580		$	178,670		$	233,760		$	377,118		$	380,341		$	108,580		$	380,341
Floating rate borrowings as % of total borrowings		8	%		14	%		18	%		24	%		23	%		8	%		23	%
Total borrowings	$	1,323,472		$	1,239,265		$	1,329,982		$	1,602,957		$	1,619,452		$	1,323,472		$	1,619,452

(1)

Operating data in this table and throughout this documented are presented inclusive of amounts relating to real properties that have been disposed of or classified as held for sale at the end of the period and reclassified as discontinued operations in our GAAP financial statements. Certain asset and liability amounts in this table and throughout this document are presented inclusive of amounts relating to real properties that have been classified as held for sale in our GAAP financial statements.

(2)	For a reconciliation FFO and Company-Defined FFO to GAAP net income, see section titled “Funds from Operations” beginning on page 9.

(3)

(4)	Leverage presented represents our total borrowings, calculated on a GAAP basis, divided by the fair value of our real property and debt investments.

(5)	Fixed rate borrowings presented includes floating rate borrowings that are effectively fixed by a derivative instrument such as a swap through maturity or substantially through maturity.

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BALANCE SHEETS

The following table presents our consolidated balance sheets, as adjusted, as of the end of each of the five quarters ended December 31, 2013. Certain asset and liability amounts in this table are presented inclusive of amounts relating to real properties that have been classified as held for sale in our GAAP financial statements (dollar amounts in thousands):


	As of
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012
ASSETS
Investments in real property	$	2,570,480		$	2,463,767		$	2,560,229		$	2,817,022		$	2,819,550
Accumulated depreciation and amortization		(502,847	)		(481,521	)		(489,184	)		(513,522	)		(482,782	)

Total net investments in real property		2,067,633			1,982,246			2,071,045			2,303,500			2,336,768
Debt related investments, net		123,935			127,055			123,017			165,469			187,321

Total net investments		2,191,568			2,109,301			2,194,062			2,468,969			2,524,089
Cash and cash equivalents		24,778			40,003			31,609			36,793			36,872
Restricted cash		25,556			27,410			23,391			24,945			32,968
Other assets, net		63,507			62,603			62,532			67,837			65,325

Total Assets	$	2,305,409		$	2,239,317		$	2,311,594		$	2,598,544		$	2,659,254

LIABILITIES AND EQUITY
Liabilities:
Mortgage notes and other secured borrowings	$	1,023,472		$	969,265		$	1,004,982		$	1,277,957		$	1,319,452
Unsecured borrowings		300,000			270,000			325,000			325,000			300,000
Intangible lease liabilities, net		77,549			77,833			79,722			86,229			88,331
Other liabilities		99,377			94,466			105,489			97,459			109,944

Total Liabilities		1,500,398			1,411,564			1,515,193			1,786,645			1,817,727
Equity:
Stockholders’ equity:
Common stock		1,760			1,767			1,755			1,772			1,781
Additional paid-in capital		1,582,886			1,588,760			1,583,945			1,605,226			1,610,996
Distributions in excess of earnings		(860,747	)		(843,855	)		(870,346	)		(871,891	)		(850,885	)
Accumulated other comprehensive loss		(10,794	)		(12,893	)		(12,821	)		(15,597	)		(16,196	)

Total stockholders’ equity		713,105			733,779			702,533			719,510			745,696
Noncontrolling interests		91,906			93,974			93,868			92,389			95,831

Total Equity		805,011			827,753			796,401			811,899			841,527

Total Liabilities and Equity	$	2,305,409		$	2,239,317		$	2,311,594		$	2,598,544		$	2,659,254

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STATEMENTS OF OPERATIONS

The following table presents our condensed consolidated statements of operations, as adjusted, for each of the five quarters ended December 31, 2013. Operating data in this table are presented inclusive of amounts relating to real properties that have been disposed of or classified as held for sale at the end of the period and reclassified as discontinued operations in our GAAP financial statements (amounts in thousands, except per share data):


	Three Months Ended															Year Ended
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012			December 31, 2013			December 31, 2012
REVENUE:
Rental revenue	$	57,498		$	58,181		$	64,000		$	66,673		$	67,136		$	246,352		$	268,377
Debt related income		2,790			2,309			2,615			2,735			2,747			10,449			9,409

Total Revenue		60,288			60,490			66,615			69,408			69,883			256,801			277,786

EXPENSES:
Rental expense		13,048			12,363			14,954			17,327			16,345			57,692			62,266
Real estate depreciation and amortization expense		25,093			24,285			28,290			30,523			31,846			108,191			129,116
General and administrative expenses		2,886			2,211			2,515			2,361			2,146			9,973			7,233
Advisory fees, related party		3,898			3,813			3,725			3,684			3,730			15,120			17,659
Acquisition-related expenses		337			—			—			—			2			337			325
Impairment of real estate property		2,600			—			—			—			5,700			2,600			5,700

Total Operating Expenses		47,862			42,672			49,484			53,895			59,769			193,913			222,299

Other Income (Expenses):
Interest and other income (expense)		111			(376	)		207			(171	)		511			(229	)		324
Interest expense		(17,761	)		(17,603	)		(20,473	)		(22,151	)		(24,227	)		(77,988	)		(93,615	)
Loss on extinguishment of debt and financing commitments		(1,808	)		(4	)		(425	)		(270	)		(1,766	)		(2,507	)		(5,675	)
Gain (loss) on sale of real property		5,580			45,496			22,017			1,213			(37	)		74,306			21,108

Net (Loss) Income		(1,452	)		45,331			18,457			(5,866	)		(15,405	)		56,470			(22,371	)
Net loss (income) attributable to noncontrolling interests		85			(3,257	)		(1,329	)		499			1,240			(4,002	)		110

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(1,367	)	$	42,074		$	17,128		$	(5,367	)	$	(14,165	)	$	52,468		$	(22,261	)

NET (LOSS) INCOME PER BASIC AND DILUTED COMMON SHARE	$	(0.02	)	$	0.24		$	0.10		$	(0.03	)	$	(0.07	)	$	0.29		$	(0.12	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		177,548			178,201			178,176			178,792			179,605			178,196			181,982

Diluted		190,942			191,783			192,019			192,927			193,985			191,932			197,244

Weighted average distributions declared per common share	$	0.0874		$	0.0875		$	0.0875		$	0.0875		$	0.0875		$	0.3498		$	0.4625

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FUNDS FROM OPERATIONS

The following tables present NAREIT-Defined Funds From Operations (“FFO”), Company-defined FFO, and certain other supplemental information for each of the five quarters ended December 31, 2013. Operating data in these tables are presented inclusive of amounts relating to real properties that have been disposed or classified as held for sale at the end of the period and reclassified as discontinued operations in our GAAP financial statements (amounts in thousands except for per share amounts and percentages):


	Three Months Ended															Year Ended December 31,
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012			2013			2012
Reconciliation of net earnings to FFO:
Net (loss) income attributable to common stockholders	$	(1,367	)	$	42,074		$	17,128		$	(5,367	)	$	(14,165	)	$	52,468		$	(22,261	)
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense		25,093			24,285			28,290			30,523			31,846			108,191			129,116
(Gain) loss on disposition of real property		(5,580	)		(45,496	)		(22,017	)		(1,213	)		37			(74,306	)		(21,108	)
Impairment of real property		2,600			—			—			—			5,700			2,600			5,700
Noncontrolling interests’ share of net (loss) income		(85	)		3,257			1,329			(499	)		(1,240	)		4,002			(110	)
Noncontrolling interests’ share of FFO		(1,687	)		(1,976	)		(2,076	)		(2,001	)		(2,099	)		(7,739	)		(8,486	)

FFO attributable to common shares-basic		18,974			22,144			22,654			21,443			20,079			85,216			82,851
FFO attributable to dilutive OP units		1,431			1,688			1,760			1,695			1,608			6,575			6,947

FFO attributable to common shares-diluted	$	20,405		$	23,832		$	24,414		$	23,138		$	21,687		$	91,791		$	89,798

FFO per share-basic and diluted	$	0.11		$	0.12		$	0.13		$	0.12		$	0.11		$	0.48		$	0.46

FFO payout ratio		82	%		70	%		69	%		73	%		78	%		73	%		102	%

	Three Months Ended															Year Ended December 31,
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012			2013			2012
Reconciliation of FFO to Company-Defined FFO:
FFO attributable to common shares-basic	$	18,974		$	22,144		$	22,654		$	21,443		$	20,079		$	85,216		$	82,851
Add (deduct) our adjustments:
Acquisition-related expenses		337			—			—			—			2			337			325
Loss on extingushment of debt, financing commitments and derivatives		1,808			4			425			270			1,766			2,507			5,694
Noncontrolling interests’ share of FFO		1,687			1,976			2,076			2,001			2,099			7,739			8,486
Noncontrolling interests’ share of Company-Defined FFO		(1,837	)		(1,976	)		(2,106	)		(2,020	)		(2,230	)		(7,940	)		(8,954	)

Company-Defined FFO attributable to common shares-basic		20,969			22,148			23,049			21,694			21,716			87,859			88,402
Company-Defined FFO attributable to dilutive OP units		1,582			1,688			1,791			1,715			1,739			6,776			7,414

Company-Defined FFO attributable to common shares-diluted	$	22,551		$	23,836		$	24,840		$	23,409		$	23,455		$	94,635		$	95,816

Company-Defined FFO per share-basic and diluted	$	0.12		$	0.12		$	0.13		$	0.12		$	0.12		$	0.49		$	0.49

Weighted average number of shares outstanding
Basic		177,548			178,201			178,176			178,792			179,605			178,196			181,982

Diluted		190,942			191,783			192,019			192,927			193,985			191,932			197,244

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FUNDS FROM OPERATIONS (continued)

(Amounts in thousands):


	Three Months Ended															Year Ended December 31,
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012			2013			2012
Other Supplemental Information
Capital Expenditures Summary
Recurring capital expenditures		6,980			4,416			4,752			5,024			6,658			21,172			15,293
Non-recurring capital improvements		1,177			964			1,320			598			973			4,059			3,473

Total Capital Expenditures		8,157			5,380			6,072			5,622			7,631			25,231			18,766
Certain non-cash adjustments
Straight-line rent increase to rental revenue		1,497			1,640			2,759			2,968			1,993			8,864			8,107
Amortization of above- and below-market rent increase (decrease) to rental revenue		21			(37	)		84			176			142			244			1,517
Amortization of loan costs and hedges - increase to interest expense		1,202			1,233			1,390			1,428			1,486			5,253			5,894
Amortization of mark-to-market adjustments on borrowings - (increase) decrease to interest expense		(338	)		(343	)		(337	)		(330	)		(324	)		(1,348	)		(1,262	)

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NET ASSET VALUE

The following table sets forth the components of NAV for the Company as of the end of each of the five quarters ending December 31, 2013 (amounts in thousands except per share information), as determined in accordance with our Valuation Procedures, filed as Exhibit 99.1 to our 2013 Annual Report on Form 10-K. See a discussion of some of the differences between the definition of “fair value” of our real estate assets as used in our Valuation Procedures and in this document versus GAAP values in the section titled “Definitions” beginning on page 24. For a description of key assumptions used in calculating the value of our real properties as of December 31, 2013, please refer to “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of our 2013 Annual Report on Form 10-K. As used below, “Fund Interests” means our Class E shares, Class A shares, Class W shares, and Class I shares, along with the Class E OP Units held by third parties, and “Aggregate Fund NAV” means the NAV of all of the Fund Interests.


	As of
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012
Real properties:
Office	$	1,378,080		$	1,278,930		$	1,392,025		$	1,534,832		$	1,538,325
Industrial		430,770			421,700			419,000			500,400			499,700
Retail		716,525			713,315			709,725			706,475			696,800

Total Real Properties		2,525,375			2,413,945			2,520,750			2,741,707			2,734,825
Debt related investments		123,935			127,055			123,017			165,469			187,321
Cash and other assets, net of other liabilities		3,904			21,132			(2,767	)		14,636			6,447
Debt obligations		(1,325,286	)		(1,240,881	)		(1,331,401	)		(1,604,181	)		(1,620,482	)
Outside investor’s interests		(16,004	)		(15,751	)		(15,497	)		(18,657	)		(18,740	)

Aggregate Fund NAV	$	1,311,924		$	1,305,500		$	1,294,102		$	1,298,974		$	1,289,371
Total Fund Interests outstanding		189,280			190,163			189,338			191,260			192,303
NAV per Fund Interest	$	6.93		$	6.87		$	6.83		$	6.79		$	6.70

When the fair value of our real estate assets is calculated for the purposes of determining our NAV per share, the calculation is done using the fair value methodologies detailed within the FASB Accounting Standards Codification under Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). However, our valuation procedures and our NAV are not subject to GAAP and will not be subject to independent audit. In the determination of our NAV, the value of certain of our assets and liabilities are generally determined based on their carrying amounts under GAAP; however, those principles are generally based upon historic cost and therefore may not be determined in accordance with ASC Topic 820. Readers should refer to our audited financial statements for our net book value determined in accordance with GAAP from which one can derive our net book value per share by dividing our stockholders’ equity by shares of our common stock outstanding as of the date of measurement.

Our valuation procedures, which address specifically each category of our assets and liabilities and are applied separately from the preparation of our financial statements in accordance with GAAP, involve adjustments from historical cost. There are certain factors which cause NAV to be different from net book value on a GAAP basis. Most significantly, the valuation of our real estate assets, which is the largest component of our NAV calculation, will be provided to us by the Independent Valuation Firm on a daily basis. For GAAP purposes, these assets are generally recorded at depreciated or amortized cost. Other examples that will cause our NAV to differ from our GAAP net book value include the straight-lining of rent, which results in a receivable for GAAP purposes that is not included in the determination of our NAV, and, for purposes of determining our NAV, the assumption of a value of zero in certain instances where the balance of a loan exceeds the value of the underlying real estate properties, where GAAP net book value would reflect a negative equity value for such real estate properties, even if such loans are non-recourse. Third party appraisers may value our individual real estate assets using appraisal standards that deviate from market value standards under GAAP. The use of such appraisal standards may cause our NAV to deviate from GAAP fair value principles. We did not develop our valuation procedures with the intention of complying with fair value concepts under GAAP and, therefore, there could be differences between our fair values and the fair values derived from the principal market or most advantageous market concepts of establishing fair value under GAAP.

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NET ASSET VALUE (continued)

We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on your ability to redeem shares under our share redemption programs and our ability to suspend or terminate our share redemption programs at any time. Our NAV does not consider exit costs (e.g. selling costs and commissions related to the sale of a property) that would likely be incurred if our assets and liabilities were liquidated or sold. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges.

Please note that our NAV is not a representation, warranty or guarantee that: (1) we would fully realize our NAV upon a sale of our assets; (2) shares of our common stock would trade at our per share NAV on a national securities exchange; or (3) a stockholder would be able to realize the per share NAV if such stockholder attempted to sell his or her shares to a third party.

The following table sets forth the quarterly changes to the components of NAV for the company, for each of the most recent four quarters and the twelve month period ended December 31, 2013 (amounts in thousands, except per share information):


	Q1 2013			Q2 2013			Q3 2013			Q4 2013			Previous Four Quarters
NAV as of beginning of period	$	1,289,371		$	1,298,973		$	1,294,102		$	1,305,500		$	1,289,371
*Fund level changes to NAV*
Realized/unrealized gains (losses) on net assets		14,356			6,849			4,146			9,615			34,966
Income accrual		22,963			22,067			22,310			23,564			90,904
Net dividend accrual		(16,882	)		(16,796	)		(16,771	)		(16,697	)		(67,146	)
Advisory fee		(3,682	)		(3,724	)		(3,813	)		(3,806	)		(15,025	)
Performance based fee		(1	)		(4	)		(35	)		(52	)		(92	)
*Class specific changes to NAV*
Dealer Manager fee		—			(1	)		(6	)		(9	)		(16	)
Distribution fee		—			—			—			(1	)		(1	)

NAV as of end of period before share sale/redemption activity	$	1,306,125		$	1,307,364		$	1,299,933		$	1,318,114		$	1,332,961
*Share sale/redemption activity*
Shares sold		6,300			16,036			22,450			8,782			53,568
Shares redeemed		(13,452	)		(29,298	)		(16,883	)		(14,972	)		(74,605	)

NAV as of end of period	$	1,298,973		$	1,294,102		$	1,305,500		$	1,311,924		$	1,311,924

Shares outstanding beginning of period		192,303			191,261			189,338			190,163			192,303
Shares sold		938			2,365			3,284			1,278			7,865
Shares redeemed		(1,980	)		(4,288	)		(2,459	)		(2,161	)		(10,888	)

Shares outstanding end of period		191,261			189,338			190,163			189,280			189,280
NAV per share as of beginning of period	$	6.70		$	6.79		$	6.83		$	6.87		$	6.70
Change in NAV per share		0.09			0.04			0.04			0.06			0.23

NAV per share as of end of period	$	6.79		$	6.83		$	6.87		$	6.93		$	6.93

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FINANCE & CAPITAL

Capital Structure

The following table describes certain information about our capital structure. Amounts reported as financing capital are presented on a GAAP basis. Amounts reported as equity capital are presented based on the NAV as of December 31, 2013. Certain liability amounts in the tables in this section are presented inclusive of amounts relating to real properties that have been classified as held for sale in our GAAP financial statements. In the following table, financing is presented on a GAAP basis while equity is presented on a fair value⁽¹⁾ basis (shares and dollar amounts other than price per share / unit in thousands).


FINANCING:	As of December 31, 2013
Mortgage notes and other secured borrowings	$	1,023,472
Unsecured borrowings		300,000
Financing obligations		18,043

Total Financing		1,341,515


EQUITY:	Shares / Units		Price per Share /Unit ⁽¹⁾		Value
Common Stock:
Class A		217	$	6.93	$	1,502
Class E		171,254		6.93		1,186,994
Class I		4,327		6.93		29,992
Class W		209		6.93		1,448
Class E OP Units		13,272		6.93		91,988

Total/Weighted Average		189,279		6.93	$	1,311,924

					$	2,653,439

(1)

Borrowings Summary


	Weighted Average Stated Interest Rate as of December 31, 2013			Outstanding Balance as of December 31, 2013		Gross Investment Amount Securing Borrowings as of December 31, 2013 ⁽¹⁾
Fixed rate mortgages		5.8	%	$	969,622	$	1,898,946
Floating rate mortgages		3.9	%		8,580		15,571

Total mortgage notes		5.8	%		978,202		1,914,517
Repurchase facilities ⁽²⁾		2.8	%		45,270		65,726

Total secured borrowings		5.6	%		1,023,472		1,980,243

Line of credit		1.9	%		30,000		N/A
Term loan ⁽²⁾		2.2	%		270,000		N/A

Total unsecured borrowings		2.2	%		300,000		N/A

Total borrowings		4.9	%	$	1,323,472	$	1,980,243

(1)

“Gross Investment Amount” as used here and throughout this document represents the allocated gross basis of real property, calculated in accordance with GAAP, inclusive of the effect of gross intangible lease liabilities totaling approximately $113.5 million and before accumulated depreciation and amortization of approximately $502.8 million as of December 31, 2013.

(2)	100% of our repurchase facility (“Repo”) borrowings and $200.0 million of our term loan borrowings are effectively fixed by the use of a fixed-for-floating rate swap instrument as of December 31, 2013. The stated interest rates disclosed above include the impact of these swaps.

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FINANCE & CAPITAL (continued)

Detailed Borrowings Analysis

(Dollar amounts in thousands).


	As of December 31, 2013
Borrowings	Principal Balance			Secured / Unsecured	Maturity Date	Extension Options	% of Total Borrowings			Fixed or Floating Interest Rate	Current Interest Rate
40 Boulevard	$	8,580		Secured	1/24/2014	None		0.6	%	Floating		3.9	%
Repurchase Facility		45,270		Secured	5/30/2014	3-1Year		3.4	%	Floating⁽¹⁾		2.8	%
Greater DC Retail Center		38,926		Secured	7/1/2014	1-1Year		2.9	%	Fixed		4.8	%
DCT JV II—Phase I (4 prop)		39,725		Secured	8/10/2014	None		3.0	%	Fixed		6.2	%

Total 2014		132,501						10.0	%			4.5	%
DCT JV I		30,936		Secured	7/1/2015	None		2.3	%	Fixed		5.9	%
Orleans & Whitman		21,529		Secured	7/1/2015	None		1.6	%	Fixed		6.0	%
Campus Road Office Center		34,227		Secured	7/10/2015	None		2.6	%	Fixed		4.8	%
Preston Sherry Plaza		22,807		Secured	9/1/2015	None		1.7	%	Fixed		5.9	%
Mansfield		8,600		Secured	10/1/2015	None		0.7	%	Fixed		6.0	%

Total 2015		118,099						8.9	%			5.6	%
Westport Drive		9,767		Secured	1/1/2016	None		0.7	%	Fixed		6.6	%
Abington		4,817		Secured	1/1/2016	None		0.4	%	Fixed		6.8	%
Hyannis		4,770		Secured	1/1/2016	None		0.4	%	Fixed		6.8	%
Austin-Mueller Health Center (Seton)		19,786		Secured	1/1/2016	None		1.5	%	Fixed		7.5	%
Line of Credit		30,000		Unsecured	1/31/2016	None		2.3	%	Floating		1.9	%
DeGuigne		7,498		Secured	2/1/2016	None		0.6	%	Fixed		7.8	%
Washington Commons		21,300		Secured	2/1/2016	None		1.6	%	Fixed		5.9	%
1300 Connecticut		34,609		Secured	4/10/2016	None		2.6	%	Fixed		7.3	%
1300 Connecticut B Note		11,812		Secured	4/10/2016	None		0.9	%	Fixed		5.5	%
Riverport Industrial Portfolio		8,298		Secured	4/1/2016	None		0.6	%	Fixed		7.4	%
655 Montgomery		57,827		Secured	6/11/2016	None		4.4	%	Fixed		6.0	%
Jay Street		23,500		Secured	7/11/2016	None		1.8	%	Fixed		6.1	%
Bala Pointe		24,000		Secured	9/1/2016	None		1.8	%	Fixed		5.9	%
Lundy Avenue		14,250		Secured	11/8/2016	None		1.1	%	Fixed		5.6	%
Harborside		114,424		Secured	12/10/2016	2-1Year		8.7	%	Fixed		5.5	%

Total 2016		386,658						29.2	%			5.8	%
Shiloh Road		22,700		Secured	1/8/2017	None		1.7	%	Fixed		5.6	%
Bandera Road		21,500		Secured	2/8/2017	None		1.6	%	Fixed		5.5	%
Shackelford		13,650		Secured	5/1/2017	None		1.0	%	Fixed		5.8	%
Eastern Retail Portfolio		110,000		Secured	6/11/2017	None		8.3	%	Fixed		5.5	%
Wareham		24,400		Secured	8/8/2017	None		1.8	%	Fixed		6.1	%
Kingston		10,574		Secured	11/1/2017	None		0.8	%	Fixed		6.3	%
Sandwich		15,825		Secured	11/1/2017	None		1.2	%	Fixed		6.3	%

Total 2017		218,649						16.5	%			5.7	%
Term Loan		270,000		Unsecured	1/31/2018	None		20.4	%	Floating⁽¹⁾		2.2	%
NOIP Fixed		176,176		Secured	7/1/2020	None		13.3	%	Fixed		5.5	%
Norwell		6,061		Secured	10/1/2022	None		0.5	%	Fixed		6.8	%
Harwich		5,896		Secured	9/1/2028	None		0.4	%	Fixed		5.2	%
New Bedford		8,237		Secured	12/1/2029	None		0.6	%	Fixed		5.9	%

Total 2018—2029		466,370						35.3	%			3.6	%

Total borrowings		1,322,277						100.0	%			4.9	%
Less: mark-to-market adjustment on assumed debt		2,696
Less: GAAP principal amortization on restructured debt		(1,501	)

Total Borrowings (GAAP basis)	$	1,323,472

(1)	100% of our repurchase facility (“Repo”) borrowings and $200.0 million of our term loan borrowings are effectively fixed by the use of a fixed-for-floating rate swap instrument as of December 31, 2013. The stated interest rates disclosed above include the impact of these swaps.

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FINANCE & CAPITAL (continued)

Covenants


Company-Level Covenants:	Covenant	Actual as of December 31, 2013
Leverage	< 60%		49.8	%
Fixed Charge Coverage	> 1.50		1.96
Secured Indebtedness	< 55%		38.0	%

Unencumbered Pool Covenants:
Unencumbered Debt Yield	> 11%		16.2	%
Leverage	< 60%		46.2	%

Quarterly Equity Activity

In the table below, “Shares” means shares of any class of our common stock and “Units” means units of any class in our operating partnership, Dividend Capital Total Realty Operating Partnership LP (shares and total dollar amounts in thousands):


	Shares / Units Sold						Shares / Units Redeemed
For the Three Months Ended:	Shares / Units Sold		Average Price ⁽¹⁾		Total Gross Proceeds of Shares / Units Sold ⁽²⁾		Shares / Units Redeemed			Average Price ⁽¹⁾		Total Cost of Shares / Units Redeemed ⁽²⁾			Net Proceeds of Shares / Units Sold / (Redeemed)
December 31, 2013		1,278	$	6.87	$	8,781		(2,161	)	$	6.93	$	(14,972	)	$	(6,191	)
September 30, 2013		3,284		6.84		22,453		(2,460	)		6.87		(16,886	)		5,567
June 30, 2013		2,365		6.78		16,035		(4,288	)		6.83		(29,298	)		(13,263	)
March 31, 2013		938		6.72		6,300		(1,981	)		6.79		(13,452	)		(7,152	)

		7,865	$	6.81	$	53,569		(10,890	)	$	6.85	$	(74,608	)	$	(21,039	)

(1)	Average price is the average actual price paid or received for each transaction, based on NAV per share pursuant to our Valuation Procedures, net of up-front selling commissions.

(2)

Does not reflect costs of raising capital (except for selling commissions), and redemption costs. Costs of raising capital include (i) the primary dealer fee (ii) dealer manager and distribution fees, and (iii) organization and offering expenses, such as legal, accounting, printing, mailing and filing fees and expenses, etc.

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REAL PROPERTIES

The following table describes our operating property portfolio as of December 31, 2013, inclusive of amounts relating to real properties that have been classified as held for sale in our GAAP financial statements (dollar and square feet amounts in thousands):


Market	Number of Properties		Gross Investment Amount		Net Rentable Square Feet		Secured Indebtedness⁽²⁾		% of Gross Investment Amount			% of Total Net Rentable Square Feet			% Leased⁽¹⁾
Office Properties:
Washington, DC		3	$	283,085		878	$	60,404		11.1	%		5.7	%		99.5	%
Northern New Jersey		2		249,595		807		130,768		9.7	%		5.3	%		100.0	%
East Bay, CA		2		151,337		465		—		5.9	%		3.0	%		87.1	%
Dallas, TX		3		116,917		618		46,677		4.5	%		4.1	%		90.6	%
San Francisco, CA		1		116,313		269		57,827		4.5	%		1.8	%		84.8	%
Los Angeles, CA		3		76,897		450		31,619		3.0	%		3.0	%		75.3	%
Silicon Valley, CA		2		60,635		196		30,998		2.4	%		1.3	%		84.4	%
Princeton, NJ		1		51,163		167		34,227		2.0	%		1.1	%		100.0	%
Miami, FL		1		48,232		240		19,372		1.9	%		1.6	%		100.0	%
Chicago, IL		2		45,846		303		29,880		1.8	%		2.0	%		79.3	%
Austin, TX		1		44,978		156		19,786		1.7	%		1.0	%		100.0	%
Philadelphia, PA		1		41,049		173		24,000		1.6	%		1.1	%		94.8	%
Minneapolis/St Paul, MN		1		29,441		107		—		1.1	%		0.7	%		100.0	%
Little Rock, AR		1		22,015		102		13,650		0.9	%		0.7	%		100.0	%
Denver, CO		1		17,887		138		—		0.7	%		0.9	%		100.0	%
Fayetteville, AR		1		11,695		63		—		0.5	%		0.4	%		100.0	%

Total Office: 26 properties, 16 markets with average annual rent of $25.22 per sq. ft.		26		1,367,085		5,132		499,208		53.3	%		33.7	%		92.7	%
Industrial Properties:
Dallas, TX		4		82,764		1,204		49,263		3.2	%		7.8	%		76.3	%
Los Angeles, CA		1		78,160		107		16,923		3.0	%		0.7	%		100.0	%
Houston, TX		1		41,338		465		18,537		1.6	%		3.0	%		100.0	%
Minneapolis/St Paul, MN		3		36,394		472		15,259		1.4	%		3.1	%		100.0	%
Central Pennsylvania		1		29,464		502		9,767		1.1	%		3.3	%		100.0	%
Louisville, KY		4		26,114		736		8,298		1.0	%		4.8	%		100.0	%
Central Kentucky		1		25,820		727		11,579		1.0	%		4.8	%		100.0	%
Cleveland, OH		1		23,805		230		8,684		0.9	%		1.5	%		100.0	%
Atlanta, GA		1		23,272		491		—		0.9	%		3.2	%		100.0	%
Indianapolis, IN		1		22,994		475		12,000		0.9	%		3.1	%		96.2	%
Columbus, OH		2		21,667		451		11,651		0.8	%		3.0	%		100.0	%
Cincinnati, OH		2		20,682		349		8,751		0.8	%		2.3	%		100.0	%
Chicago, IL		1		20,660		575		8,907		0.8	%		3.8	%		100.0	%
Silicon Valley, CA		1		18,989		177		14,250		0.7	%		1.2	%		41.3	%
Denver, CO		1		6,232		85		2,794		0.2	%		0.6	%		100.0	%

Total Industrial: 25 properties, 15 markets with average annual rent of $4.73 per sq. ft.		25		478,355		7,046		196,663		18.3	%		46.2	%		94.2	%
Retail Properties:
Boston		25		437,048		1,934		110,710		17.1	%		12.6	%		92.9	%
Philadelphia, PA		1		104,157		426		67,800		4.1	%		2.8	%		100.0	%
Washington, DC		1		62,624		233		38,926		2.4	%		1.5	%		100.0	%
Raleigh, NC		1		45,184		142		26,200		1.8	%		0.9	%		100.0	%
San Antonio, TX		1		32,060		161		21,500		1.2	%		1.1	%		89.6	%
Pittsburgh, PA		1		24,468		103		16,000		1.0	%		0.7	%		91.3	%
Jacksonville, FL		1		19,499		73		—		0.8	%		0.5	%		54.4	%

Total Retail: 31 properties, seven markets with average annual rent of $15.62 per sq. ft.		31		725,040		3,072		281,136		28.4	%		20.1	%		93.6	%

Grand Total/Weighted Average		82	$	2,570,480		15,250	$	977,007		100.0	%		100.0	%		93.6	%

(1)	Based on executed leases as of December 31, 2013.

(2)	Secured indebtedness represents the principal balance outstanding and does not include our mark-to-market adjustment on debt or GAAP principal amortization on our troubled debt restructuring.

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RESULTS OF OPERATIONS

The following tables present revenue and net operating income (“NOI”) of our four operating segments, as adjusted, for each of the five quarters ending December 31, 2013, and the years ended December 31, 2013 and 2012. Our same store portfolio includes all operating properties owned for the entirety of all periods presented, and includes 81 properties acquired prior to January 1, 2012, and owned through December 31, 2013, comprising approximately 15.0 million square feet. We include properties classified as held for sale that we disposed of subsequent to December 31, 2013 in our same store portfolio (amounts in thousands):


	Three Months Ended										Year Ended
Revenue:	December 31, 2013		September 30, 2013		June 30, 2013		March 31, 2013		December 31, 2012		December 31, 2013		December 31, 2012
Same store real property:
Office	$	30,981	$	31,224	$	30,106	$	29,950	$	31,101	$	122,261	$	122,263
Industrial		10,239		10,533		10,683		10,508		9,922		41,963		41,462
Retail		14,600		14,377		14,338		14,067		14,296		57,382		57,937

Total same store real property revenue		55,820		56,134		55,127		54,525		55,319		221,606		221,662
2012/2013 Acquistions/Dispositions		1,678		2,047		8,873		12,148		11,817		24,746		46,715
Debt related investments		2,790		2,309		2,615		2,735		2,747		10,449		9,409

Total	$	60,288	$	60,490	$	66,615	$	69,408	$	69,883	$	256,801	$	277,786


	Three Months Ended										Year Ended
NOI:	December 31, 2013		September 30, 2013		June 30, 2013		March 31, 2013		December 31, 2012		December 31, 2013		December 31, 2012
Same store real property:
Office	$	23,858	$	24,129	$	23,648	$	23,127	$	24,350	$	94,762	$	95,625
Industrial		8,592		8,822		9,132		8,963		8,570		35,509		35,546
Retail		11,093		11,264		11,305		10,483		11,026		44,145		45,974

Total same store real property NOI		43,543		44,215		44,085		42,573		43,946		174,416		177,145
2012/2013 Acquistions/Dispositions		907		1,603		4,961		6,773		6,845		14,244		28,966
Debt related investments		2,790		2,309		2,615		2,735		2,747		10,449		9,409

Total	$	47,240	$	48,127	$	51,661	$	52,081	$	53,538	$	199,109	$	215,520


	Three Months Ended										Year Ended
NOI - cash basis:	December 31, 2013		September 30, 2013		June 30, 2013		March 31, 2013		December 31, 2012		December 31, 2013		December 31, 2012
Same store real property:
Office	$	23,691	$	24,109	$	23,236	$	22,719	$	24,267	$	93,755	$	94,491
Industrial		8,042		8,501		8,294		8,158		7,943		32,995		32,694
Retail		10,454		10,526		10,770		9,775		10,432		41,525		43,001

Total same store real property NOI - cash basis		42,187		43,136		42,300		40,652		42,642		168,275		170,186
2012/2013 Acquistions/Dispositions		659		999		3,861		5,561		5,924		11,080		25,938
Debt related investments		2,790		2,309		2,615		2,735		2,747		10,449		9,409

Total	$	45,636	$	46,444	$	48,776	$	48,948	$	51,313	$	189,804	$	205,533

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RESULTS OF OPERATIONS (continued)

The following tables present a reconciliation of NOI – Cash Basis and NOI of our four operating segments, as adjusted, to GAAP net income attributable to common stockholders for each of the five quarters ending December 31, 2013, and the years ended December 31, 2013 and 2012 (amounts in thousands):


	Three Months Ended															Year Ended
	December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013			December 31, 2012			December 31, 2013			December 31, 2012
NOI - cash basis		45,636			46,444			48,776			48,948			51,313			189,804			205,533
Straight line rent	$	1,497		$	1,640		$	2,759		$	2,968		$	1,993			8,864		$	8,107
Net amortization of above- and below-market lease assets and liabilities, and other non-cash adjustments to rental revenue		107			43			126			165			232			441			1,880

NOI	$	47,240		$	48,127		$	51,661		$	52,081		$	53,538		$	199,109		$	215,520
Real estate depreciation and amortization expense		(25,093	)		(24,285	)		(28,290	)		(30,523	)		(31,846	)		(108,191	)		(129,116	)
General and administrative expenses		(2,886	)		(2,211	)		(2,515	)		(2,361	)		(2,146	)		(9,973	)		(7,233	)
Advisory fees, related party		(3,898	)		(3,813	)		(3,725	)		(3,684	)		(3,730	)		(15,120	)		(17,659	)
Acquisition-related expenses		(337	)		—			—			—			(2	)		(337	)		(325	)
Impairment of real estate property		(2,600	)		—			—			—			(5,700	)		(2,600	)		(5,700	)
Interest and other income		111			(376	)		207			(171	)		511			(229	)		324
Interest expense		(17,761	)		(17,603	)		(20,473	)		(22,151	)		(24,227	)		(77,988	)		(93,615	)
Loss on extinguishment of debt and financing commitments		(1,808	)		(4	)		(425	)		(270	)		(1,766	)		(2,507	)		(5,675	)
Gain on sale of real property		5,580			45,496			22,017			1,213			(37	)		74,306			21,108
Net (income) loss attributable to noncontrolling interests		85			(3,257	)		(1,329	)		499			1,240			(4,002	)		110

Net (loss) income attributable to common stockholders	$	(1,367	)	$	42,074		$	17,128		$	(5,367	)	$	(14,165	)	$	52,468		$	(22,261	)

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LEASING ACTIVITY

The following chart highlights our operating portfolio percentage leased at the end of each of the four quarters ended December 31, 2013, by segment and in total:

LOGO

The following table presents our lease expirations, by segment and in total, as of December 31, 2013 (dollar and square feet in thousands):


	Total									Office						Industrial						Retail
Year	Number of Leases Expiring		Annualized Base Rent		% of Total Annualized Base Rent			Square Feet		Number of Leases Expiring		Annualized Base Rent		Square Feet		Number of Leases Expiring		Annualized Base Rent		Square Feet		Number of Leases Expiring		Annualized Base Rent		Square Feet
2014⁽¹⁾		118		12,899		6.6	%		1,878		53		3,852		244		14		5,003		1,335		51		4,044		299
2015		97		16,969		8.6	%		1,784		41		7,107		379		7		3,379		969		49		6,483		436
2016		64		23,582		11.9	%		1,514		31		17,153		656		5		2,842		643		28		3,587		215
2017⁽²⁾		52		53,054		26.9	%		2,646		25		42,715		1,130		6		7,134		1,277		21		3,205		239
2018		72		11,934		6.0	%		1,367		44		6,437		264		7		3,935		1,016		21		1,562		87
2019		55		24,246		12.3	%		1,252		36		19,156		874		1		984		151		18		4,106		227
2020		30		8,370		4.2	%		471		15		2,558		153		1		197		42		14		5,615		276
2021		14		12,440		6.3	%		1,005		7		7,934		402		3		2,686		524		4		1,820		79
2022		11		5,983		3.0	%		431		3		1,670		120		—		—		—		8		4,313		311
2023		19		16,042		8.1	%		801		10		11,880		518		—		—		—		9		4,162		283
Thereafter		20		11,994		6.1	%		1,121		1		502		15		2		5,241		682		17		6,251		424

Total		552	$	197,513		100.0	%		14,270		266	$	120,964		4,755		46	$	31,401		6,639		240	$	45,148		2,876

(1)	Includes leases that are on a month-to-month basis.

(2)

Includes approximately $22.8 million annualized base rent and 594,000 square feet attributable to a lease with Charles Schwab & Co., Inc. (“Charles Schwab”) at one of our office properties located in New Jersey which expires in September 2017. Charles Schwab has subleased all of this area to various other sub-tenants. Approximately $7.9 million and 219,000 square feet are subject to lease agreements which expire subsequent to December 31, 2017. The leases with subtenants will become our direct tenants upon expiration of our lease with Charles Schwab.

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LEASING ACTIVITY (continued)

The following table presents our top 10 tenants by annualized base rent and their related industry sector (dollar and square feet amounts in thousands):


Tenant	Locations	Industry Sector	Annualized Base Rent ⁽¹⁾		% of Total Annualized Base Rent			Square Feet		% of Occupied Square Feet
Charles Schwab & Co, Inc	1	Securities, Commodities, Fin. Inv./Rel. Activites	$	22,761		11.5	%		594		4.2	%
Northrop Grumman	2	Professional, Scientific and Technical Services		17,532		8.9	%		699		4.9	%
Sybase	1	Publishing Information (except Internet)		17,283		8.8	%		405		2.8	%
Stop & Shop	15	Food and Beverage Stores		13,828		7.0	%		872		6.1	%
CEVA Freight/Logistics	3	Truck Transportation		5,198		2.6	%		790		5.5	%
Novo Nordisk	1	Chemical Manufacturing		4,353		2.2	%		167		1.2	%
Seton Health Care	1	Hospitals		4,339		2.2	%		156		1.1	%
Crawford and Company	1	Insurance Carriers and Related Activities		3,894		2.0	%		240		1.7	%
Nokia Siemens Networks US LLC	1	Telecommunications		3,821		1.9	%		294		2.1	%
Equinix Operating Co Inc	1	Information		3,584		1.8	%		107		0.7	%

Total	27		$	96,593		48.9	%		4,324		30.3	%

The following table presents our top 10 tenant industries by annualized base rent (dollars and square feet amounts in thousands):


	Industry Sector	Number of Leases		Annualized Base Rent ⁽¹⁾		% of Annualized Base Rent			Occupied Square Feet		% of Occupied Square Feet
1	Professional, Scientific and Technical Services		68	$	27,534		13.9	%		1,292		9.1	%
2	Securities, Commodities, Fin. Inv./Rel. Activites		22		25,349		12.8	%		683		4.8	%
3	Food and Beverage Stores		34		22,440		11.4	%		1,499		10.5	%
4	Publishing Information (except Internet)		3		17,479		8.8	%		410		2.9	%
5	Computer and Electronic Product Manufacturing		10		6,801		3.4	%		609		4.3	%
6	Administrative and Support Services		23		6,468		3.3	%		332		2.3	%
7	Insurance Carriers and Related Activities		12		5,977		3.0	%		449		3.1	%
8	Truck Transportation		5		5,874		3.0	%		973		6.8	%
9	Miscellaneous Store Retailers		18		5,722		2.9	%		955		6.7	%
10	Chemical Manufacturing		6		5,545		2.8	%		503		3.5	%
	All Others ⁽²⁾		351		68,324		34.7	%		6,565		46.0	%

	Total		552	$	197,513		100.0	%		14,270		100.0	%

(1)	Annualized base rent represents the annualized monthly base rent of executed leases as of December 31, 2013.

(2)	Other industry sectors include 49 additional sectors.

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INVESTMENT ACTIVITY

Dollar and square footage amounts in thousands.


				Square Feet
Buildings and Square Feet Activity	Number of Buildings			Total			Office			Industrial			Retail
(square feet in thousands)
Properties owned as of
December 31, 2012 ⁽²⁾		94			19,086			7,053			8,965			3,068
Dispositions		(1	)		(62	)		(62	)		—			—
Building remeasurement and other ⁽¹⁾		—			1			2			—			(1	)

March 31, 2013		93			19,025			6,993			8,965			3,067
Dispositions		(9	)		(3,561	)		(1,642	)		(1,919	)		—

June 30, 2013		84			15,464			5,351			7,046			3,067
Dispositions		(2	)		(390	)		(390	)		—			—
Building remeasurement and other ⁽¹⁾		—			3			—			1			2

September 30, 2013		82			15,077			4,961			7,047			3,069
Acquisitions		1			269			269			—			—
Dispositions		(1	)		(100	)		(100	)		—			—
Building remeasurement and other ⁽¹⁾		—			4			2			(1	)		3

December 31, 2013		82			15,250			5,132			7,046			3,072

(1)	During Q3 2013 we reclassified four properties from our office segment to our industrial segment. For purposes of this table, we have retrospectively presented this reclassification as of December 31, 2012.

(2)	Building remeasurements reflect changes in gross leasable area due to renovations or expansions of existing properties.

Acquisitions

Property

Location

Acquisition
Date

Number of
Buildings

Purchase Price

Square Feet

During the fourth quarter of 2013

655 Montgomery⁽¹⁾

San Francisco, CA

11/7/2013

109,710

269

Total for the year ended December 31, 2013

109,710

269

(1)	Related to this acquisition, we assumed a mortgage note with an outstanding principal balance of $57.9 million and an estimated fair value of $61.7 million as of the acquisition date.

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INVESTMENT ACTIVITY (continued)

Property dispositions

Location

Disposition
Date

Number of
Buildings

Sales Price

Square Feet

(dollar and square footage amounts in thousands)

During the first quarter of 2013

Waterview Parkway

Dallas, TX

1/13/2013

8,500

Total for the first quarter of 2013

8,500

During the second quarter of 2013

Column Loan Portfolio

Various ⁽¹⁾

5/10/2013

85,935

1,918

Comerica Bank Tower⁽²⁾

Dallas, TX

5/31/2013

122,231

1,509

Crown Colony Drive

New England

6/6/2013

25,500

132

Total for the second quarter of 2013

233,666

3,559

During the third quarter of 2013

Inverness Drive West

Denver, CO

7/31/2013

71,000

257

Millennium Drive

Denver, CO

9/13/2013

58,100

133

Total for the third quarter of 2013

129,100

390

During the fourth quarter of 2013

North Fairway Drive

Chicago, IL

10/15/2013

18,000

100

Total for the fourth quarter of 2013

18,000

100

Total for the twelve months ended December 31, 2013

389,266

4,111

Subsequent to the fourth quarter of 2013

Industrial Portfolio

Various ⁽³⁾

1/22/2014

175,000

3,387

(1)	The Column Loan Portfolio comprised seven industrial buildings located in the Atlanta, GA, Central Pennsylvania, Charlotte, NC, Chicago, IL, Philadelphia, PA, and Sacramento, CA markets.

(2)	Sales price for the Comerica Bank Tower property represents our carrying value of the mortgage note on the property. Due to the contractual balance of the mortgage note, we did not receive any proceeds from the sale of Comerica Bank Tower.

(3)	The Industrial Portfolio comprised 12 industrial buildings located in the Atlanta, GA, Cincinnati, OH, Central Pennsylvania, Columbus, OH, Dallas, TX, Indianapolis, IN, and Minneapolis, MN markets.

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INVESTMENT ACTIVITY (continued)

The following tables present our recurring capital expenditures by category (amounts in thousands).


	For the Three Months Ended:										For the Year Ended:
Recurring Capital Expenditures:	December 31, 2013		September 30, 2013		June 30, 2013		March 31, 2013		December 31, 2012		December 31, 2013		December 31, 2012
(in thousands)
Land and building improvements	$	1,140	$	2,385	$	894	$	409	$	1,645	$	4,828	$	4,755
Tenant improvements		3,828		1,215		1,032		1,732		2,048		7,807		2,375
Leasing costs		2,012		816		2,826		2,883		2,965		8,537		8,163

Total recurring capital expenditures	$	6,980	$	4,416	$	4,752	$	5,024	$	6,658	$	21,172	$	15,293


	For the Three Months Ended:										For the Year Ended:
Non-recurring Capital Expenditures:	December 31, 2013		September 30, 2013		June 30, 2013		March 31, 2013		December 31, 2012		December 31, 2013		December 31, 2012
(in thousands)
Land and building improvements	$	201	$	418	$	564	$	371	$	417	$	1,554	$	1,371
Tenant improvements		872		145		609		77		252		1,703		1,299
Leasing costs		104		401		147		150		304		802		803

Total non-recurring capital expenditures	$	1,177	$	964	$	1,320	$	598	$	973	$	4,059	$	3,473

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DEFINITIONS

This section contains an explanation of certain non-GAAP financial measures we provide in other sections of this document, as well as the reasons why management believes these measures provide useful information to investors about the Company’s financial condition or results of operations. Additional detail can be found in the Company’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as other documents filed with or furnished to the Securities and Exchange Commission from time to time.

2013 Annual report on Form 10-K

We refer to our Annual Report on Form 10-K for the period ended December 31, 2013, filed with the Securities and Exchange Commission on March 7, 2014, as our “2013 Annual Report on Form 10-K.”

Annualized Base Rent

Annualized base rent represents the annualized monthly base rent of leases executed as of December 31, 2013.

Fair value as determined by our NAV Valuation Procedures

Funds from Operations (“FFO”)

We believe that FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is a meaningful supplemental measure of our operating performance because historical cost accounting for real estate assets in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization expense. However, since real estate values have historically risen or fallen with market and other conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient. Thus, NAREIT created FFO as a supplemental measure of operating performance for real estate investment trusts that consists of net income (loss), calculated in accordance with GAAP, plus real estate-related depreciation and amortization and impairment of depreciable real estate, less gains (or losses) from dispositions of real estate held for investment purposes.

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Company-Defined FFO

As part of its guidance concerning FFO, NAREIT has stated that the “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” As a result, modifications to FFO are common among REITs as companies seek to provide financial measures that meaningfully reflect the specific characteristics of their businesses. In addition to the NAREIT definition of FFO and other GAAP measures, we provide a Company-Defined FFO measure that we believe is helpful in assisting management and investors assess the sustainability of our operating performance. As described further below, our Company-Defined FFO presents a performance metric that adjusts for items that we do not believe to be related to our ongoing operations. In addition, these adjustments are made in connection with calculating certain of the Company’s financial covenants including its interest coverage ratio and fixed charge coverage ratio and therefore we believe this metric will help our investors better understand how certain of our lenders view and measure the financial performance of the Company and ultimately its compliance with these financial covenants. However, 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.

Our Company-Defined FFO is derived by adjusting FFO for the following items: acquisition-related expenses and gains and losses associated with extinguishment of debt and financing commitments. Historically, Management has also adjusted FFO for certain other adjustments that did not occur in any of the periods presented, and are further described in Item 7 of Part 1 of our Annual Report on Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—How We Measure Our Performance.” Management’s evaluation of our future operating performance excludes these items based on the following economic considerations:

Acquisition-related expenses — For GAAP purposes, expenses associated with the acquisition of real property, including acquisition fees paid to our Advisor and gains or losses related to the change in fair value of contingent consideration related to the acquisition of real property, are recorded to earnings. We believe by excluding acquisition-related expenses, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance, because these types of expenses are directly correlated to our investment activity rather than our ongoing operating activity.

Gains and losses on extinguishment of debt and financing commitments — Losses on extinguishment of debt and financing commitments represent losses incurred as a result of the early retirement of debt obligations and breakage costs and fees incurred related to rate lock agreements with prospective lenders. Such losses may be due to dispositions of assets, the repayment of debt prior to its contractual maturity or the nonoccurrence of forecasted financings. Our management believes that any such losses are not related to our ongoing operations. Accordingly, we believe by excluding losses on extinguishment of debt and financing commitments, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance.

Gains and losses on derivatives — Gains and losses on derivatives represent the gains or losses on the fair value of derivative instruments that are not accounted for as hedges of the underlying financing transactions. Such gains and losses may be due to the nonoccurrence of forecasted financings or ineffectiveness due to changes in the expected terms of financing transactions. As these gains or losses relate to underlying long-term assets and liabilities, where we are not speculating or trading assets, our management believes that any such gains or losses are not reflective of our ongoing operations. Accordingly, we believe by excluding anticipated gains or losses on derivatives, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance.

We also believe that Company-Defined FFO allows investors and analysts to compare the performance of our portfolio with other REITs that are not currently affected by the adjusted items. In addition, as many other REITs adjust FFO to exclude the items described above, we believe that our calculation and reporting of Company-Defined FFO may assist investors and analysts in comparing our performance with that of other REITs. However, because Company-Defined FFO excludes items that are an important component in an analysis of our historical performance, such supplemental measure should not be construed as a complete historical performance measure and may exclude items that have a material effect on the value of our common stock.

Gross Investment Amount

The allocated gross basis of real property and debt related investments, after certain adjustments. Gross Investment Amount for real property (i) includes the effect of intangible lease liabilities, (ii) excludes accumulated depreciation and amortization on, and (iii) includes the impact of impairments. Amounts reported for debt related investments represent our net accounting basis of the debt investments, which includes (i) unpaid principal balances, (ii) unamortized discounts, premiums, and deferred charges, and (iii) allowances for loan loss.

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DEFINITIONS (continued)

Limitations of FFO and Company-Defined FFO

FFO (both NAREIT-defined and Company-Defined) is presented herein as a supplemental financial measure and has inherent limitations. We do not use FFO or Company-Defined FFO as, nor should they be considered to be, an alternative to net income (loss) computed under GAAP as an indicator of our operating performance, or as an alternative to cash from operating activities computed under GAAP, or as an indicator of liquidity or our ability to fund our short or long-term cash requirements, including distributions to stockholders. Management uses FFO and Company-Defined FFO as indications of our future operating performance and as a guide to making decisions about future investments. Our FFO and Company-Defined FFO calculations do not present, nor do we intend them to present, a complete picture of our financial condition and operating performance. In addition, other REITs may define FFO and an adjusted FFO metric differently and choose to treat impairment charges, acquisition-related expenses and potentially other accounting line items in a manner different from us due to specific differences in investment strategy or for other reasons; therefore, comparisons with other REITs may not be meaningful. Our Company-Defined FFO calculation is limited by its exclusion of certain items previously discussed, but we continuously evaluate our investment portfolio and the usefulness of our Company-Defined FFO measure in relation thereto. We believe that net income (loss) computed under GAAP remains the primary measure of performance and that FFO or Company-Defined FFO are only meaningful when they are used in conjunction with net income (loss) computed under GAAP. Further, we believe that our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and operating performance.

Specifically with respect to fees and expenses associated with the acquisition of real property, which are excluded from Company-Defined FFO, such fees and expenses are characterized as operational expenses under GAAP and included in the determination of net income (loss) and income (loss) from operations, both of which are performance measures under GAAP. The purchase of operating properties is a key strategic objective of our business plan focused on generating operating income and cash flow in order to fund our obligations and to make distributions to investors. However, as the corresponding acquisition-related costs are paid in cash, these acquisition-related costs negatively impact our GAAP operating performance and our GAAP cash flows from operating activities during the period in which properties are acquired. In addition, if we acquire a property after all offering proceeds from our public offerings have been invested, there will not be any offering proceeds to pay the corresponding acquisition-related costs. Accordingly, such costs will then be paid from other sources of cash such as additional debt proceeds, operational earnings or cash flow, net proceeds from the sale of properties, or other ancillary cash flows. Among other reasons as previously discussed, the treatment of acquisition-related costs is a reason why Company-Defined FFO is not a complete indicator of our overall financial performance, especially during periods in which properties are being acquired. Note that, pursuant to our valuation policies, acquisition expenses result in an immediate decrease to our NAV.

FFO and Company-Defined FFO may not be useful performance measures as a result of the various adjustments made to net income for the charges described above to derive such performance measures. Specifically, we intend to operate as a perpetual-life vehicle and, as such, it is likely for our operating results to be negatively affected by certain of these charges in the future, specifically acquisition-related expenses, as it is currently contemplated as part of our business plan to acquire additional investment properties which would result in additional acquisition-related expenses. Any change in our operational structure would cause the non-GAAP measure to be re-evaluated as to the relevance of any adjustments included in the non-GAAP measure. As a result, we caution investors against using FFO or Company-Defined FFO to determine a price to earnings ratio or yield relative to our NAV.

Further, FFO or Company-Defined FFO is not comparable to the performance measure established by the Investment Program Association (the “IPA”), referred to as “modified funds from operations,” or “MFFO,” as MFFO makes further adjustments including certain mark-to-market items and adjustments for the effects of straight-line rent. As such, FFO and Company-Defined FFO may not be comparable to the MFFO of non-listed REITs that disclose MFFO in accordance with the IPA standard. More specifically, Company-Defined FFO has limited comparability to the MFFO and other adjusted FFO metrics of those REITs that do not intend to operate as perpetual-life vehicles as such REITs have a defined acquisition stage. Because we do not have a defined acquisition stage, we may continue to acquire real estate and real estate-related investments for an indefinite period of time. Therefore, Company-Defined FFO may not reflect our future operating performance in the same manner that the MFFO or other adjusted FFO metrics of a REIT with a defined acquisition stage may reflect its operating performance after the REIT had completed its acquisition stage.

Neither the Securities and Exchange Commission nor any other regulatory body, nor NAREIT, has adopted a set of standardized adjustments that includes the adjustments that we use to calculate Company-Defined FFO. In the future, the Securities and Exchange Commission or another regulatory body, or NAREIT, may decide to standardize the allowable adjustments across the non-listed REIT industry at which point we may adjust our calculation and characterization of Company-Defined FFO.

Net Operating Income (“NOI”) and NOI – Cash Basis

We also use NOI as a supplemental financial performance measure because NOI reflects the specific operating performance of our real properties and debt related investments and excludes certain items that are not considered to be controllable in connection with the management of each property, such as other-than-temporary impairment, gains and losses related to provisions for losses on debt related investments, gains or losses on derivatives, acquisition-related expenses, losses on extinguishment of debt and financing commitments, interest income, depreciation and amortization, general

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and administrative expenses, asset management fees, interest expense and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our financial performance as a whole, since it does exclude such items that could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. “NOI – Cash Basis” is NOI after eliminating the effects of straight-lining of rent and the impact of above- and below-market lease amortization and other non-cash amortization adjustments to rental revenue.

Non-Recurring Capital Expenditures

We classify capital expenditures that significantly increase a property’s ability to generate additional revenues relative to our initial underwriting as non-recurring capital expenditures. Examples of such capital expenditures may include property expansions, renovations or other significant strategic upgrades. Conversely, we classify capital expenditures incurred to maintain a property’s ability to generate expected revenues as “recurring.” In addition, we also classify the following capital expenditures as non-recurring:

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First Generation Leasing Costs: We classify capital expenditures incurred to lease spaces for which we have either (i) never had a tenant or (ii) we expected a vacancy of the leasable space within two years of acquisition as non-recurring capital expenditures.

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Value-Add Acquisitions: We define a Value-Add Acquisition as a property that we acquire with one or more of the following characteristics: (i) existing vacancy equal to or in excess of 20%, (ii) short-term lease roll-over, typically during the first two years of ownership, that results in vacancy in excess of 20% when combined with the existing vacancy at the time of acquisition or (iii) significant capital improvement requirements in excess of 20% of the purchase price within the first two years of ownership. We classify any capital expenditures in Value-Add Acquisitions as non-recurring until the property reaches the earlier of (i) stabilization, which we define as 90% leased or (ii) five years after the date we acquire the property.

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Other Acquisitions: For property acquisitions that do not meet the criteria to qualify as Value-Add Acquisitions, we classify all anticipated capital expenditures within the first year of ownership as non-recurring.

Same Store Properties

In our analysis of NOI, particularly to make comparisons of NOI between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us through the end of the latest period presented as “Same Store Properties.” “Same Store Properties” therefore exclude properties placed in-service, acquired, repositioned, or in development or redevelopment after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented. Accordingly, it takes at least one year and one quarter after a property is acquired or treated as “in-service” for that property to be included in “Same Store Properties.” For the purposes of this supplement, our “Same Store Properties” include properties classified as held for sale in our annual financial statements at the end of the most recently completed period.

Valuation Procedures

We refer to our Valuation Procedures filed as Exhibit 99.1 to our Annual Report on Form 10-K as our “Valuation Procedures.”

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Black Creek Diversified Property Fund Inc. - FORM 8-K - EX-99.2 - March 10, 2014

Attached files

Black Creek Diversified Property Fund Inc. Reports