Exhibit 99.2

 

QUARTERLY EARNINGS

and

SUPPLEMENTAL DISCLOSURE

(unaudited)

Quarter Ended March 31, 2014

www.dividendcapitaldiversified.com

---

 

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			22
DEFINITIONS			25

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 10, 2014, and in our subsequent quarterly reports.

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

 

Page | 2

---

 

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 March 31, 2014, we held 68 operating real properties comprising approximately 11.7 million square feet located in 24 geographic markets, and 11 debt related investments. Our operating portfolio was approximately 92.2% leased as of March 31, 2014. Dividend Capital Diversified Property Fund, Inc. has paid quarterly dividends to its stockholders continuously since 2006. We reported net income as defined under principles of accounting generally accepted in the United States (“GAAP”) of approximately $32.0 million for the three months ended March 31, 2014. 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 March 31, 2014 (dollar and square footage amount in thousands).

Snapshot

 

		Real Properties (1)																Debt Related
As of or for the three months ended March 31, 2014		Total				Office				Industrial				Retail				Investments, Net				Grand Total
Number of investments			68				25				13				30				11				79
Square footage			11,652				5,030				3,660				2,962				N/A				11,652
Percentage leased at period end			92.2	%			93.2	%			89.4	%			93.8	%			N/A				92.2	%
Net operating income (“NOI”)(2)		$	42,341			$	25,323			$	5,614			$	11,404			$	2,013			$	44,354
Segment as % of total NOI			95.5	%			57.1	%			12.7	%			25.7	%			4.5	%			100.0	%
NOI—cash basis (3)		$	40,839			$	25,191			$	4,907			$	10,741			$	2,013			$	42,852
Fair Value (4)		$	2,332,355			$	1,355,230			$	261,900			$	715,225			$	94,180			$	2,426,535
Segment as % of total Fair Value			96.1	%			55.8	%			10.8	%			29.5	%			3.9	%			100.0	%

 

(1)

“As of” information includes all real properties that we owned as of March 31, 2014, including an office property that we had classified as “held for sale” in our financial statements included within our Quarterly Report on Form 10-Q. 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 as of March 31, 2014.

(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 25. For a description of key assumptions used in calculating the value of our real properties as of March 31, 2014, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Quarterly Report on Form 10-Q.

 

Page | 3

---

 

COMPANY PROFILE (continued)

 

As of March 31, 2014, our real property investments were geographically diversified across 24 markets throughout the United States. Our debt related investments are located in six additional markets resulting in a combined portfolio allocation across 30 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 March 31, 2014:

 

 

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, Cleveland, OH, Denver, CO, Fayetteville, AR, Jacksonville, FL, Louisville, KY, Minneapolis/St. Paul, MN, Pittsburgh, PA, and San Antonio, TX.

 

(1)

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 25. For a description of key assumptions used in calculating the value of our real properties as of March 31, 2014, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Quarterly Report on Form 10-Q.

 

Page | 4

---

 

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		Joshua J. Widoff
Director				Director		Chief Financial Officer and Treasurer		Executive Vice President, Secretary and General Counsel
John P. Woodberry						Gregory M. Moran
Director						Executive Vice President
Company Information
Corporate Headquarters		Ticker Symbols:				Investor Relations		Inquiries
518 17th Street, Suite 1700		Class E Common Stock		ZDPFEX		Dividend Capital Diversified Property Fund, Inc.		For Real Estate inquiries, call 303.228.2200.
Denver, Colorado, 80202		Class A Common Stock		ZDPFAX		517 17th Street, 17th Floor
		Class W Common Stock		ZDPFWX		Denver, CO 80202		For inquiries related to our equity capital offering, please contact our distributor,
CIK		Class I Common Stock		ZDPFIX
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

 

Page | 5

---

 

FINANCIAL HIGHLIGHTS

Amounts in thousands, except per share information and percentages.

 

		As of or for the Three Months Ended
Selected Operating Data (as adjusted) (1)		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
Total revenues		$	58,068			$	60,288			$	60,490			$	66,615			$	69,408
Net income (loss)			31,988				(1,452	)			45,331				18,457				(5,866	)
Portfolio Statistics
Operating properties			68				82				82				84				93
Square feet			11,652				15,250				15,077				15,464				19,025
Percentage leased at end of period			92.2	%			93.6	%			95.9	%			96.2	%			93.8	%
Earnings Per Share
Net (loss) income per share		$	0.15			$	(0.02	)		$	0.24			$	0.10			$	(0.03	)
Funds from Operations (“FFO”) per share (2)		$	0.11			$	0.11			$	0.12			$	0.13			$	0.12
Company-defined FFO per share (2)		$	0.11			$	0.12			$	0.12			$	0.13			$	0.12
Weighted average number of common shares outstanding - basic			176,873				177,548				178,201				178,176				178,792
Weighted average number of common shares outstanding - diluted			189,993				190,942				191,783				192,019				192,927
Net Asset Value (“NAV”) per share (3)
At the end of period		$	6.96			$	6.93			$	6.87			$	6.83			$	6.79
High during period		$	6.96			$	6.93			$	6.89			$	6.84			$	6.79
Low during period		$	6.93			$	6.84			$	6.83			$	6.74			$	6.71
Weighted average distributions per share		$	0.0874			$	0.0874			$	0.0875			$	0.0875			$	0.0875
Weighted average closing dividend yield - annualized			5.02	%			5.05	%			5.10	%			5.12	%			5.15	%
Weighted average total return for the period			1.72	%			2.24	%			1.72	%			1.93	%			2.60	%
Consolidated Debt
Leverage (4)			49	%			50	%			49	%			50	%			55	%
Secured borrowings		$	918,716			$	1,023,472			$	969,265			$	1,004,982			$	1,277,957
Secured borrowings as % of total borrowings			77	%			77	%			78	%			76	%			80	%
Unsecured borrowings		$	270,000			$	300,000			$	270,000			$	325,000			$	325,000
Unsecured borrowings as % of total borrowings			23	%			23	%			22	%			24	%			20	%
Fixed rate borrowings (5)		$	1,110,196			$	1,214,892			$	1,060,595			$	1,096,222			$	1,225,839
Fixed rate borrowings as % of total borrowings			93	%			92	%			86	%			82	%			76	%
Floating rate borrowings		$	78,520			$	108,580			$	178,670			$	233,760			$	377,118
Floating rate borrowings as % of total borrowings			7	%			8	%			14	%			18	%			24	%
Total borrowings		$	1,188,716			$	1,323,472			$	1,239,265			$	1,329,982			$	1,602,957

 

(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 in certain cases, 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)

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 25. For a description of key assumptions used in calculating the value of our real properties as of March 31, 2014, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Quarterly Report on Form 10-Q.

(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.

 

Page | 6

---

 

BALANCE SHEETS

The following table presents our consolidated balance sheets, as adjusted, as of the end of each of the five quarters ended March 31, 2014. 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
		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
ASSETS
Investments in real property		$	2,352,401			$	2,570,480			$	2,463,767			$	2,560,229			$	2,817,022
Accumulated depreciation and amortization			(469,466	)			(502,847	)			(481,521	)			(489,184	)			(513,522	)
Total net investments in real property			1,882,935				2,067,633				1,982,246				2,071,045				2,303,500
Debt related investments, net			94,180				123,935				127,055				123,017				165,469
Total net investments			1,977,115				2,191,568				2,109,301				2,194,062				2,468,969
Cash and cash equivalents			81,292				24,778				40,003				31,609				36,793
Restricted cash			35,209				25,556				27,410				23,391				24,945
Other assets, net			67,856				63,507				62,603				62,532				67,837
Total Assets		$	2,161,472			$	2,305,409			$	2,239,317			$	2,311,594			$	2,598,544
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes and other secured borrowings		$	918,716			$	1,023,472			$	969,265			$	1,004,982			$	1,277,957
Unsecured borrowings			270,000				300,000				270,000				325,000				325,000
Intangible lease liabilities, net			72,389				77,549				77,833				79,722				86,229
Other liabilities			93,724				99,377				94,466				105,489				97,459
Total Liabilities			1,354,829				1,500,398				1,411,564				1,515,193				1,786,645
Equity:
Stockholders’ equity:
Common stock			1,755				1,760				1,767				1,755				1,772
Additional paid-in capital			1,576,970				1,582,886				1,588,760				1,583,945				1,605,226
Distributions in excess of earnings			(848,768	)			(860,747	)			(843,855	)			(870,346	)			(871,891	)
Accumulated other comprehensive loss			(10,586	)			(10,794	)			(12,893	)			(12,821	)			(15,597	)
Total stockholders’ equity			719,371				713,105				733,779				702,533				719,510
Noncontrolling interests			87,272				91,906				93,974				93,868				92,389
Total Equity			806,643				805,011				827,753				796,401				811,899
Total Liabilities and Equity		$	2,161,472			$	2,305,409			$	2,239,317			$	2,311,594			$	2,598,544

 

Page | 7

---

 

STATEMENTS OF OPERATIONS

The following table presents our condensed consolidated statements of operations, as adjusted, for each of the five quarters ended March 31, 2014. Operating data in this table are presented inclusive of amounts relating to real properties that have been reclassified as discontinued operations in our GAAP financial statements (amounts in thousands, except per share data):

 

		Three Months Ended
		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
REVENUE:
Rental revenue		$	56,055			$	57,498			$	58,181			$	64,000			$	66,673
Debt related income			2,013				2,790				2,309				2,615				2,735
Total Revenue			58,068				60,288				60,490				66,615				69,408
EXPENSES:
Rental expense			13,714				13,048				12,363				14,954				17,327
Real estate depreciation and amortization expense			22,350				25,093				24,285				28,290				30,523
General and administrative expenses			2,819				2,886				2,211				2,515				2,361
Advisory fees, related party			3,743				3,898				3,813				3,725				3,684
Acquisition-related expenses			—				337				—				—				—
Impairment of real estate property			—				2,600				—				—				—
Total Operating Expenses			42,626				47,862				42,672				49,484				53,895
Other Income (Expenses):
Interest and other income (expense)			(81	)			111				(376	)			207				(171	)
Interest expense			(16,465	)			(17,761	)			(17,603	)			(20,473	)			(22,151	)
Loss on extinguishment of debt and financing commitments			(63	)			(1,808	)			(4	)			(425	)			(270	)
Gain on sale of real property			33,155				5,580				45,496				22,017				1,213
Net (Loss) Income			31,988				(1,452	)			45,331				18,457				(5,866	)
Net loss (income) attributable to noncontrolling interests			(4,550	)			85				(3,257	)			(1,329	)			499
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	27,438			$	(1,367	)		$	42,074			$	17,128			$	(5,367	)
NET (LOSS) INCOME PER BASIC AND DILUTED COMMON SHARE		$	0.15			$	(0.02	)		$	0.24			$	0.10			$	(0.03	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic			176,873				177,548				178,201				178,176				178,792
Diluted			189,993				190,942				191,783				192,019				192,927
Weighted average distributions declared per common share		$	0.0874			$	0.0874			$	0.0875			$	0.0875			$	0.0875

 

Page | 8

---

 

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 March 31, 2014. 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
		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
Reconciliation of net earnings to FFO:
Net (loss) income attributable to common stockholders		$	27,438			$	(1,367	)		$	42,074			$	17,128			$	(5,367	)
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense			22,350				25,093				24,285				28,290				30,523
Gain on disposition of real property			(33,155	)			(5,580	)			(45,496	)			(22,017	)			(1,213	)
Impairment of real property			—				2,600				—				—				—
Noncontrolling interests’ share of net income (loss)			4,550				(85	)			3,257				1,329				(499	)
Noncontrolling interests’ share of FFO			(1,561	)			(1,687	)			(1,976	)			(2,076	)			(2,001	)
FFO attributable to common shares-basic			19,622				18,974				22,144				22,654				21,443
FFO attributable to dilutive OP units			1,456				1,431				1,688				1,760				1,695
FFO attributable to common shares-diluted		$	21,078			$	20,405			$	23,832			$	24,414			$	23,138
FFO per share-basic and diluted		$	0.11			$	0.11			$	0.12			$	0.13			$	0.12
FFO payout ratio			79	%			82	%			70	%			69	%			73	%
		Three Months Ended
		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
Reconciliation of FFO to Company-Defined FFO:
FFO attributable to common shares-basic		$	19,622			$	18,974			$	22,144			$	22,654			$	21,443
Add (deduct) our adjustments:
Acquisition-related expenses			—				337				—				—				—
Loss on extinguishment of debt, financing commitments and derivatives			63				1,808				4				425				270
Noncontrolling interests’ share of FFO			1,561				1,687				1,976				2,076				2,001
Noncontrolling interests’ share of Company-Defined FFO			(1,565	)			(1,837	)			(1,976	)			(2,106	)			(2,020	)
Company-Defined FFO attributable to common shares-basic			19,681				20,969				22,148				23,049				21,694
Company-Defined FFO attributable to dilutive OP units			1,460				1,582				1,688				1,791				1,715
Company-Defined FFO attributable to common shares-diluted		$	21,141			$	22,551			$	23,836			$	24,840			$	23,409
Company-Defined FFO per share-basic and diluted		$	0.11			$	0.12			$	0.12			$	0.13			$	0.12
Weighted average number of shares outstanding
Basic			176,873				177,548				178,201				178,176				178,792
Diluted			189,993				190,942				191,783				192,019				192,927

 

Page | 9

---

 

FUNDS FROM OPERATIONS (continued)

 

The following table presents certain other supplemental information for each of the five quarters ended March 31, 2014. (Amounts in thousands):

 

		Three Months Ended
		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
Other Supplemental Information
Capital Expenditures Summary
Recurring capital expenditures		$	3,789			$	6,980			$	4,416			$	4,752			$	5,024
Non-recurring capital improvements			210				1,177				964				1,320				598
Total Capital Expenditures			3,999				8,157				5,380				6,072				5,622
Other non-cash adjustments
Straight-line rent (increase) to rental revenue			(1,305	)			(1,497	)			(1,640	)			(2,759	)			(2,968	)
Amortization of above- and below- market rent (increase) decrease to rental revenue			(108	)			(21	)			37				(84	)			(176	)
Amortization of loan costs and hedges—increase to interest expense			1,208				1,202				1,233				1,390				1,428
Amortization of mark-to-market adjustments on borrowings—increase to interest expense			100				338				343				337				330
Total other non-cash adjustments		$	(105	)		$	22			$	(27	)		$	(1,116	)		$	(1,386	)

 

Page | 10

---

 

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 March 31, 2014, 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 25. For a description of key assumptions used in calculating the value of our real properties as of March 31, 2014, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Quarterly Report on Form 10-Q. 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 (amounts in thousands except per share information).

 

		As of
		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
Real properties:
Office		$	1,355,230			$	1,378,080			$	1,278,930			$	1,392,025			$	1,534,832
Industrial			261,900				430,770				421,700				419,000				500,400
Retail			715,225				716,525				713,315				709,725				706,475
Total Real Properties			2,332,355				2,525,375				2,413,945				2,520,750				2,741,707
Debt related investments			94,180				123,935				127,055				123,017				165,469
Cash and other assets, net of other liabilities			77,452				3,904				21,132				(2,767	)			14,636
Debt obligations			(1,182,210	)			(1,325,286	)			(1,240,881	)			(1,331,401	)			(1,604,181	)
Outside investor’s interests			(10,512	)			(16,004	)			(15,751	)			(15,497	)			(18,657	)
Aggregate Fund NAV		$	1,311,265			$	1,311,924			$	1,305,500			$	1,294,102			$	1,298,974
Total Fund Interests outstanding			188,318				189,280				190,163				189,338				191,260
NAV per Fund Interest		$	6.96			$	6.93			$	6.87			$	6.83			$	6.79

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.

 

Page | 11

---

 

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 March 31, 2014 (amounts in thousands, except per share information):

 

		Three Months Ended																Previous
		June 30, 2013				September 30, 2013				December 31, 2013				March 31, 2014				Four Quarters
NAV as of beginning of period		$	1,298,973			$	1,294,102			$	1,305,500			$	1,311,924			$	1,298,973
Fund level changes to NAV
Realized/unrealized gains (losses) on net assets			6,849				4,146				9,615				2,821				23,431
Income accrual			22,067				22,310				23,564				23,612				91,553
Net dividend accrual			(16,796	)			(16,771	)			(16,697	)			(16,607	)			(66,871	)
Advisory fee			(3,724	)			(3,813	)			(3,806	)			(3,743	)			(15,086	)
Performance based fee			(4	)			(35	)			(52	)			(19	)			(110	)
Class specific changes to NAV
Dealer Manager fee			(1	)			(6	)			(9	)			(14	)			(30	)
Distribution fee			*				*				(1	)			(3	)			(4	)
NAV as of end of period before share sale/redemption activity		$	1,307,364			$	1,299,933			$	1,318,114			$	1,317,971			$	1,331,856
Share sale/redemption activity
Shares sold			16,036				22,450				8,782				9,249				56,517
Shares redeemed			(29,298	)			(16,883	)			(14,972	)			(15,955	)			(77,108	)
NAV as of end of period		$	1,294,102			$	1,305,500			$	1,311,924			$	1,311,265			$	1,311,265
Shares outstanding beginning of period			191,261				189,338				190,163				189,280				191,261
Shares sold			2,365				3,284				1,278				1,332				8,259
Shares redeemed			(4,288	)			(2,459	)			(2,161	)			(2,294	)			(11,202	)
Shares outstanding end of period			189,338				190,163				189,280				188,318				188,318
NAV per share as of beginning of period		$	6.79			$	6.83			$	6.87			$	6.93			$	6.79
Change in NAV per share			0.04				0.04				0.06				0.03				0.17
NAV per share as of end of period		$	6.83			$	6.87			$	6.93			$	6.96			$	6.96

 

Page | 12

---

 

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 March 31, 2014. 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).

 

		As of March 31, 2014
FINANCING:
Mortgage notes and other secured borrowings		$	918,716
Unsecured borrowings			270,000
Financing obligations			18,014
Total Financing		$	1,206,730

 

		Shares / Units				Percentage of aggregate Shares and Units outstanding				NAV per Share/Unit (1)				Value
EQUITY:
Class E Common Stock			170,145				90.3	%		$	6.96			$	1,184,725
Class A Common Stock			564				0.3	%			6.96				3,926
Class W Common Stock			407				0.2	%			6.96				2,836
Class I Common Stock			4,345				2.3	%			6.96				30,254
Class E OP Units			12,857				6.8	%			6.96				89,524
Total/Weighted Average			188,318				100.0	%			6.96			$	1,311,265
Joint venture partners’ noncontrolling interests															2,415
Total Equity															1,313,680
TOTAL CAPITALIZATION														$	2,520,410

 

(1)

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 25 For a description of key assumptions used in calculating the value of our real properties as of March 31, 2014, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Quarterly Report on Form 10-Q.

 

Page | 13

---

 

FINANCE & CAPITAL (continued)

 

Borrowings Summary

 

		Weighted Average Stated Interest Rate				Outstanding Balance				Gross Investment Amount Securing Borrowings (1)
Fixed rate mortgages			5.8	%		$	872,354			$	1,709,338
Floating rate mortgages			3.9	%			8,520				15,673
Total mortgage notes			5.7	%			880,874				1,725,011
Repurchase facilities (2)			2.8	%			37,842				52,454
Total secured borrowings			5.6	%			918,716				1,777,465
Line of credit			N/A				—				N/A
Term loan (2)			2.2	%			270,000				N/A
Total unsecured borrowings			2.2	%			270,000				N/A
Total borrowings			4.8	%		$	1,188,716			$	1,777,465

 

(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 $105.8 million and before accumulated depreciation and amortization of approximately $469.5 million as of March 31, 2014.

(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 March 31, 2014. The stated interest rates disclosed above include the impact of these swaps.

Covenants

 

		Covenant				Actual as of March 31, 2014
Company-Level Covenants:
Leverage			< 60	%			47.6	%
Fixed Charge Coverage			> 1.50				1.91
Secured Indebtedness			< 55	%			36.3	%
Unencumbered Pool Covenants:
Unencumbered Debt Yield			> 11	%			17.6	%
Leverage			< 60	%			38.7	%

 

Page | 14

---

 

FINANCE & CAPITAL (continued)

 

Detailed Borrowings Analysis

(Dollar amounts in thousands).

 

		As of March 31, 2014
Borrowings		Principal Balance				Secured / Unsecured		Maturity Date		Extension Options		% of Total Borrowings				Fixed or Floating Interest Rate		Current Interest Rate
40 Boulevard		$	8,520			Secured		4/24/2014(1)		None			0.7	%		Floating			3.9	%
Repurchase Facility			37,842			Secured		5/30/2014		3 - 1 Year			3.2	%		Floating (2)			2.8	%
Greater DC Retail Center (3)			38,731			Secured		7/1/2014		1 - 1 Year			3.3	%		Fixed			4.8	%
Total 2014			85,093										7.2	%					3.8	%
Orleans & Whitman			21,433			Secured		7/1/2015		None			1.8	%		Fixed			6.0	%
Campus Road Office Center			34,085			Secured		7/10/2015		None			2.9	%		Fixed			4.8	%
Preston Sherry Plaza			22,725			Secured		9/1/2015		None			1.9	%		Fixed			5.9	%
Mansfield			8,543			Secured		10/1/2015		None			0.7	%		Fixed			6.0	%
Total 2015			86,786										7.3	%					5.5	%
Abington			4,799			Secured		1/1/2016		None			0.4	%		Fixed			6.8	%
Hyannis			4,752			Secured		1/1/2016		None			0.4	%		Fixed			6.8	%
Austin-Mueller Health Center (Seton)			19,433			Secured		1/1/2016		None			1.6	%		Fixed			7.5	%
Line of Credit			—			Unsecured		1/31/2016		2 - 1 Year			0.0	%		Floating			N/A
DeGuigne			7,412			Secured		2/1/2016		None			0.6	%		Fixed			7.8	%
Washington Commons			21,300			Secured		2/1/2016		None			1.8	%		Fixed			5.9	%
1300 Connecticut			34,489			Secured		4/10/2016		None			2.9	%		Fixed			7.3	%
1300 Connecticut B Note			11,770			Secured		4/10/2016		None			1.0	%		Fixed			5.5	%
Riverport Industrial Portfolio			8,265			Secured		4/1/2016		None			0.7	%		Fixed			7.4	%
655 Montgomery			57,614			Secured		6/11/2016		None			4.9	%		Fixed			6.0	%
Jay Street			23,500			Secured		7/11/2016		None			2.0	%		Fixed			6.1	%
Bala Pointe			24,000			Secured		9/1/2016		None			2.0	%		Fixed			5.9	%
Lundy Avenue			14,250			Secured		11/8/2016		None			1.2	%		Fixed			5.6	%
Harborside			113,569			Secured		12/10/2016		2 - 1Year			9.6	%		Fixed			5.5	%
Total 2016			345,153										29.1	%					6.1	%
Shiloh Road			22,700			Secured		1/8/2017		None			1.9	%		Fixed			5.6	%
Bandera Road			21,500			Secured		2/8/2017		None			1.8	%		Fixed			5.5	%
Eastern Retail Portfolio			110,000			Secured		6/11/2017		None			9.3	%		Fixed			5.5	%
Wareham			24,400			Secured		8/8/2017		None			2.1	%		Fixed			6.1	%
Kingston			10,574			Secured		11/1/2017		None			0.9	%		Fixed			6.3	%
Sandwich			15,825			Secured		11/1/2017		None			1.3	%		Fixed			6.3	%
Total 2017			204,999										17.3	%					5.7	%
Term Loan			270,000			Unsecured		1/31/2018		None			22.7	%		Floating (1)			2.2	%
NOIP Fixed			175,660			Secured		7/1/2020		None			14.8	%		Fixed			5.5	%
Norwell			5,935			Secured		10/1/2022		None			0.5	%		Fixed			6.8	%
Harwich			5,829			Secured		9/1/2028		None			0.5	%		Fixed			5.2	%
New Bedford			8,159			Secured		12/1/2029		None			0.7	%		Fixed			5.9	%
Total 2018 - 2029			465,583										39.2	%					3.6	%
Total borrowings			1,187,614										100.0	%					4.8	%
Less: mark-to-market adjustment on assumed debt			2,796
Less: GAAP principal amortization on restructured debt			(1,694	)
Total Borrowings (GAAP basis)		$	1,188,716

 

(1)

As of March 31, 2014, we were in negotiations to extend our 40 Boulevard mortgage note, and as of that date, had agreed with the lender to a short term extension with a maturity date of April 24, 2014. Subsequent to March 31, 2014, we agreed to final extension terms with the lender and as a result, the current maturity date of the 40 Boulevard mortgage note is January 24, 2016.

(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 March 31, 2014. The stated interest rates disclosed above include the impact of these swaps.

(3)	We repaid our Greater DC Retail Center mortgage note subsequent to March 31, 2014, prior to its scheduled maturity, using cash.

 

Page | 15

---

 

REAL PROPERTIES

The following table describes our operating property portfolio as of March 31, 2014, 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				283,142				878				60,201				11.9	%			7.5	%			99.5	%
Northern New Jersey			2				249,724				807				129,865				10.6	%			6.9	%			100.0	%
East Bay, CA			2				151,337				465				—				6.4	%			4.0	%			87.1	%
Dallas, TX			3				117,119				618				46,525				5.0	%			5.3	%			93.0	%
San Francisco, CA			1				116,479				269				57,614				5.0	%			2.3	%			90.7	%
Los Angeles, CA			3				77,146				450				31,526				3.3	%			3.9	%			75.3	%
Silicon Valley, CA			2				61,865				196				30,912				2.6	%			1.7	%			84.4	%
Princeton, NJ			1				51,163				167				34,085				2.2	%			1.4	%			100.0	%
Miami, FL			1				48,298				240				19,315				2.1	%			2.1	%			100.0	%
Chicago, IL			2				45,963				303				29,820				2.0	%			2.6	%			80.6	%
Austin, TX			1				44,978				156				19,433				1.9	%			1.3	%			100.0	%
Philadelphia, PA			1				41,262				173				24,000				1.8	%			1.5	%			95.9	%
Minneapolis/St Paul, MN			1				29,447				107				—				1.3	%			0.9	%			100.0	%
Denver, CO			1				17,985				138				—				0.8	%			1.2	%			100.0	%
Fayetteville, AR			1				11,695				63				—				0.5	%			0.5	%			100.0	%
Total Office: 25 properties, 15 markets with average annual rent of $25.22 per sq. ft.			25				1,347,603				5,030				483,296				57.4	%			43.1	%			93.2	%
Industrial Properties:
Los Angeles, CA			1				78,160				107				16,873				3.3	%			0.9	%			100.0	%
Dallas, TX			2				43,929				558				26,252				1.9	%			4.8	%			48.8	%
Houston, TX			1				41,338				465				18,483				1.8	%			4.0	%			100.0	%
Louisville, KY			4				26,202				736				8,265				1.1	%			6.3	%			100.0	%
Central Kentucky			1				25,822				727				11,545				1.1	%			6.2	%			100.0	%
Cleveland, OH			1				23,805				230				8,659				1.0	%			2.0	%			100.0	%
Chicago, IL			1				20,660				575				8,881				0.9	%			4.9	%			100.0	%
Silicon Valley, CA			1				18,998				177				14,250				0.8	%			1.5	%			41.3	%
Denver, CO			1				6,232				85				2,786				0.3	%			0.7	%			100.0	%
Total Industrial: 13 properties, 9 markets with average annual rent of $5.79 per sq. ft.			13				285,146				3,660				115,994				12.2	%			31.3	%			89.4	%
Retail Properties:
Boston, MA			24				431,547				1,824				110,249				18.2	%			15.8	%			93.4	%
Philadelphia, PA			1				104,270				426				67,800				4.4	%			3.7	%			100.0	%
Washington, DC			1				62,516				233				38,731				2.7	%			2.0	%			98.4	%
Raleigh, NC			1				45,257				142				26,200				1.9	%			1.2	%			100.0	%
San Antonio, TX			1				32,063				161				21,500				1.4	%			1.4	%			89.6	%
Pittsburgh, PA			1				24,500				103				16,000				1.0	%			0.9	%			91.3	%
Jacksonville, FL			1				19,499				73				—				0.8	%			0.6	%			54.4	%
Total Retail: 30 properties, seven markets with average annual rent of $16.16 per sq. ft.			30				719,652				2,962				280,480				30.4	%			25.6	%			93.8	%
Grand Total/Weighted Average			68			$	2,352,401				11,652			$	879,770				100.0	%			100.0	%			92.2	%

 

(1)	Based on executed leases as of March 31, 2014.

(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.

 

Page | 16

---

 

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 March 31, 2014. Our same store portfolio includes all operating properties owned for the entirety of all periods presented, and includes 67 properties acquired prior to January 1, 2013, and owned through March 31, 2014, comprising approximately 11.4 million square feet. We include properties classified as held for sale that we disposed of subsequent to March 31, 2014 in our same store portfolio (amounts in thousands):

 

		Three Months Ended
Revenue:		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
Same store real property:
Office		$	30,979			$	30,452			$	30,688			$	29,632			$	29,416
Industrial			5,814				6,222				6,512				6,755				6,619
Retail			15,006				14,509				14,274				14,236				13,973
Total same store real property revenue			51,799				51,183				51,474				50,623				50,008
2013/2014 Acquistions/Dispositions			4,256				6,315				6,707				13,377				16,665
Debt related investments			2,013				2,790				2,309				2,615				2,735
Total		$	58,068			$	60,288			$	60,490			$	66,615			$	69,408
		Three Months Ended
NOI:		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
Same store real property:
Office		$	23,415			$	23,533			$	23,828			$	23,294			$	22,766
Industrial			4,986				5,590				5,875				6,298				6,131
Retail			11,429				11,056				11,207				11,237				10,431
Total same store real property NOI			39,830				40,179				40,910				40,829				39,328
2013/2014 Acquistions/Dispositions			2,511				4,271				4,908				8,217				10,018
Debt related investments			2,013				2,790				2,309				2,615				2,735
Total		$	44,354			$	47,240			$	48,127			$	51,661			$	52,081
		Three Months Ended
NOI - cash basis:		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
Same store real property:
Office		$	23,851			$	23,364			$	23,810			$	22,887			$	22,362
Industrial			4,238				4,971				5,620				5,750				5,576
Retail			10,805				10,473				10,524				10,760				9,779
Total same store real property NOI - cash basis			38,894				38,808				39,954				39,397				37,717
2013/2014 Acquistions/Dispositions			1,945				4,038				4,181				6,764				8,496
Debt related investments			2,013				2,790				2,309				2,615				2,735
Total		$	42,852			$	45,636			$	46,444			$	48,776			$	48,948

 

Page | 17

---

 

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 March 31, 2014 (amounts in thousands):

 

		Three Months Ended
		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
NOI - cash basis		$	42,852			$	45,636			$	46,444			$	48,776			$	48,948
Straight line rent			1,305				1,497				1,640				2,759				2,968
Net amortization of above- and below-market lease assets and liabilities, and other non-cash adjustments to rental revenue			197				107				43				126				165
NOI		$	44,354			$	47,240			$	48,127			$	51,661			$	52,081
Real estate depreciation and amortization expense			(22,350	)			(25,093	)			(24,285	)			(28,290	)			(30,523	)
General and administrative expenses			(2,819	)			(2,886	)			(2,211	)			(2,515	)			(2,361	)
Advisory fees, related party			(3,743	)			(3,898	)			(3,813	)			(3,725	)			(3,684	)
Acquisition-related expenses			—				(337	)			—				—				—
Impairment of real estate property			—				(2,600	)			—				—				—
Interest and other income			(81	)			111				(376	)			207				(171	)
Interest expense			(16,465	)			(17,761	)			(17,603	)			(20,473	)			(22,151	)
Loss on extinguishment of debt and financing commitments			(63	)			(1,808	)			(4	)			(425	)			(270	)
Gain on sale of real property			33,155				5,580				45,496				22,017				1,213
Net (income) loss attributable to noncontrolling interests			(4,550	)			85				(3,257	)			(1,329	)			499
Net (loss) income attributable to common stockholders		$	27,438			$	(1,367	)		$	42,074			$	17,128			$	(5,367	)

 

Page | 18

---

 

LEASING ACTIVITY

The following charts highlight our operating portfolio and same store portfolio percentage leased at the end of each of the five quarters ended March 31, 2014, by segment and in total:

 

 

The following table presents our lease expirations, by segment and in total, as of March 31, 2014 (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)			88			$	7,529				4.1	%			1,244				45			$	1,854				86				7			$	3,860				1,061				36			$	1,815				97
2015			89				13,402				7.2	%			871				44				7,292				386				1				640				122				44				5,470				363
2016			60				21,499				11.6	%			991				31				17,182				654				1				726				121				28				3,591				216
2017			51				44,224				23.9	%			1,842				28				36,529				1,053				2				4,490				550				21				3,205				239
2018			66				8,116				4.4	%			355				43				6,449				264				1				39				3				22				1,628				88
2019			68				26,966				14.6	%			1,423				40				19,980				899				2				1,143				207				26				5,843				317
2020			34				10,649				5.8	%			506				17				4,042				172				—				—				—				17				6,607				334
2021			20				13,956				7.5	%			1,019				13				9,449				416				3				2,686				524				4				1,821				79
2022			15				8,491				4.6	%			497				7				4,177				186				—				—				—				8				4,314				311
2023			19				17,246				9.3	%			832				11				13,251				552				—				—				—				8				3,995				280
Thereafter			24				13,004				7.0	%			1,157				2				637				18				2				5,364				683				20				7,003				456
Total			534			$	185,082				100.0	%			10,737				281			$	120,842				4,686				19			$	18,948				3,271				234			$	45,292				2,780

 

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

 

Page | 19

---

 

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
1		Charles Schwab & Co, Inc			1			Securities, Commodities, Fin. Inv./Rel. Activites		$	22,761				12.3	%			594				5.5	%
2		Northrop Grumman			2			Professional, Scientific and Technical Services			17,532				9.5	%			699				6.5	%
3		Sybase			1			Publishing Information (except Internet)			17,283				9.3	%			405				3.8	%
4		Stop & Shop			15			Food and Beverage Stores			13,828				7.5	%			872				8.1	%
5		CEVA Freight/Logistics			2			Truck Transportation			4,490				2.4	%			550				5.1	%
6		Novo Nordisk			1			Chemical Manufacturing			4,353				2.4	%			167				1.6	%
7		Seton Health Care			1			Hospitals			4,339				2.2	%			156				1.5	%
8		Crawford and Company			1			Insurance Carriers and Related Activities			3,894				2.1	%			240				2.2	%
9		Nokia Siemens Networks US LLC			1			Telecommunications			3,821				2.1	%			294				2.7	%
10		Equinix Operating Co Inc			1			Information			3,673				2.0	%			107				1.0	%
		Total			26					$	95,974				51.8	%			4,084				38.0	%

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			71			$	27,401				14.8	%			1,207				11.1	%
2		Securities, Commodities, Fin. Inv./Rel. Activites			22				25,350				13.7	%			683				6.3	%
3		Food and Beverage Stores			34				22,506				12.2	%			1,499				13.8	%
4		Publishing Information (except Internet)			3				17,484				9.4	%			410				3.8	%
5		Insurance Carriers and Related Activities			11				6,536				3.5	%			397				3.7	%
6		Administrative and Support Services			23				6,482				3.5	%			332				3.1	%
7		Computer and Electronic Product Manufacturing			8				5,833				3.2	%			424				3.9	%
8		Miscellaneous Store Retailers			17				5,683				3.1	%			952				8.8	%
9		Chemical Manufacturing			4				5,301				2.9	%			464				4.3	%
10		Data Processing, Hosting, and Related Services			3				5,227				2.8	%			251				2.3	%
		All Others (2)			338				57,279				30.9	%			4,118				38.9	%
		Total			534			$	185,082				100.0	%			10,737				100.0	%

 

 

(1)	Annualized base rent represents the annualized monthly base rent of executed leases as of March 31, 2014.

(2)	Other industry sectors include 44 additional sectors.

 

Page | 20

---

 

 

LEASING ACTIVITY (continued)

The following series of tables details leasing activity during the four quarters ended March 31, 2014:

 

Quarter		Number of Leases Signed				Gross Leaseable Area (“GLA”) Signed				Average Rent Per Sq. Ft.				Average Growth / Sraight Line Rent				Weighted Average Lease term (mos)				Tenant Improvements & Incentives Per Sq. Ft.				Average Free Rent (mos)
New & Renewal lease summary - Office Comparable (1)
Office
Q1 2014			13				164,869			$	13.67				-3.3	%			40			$	6.32				0.4
Q4 2013			8				135,245				19.78				13.2	%			59				13.45				0.2
Q3 2013			8				32,991				27.15				-2.5	%			61				15.07				4.0
Q2 2013			11				115,631				13.39				-2.4	%			114				22.01				6.9
Total - twelve months			40				448,736			$	16.09				2.6	%			66			$	13.16				2.3
New & Renewal lease summary - Industrial Comparable (1)
Industrial
Q1 2014			2				177,965			$	4.10				25.7	%			28			$	0.46				0.6
Q4 2013			2				576,648				3.34				4.5	%			173				1.56				0.0
Q3 2013			1				150,100				3.85				-0.2	%			36				1.69				0.0
Q2 2013			4				297,000				2.92				-2.2	%			90				1.36				5.9
Total - twelve months			9				1,201,713			$	3.31				5.9	%			114			$	1.36				1.6
New & Renewal lease summary - Retail Comparable (1)
Retail
Q1 2014			13				155,852			$	18.39				8.8	%			61			$	0.67				0.0
Q4 2013			11				146,537				13.41				13.1	%			59				2.93				0.0
Q3 2013			16				47,625				25.79				13.3	%			60				1.36				0.0
Q2 2013			16				82,766				24.44				14.4	%			70				7.80				0.3
Total - twelve months			56				432,780			$	18.87				11.7	%			62			$	2.88				0.1
Total Comparable Leasing (1)
Total
Q1 2014			28				498,686			$	13.57				6.3	%			42			$	2.46				0.3
Q4 2013			21				858,430				5.22				10.5	%			135				3.67				0.0
Q3 2013			25				230,716				14.53				4.3	%			45				3.54				0.6
Q2 2013			31				495,397				8.69				3.6	%			92				7.25				5.2
Total - twelve months			105				2,083,229			$	7.45				6.8	%			93			$	4.22				1.4
Total Leasing
Q1 2014			39				623,432			$	15.89								40			$	5.63				0.4
Q4 2013			31				1,071,350				5.98								123				5.25				0.5
Q3 2013			43				406,187				17.23								45				7.75				0.8
Q2 2013			41				574,969				8.98								82				7.48				4.6
Total - twelve months			154				2,675,938			$	8.65								83			$	6.20				1.4

 

(1)

Comparable leases comprise leases for which prior leases were in place for the same suite within 12 months of executing a new lease. Comparable leases must have terms of at least six months and the square footage of the suit occupied by the prior tenant cannot be more or less than 50% different from the size of the new lease’s suite.

 

Page | 21

---

 

INVESTMENT ACTIVITY

Dollar and square footage amounts in thousands.

 

		Number of				Square Feet
Buildings and Square Feet Activity		Buildings				Total				Office				Industrial				Retail
(square feet in thousands)
Properties owned as of
March 31, 2013 (1)			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 (2)			—				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 (2)			—				4				2				(1	)			3
December 31, 2013			82				15,250				5,132				7,046				3,072
Dispositions			(14	)			(3,598	)			(102	)			(3,386	)			(110	)
March 31, 2014			68				11,652				5,030				3,660				2,962

 

(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 March 31, 2013.

(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 year ended December 31, 2013

655 Montgomery (1)

San Francisco, CA

11/7/2013

1

109,710

269

Total for the year ended December 31, 2013

1

$

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.

 

Page | 22

---

 

INVESTMENT ACTIVITY (continued)

 

Property dispositions		Segment		Location		Disposition Date		Number of Buildings				Sales Price				Square Feet
(dollar and square footage amounts in thousands)
During 2013
Waterview Parkway		Office		Dallas, TX		1/13/2013			1			$	8,500				62
Column Loan Portfolio		Industrial		Various (1)		5/10/2013			7				85,935				1,918
Comerica Bank Tower (2)		Office		Dallas, TX		5/31/2013			1				122,231				1,509
Crown Colony Drive		Office		Boston, MA		6/6/2013			1				25,500				132
Inverness Drive West		Office		Denver, CO		7/31/2013			1				71,000				257
Millennium Drive		Office		Denver, CO		9/13/2013			1				58,100				133
North Fairway Drive		Office		Chicago, IL		10/15/2013			1				18,000				100
Total for the year ended December 31, 2013									13			$	389,266				4,111
During the first quarter of 2014
Industrial Portfolio		Industrial		Various (3)		1/22/2014			12			$	175,000				3,387
Cranston		Retail		Boston, MA		2/18/2014			1				6,750				110
Shackleford		Office		Little Rock, AR		2/25/2014			1				19,550				102
Total for the first quarter of 2014									14				201,300				3,599

 

(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.

 

Page | 23

---

 

INVESTMENT ACTIVITY (continued)

 

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

 

		For the Three Months Ended:
Recurring Capital Expenditures:		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
(in thousands)
Land and building improvements		$	1,056			$	1,140			$	2,385			$	894			$	409
Tenant improvements			1,770				3,828				1,215				1,032				1,732
Leasing costs			963				2,012				816				2,826				2,883
Total recurring capital expenditures		$	3,789			$	6,980			$	4,416			$	4,752			$	5,024
		For the Three Months Ended:
Non-recurring Capital Expenditures:		March 31, 2014				December 31, 2013				September 30, 2013				June 30, 2013				March 31, 2013
(in thousands)
Land and building improvements		$	22			$	201			$	418			$	564			$	371
Tenant improvements			9				872				145				609				77
Leasing costs			179				104				401				147				150
Total non-recurring capital expenditures		$	210			$	1,177			$	964			$	1,320			$	598

 

 

Page | 24

---

 

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 10, 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 March 31, 2014.

Comparable leases

Comparable leases comprise leases for which prior leases were in place for the same suite within 12 months of executing a new lease. Comparable leases must have terms of at least six months and the square footage of the suit occupied by the prior tenant cannot be more or less than 50% different from the size of the new lease’s suite.

Fair value as determined by our NAV Valuation Procedures

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.

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.

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

 

Page | 25

---

 

DEFINITIONS (continued)

 

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.

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 derivatives and on the extinguishment of debt and financing commitments — 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. 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 anticipated gains or losses on derivatives and 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.

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.

 

Page | 26

---

 

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.

 

Page | 27

---

 

DEFINITIONS (continued)

 

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.

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 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:

 

•

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.

 

•

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.

 

•

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.

Quarterly Report on Form 10-Q

We refer to our Quarterly Report on Form 10-Q for the period ended March 31, 2014, filed with the Securities and Exchange Commission on May 13, 2014, as our “Quarterly Report on Form 10-Q.”

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.

 

Page | 28