Exhibit 99.1

 

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Table of Contents

The following supplements Industrial Income Trust Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, as filed with the Securities and Exchange Commission (the “SEC”) on August 11, 2014, which is available at www.industrialincome.com. As used herein, the terms “IIT,” the “Company,” “we,” “our,” or “us” refer to Industrial Income Trust Inc.

 

Overview			2
Quarterly Highlights			3
Consolidated Statements of Operations			4
Consolidated Balance Sheets			5
Consolidated Statements of Cash Flows			6
Funds from Operations			7
Selected Financial Data			8
Portfolio Overview			9
Lease Expirations & Top Customers			11
Acquisitions / Dispositions Summary			12
Development Overview			13
Debt			14
Definitions			15

This supplemental information contains forward-looking statements that are based on IIT’s current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties, including, without limitation, the failure of acquisitions to perform as IIT expects, IIT’s ability to successfully integrate acquired properties and operations and otherwise execute on its investment strategy, the availability of affordable financing, the availability of cash flows from operating activities for distributions and capital expenditures and those risks set forth in the “Risk Factors” section of IIT’s Annual Report on Form 10-K for the year ended December 31, 2013, as amended or supplemented by the Company’s other filings with the SEC. Any of these statements could prove to be inaccurate, and actual events or IIT’s investments and results of operations could differ materially from those expressed or implied. To the extent that IIT’s assumptions differ from actual results, IIT’s ability to meet such forward-looking statements, including its ability to consummate additional acquisitions and financings, to invest in a diversified portfolio of quality real estate investments, and to generate attractive returns for investors, may be significantly hindered. You are cautioned not to place undue reliance on any forward-looking statements. IIT cannot assure you that it will attain its investment objectives.

The cover page is of Buckeye Distribution Center, which consists of two buildings totaling 684,000 square feet located in the Phoenix market.

 

Second Quarter 2014 Supplemental Reporting Package				Page 1

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Overview

IIT is a leading, national industrial real estate investment trust that selectively acquires, develops, and operates high-quality distribution warehouses located in key U.S. logistics centers serving corporate customers. IIT’s core strategy has been to build a national platform of institutional quality industrial properties by targeting markets that have high barriers to entry, proximity to a large demographic base, and/or access to major distribution infrastructure. IIT acquired its first building in June 2010.

As of June 30, 2014, IIT owned and managed a consolidated portfolio that included 281 industrial buildings totaling approximately 55.9 million square feet in 19 major industrial markets throughout the U.S. with 533 customers that had a weighted-average remaining lease term (based on square feet) of 5.0 years. Of the 281 industrial buildings we owned and managed as of June 30, 2014:

 

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269 industrial buildings totaling approximately 53.2 million square feet comprised our operating portfolio, which was 93% occupied (94% leased) and included one industrial building classified as held for sale.

 

•

12 industrial buildings totaling approximately 2.7 million square feet comprised our development portfolio.

 

Public Earnings Call

We will host a public conference call on Tuesday, August 26, 2014 to review quarterly operating and financial results for the quarter ended June 30, 2014. Dwight Merriman, Chief Executive Officer, and Tom McGonagle, Chief Financial Officer, will present operating and financial data and discuss the Company’s corporate strategy and acquisition, disposition and development activity. The conference call will take place at 2:15 p.m. MDT and can be accessed by dialing (800) 381-7839. To access a replay of the call, contact Dividend Capital at (866) 324-7348.

Contact Information

Industrial Income Trust Inc.

518 Seventeenth Street, 17th Floor

Denver, Colorado 80202

Telephone: (303) 228-2200

Attn: Thomas G. McGonagle, Chief Financial Officer

 

Second Quarter 2014 Supplemental Reporting Package				Page 2

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Quarterly Highlights

The following is an overview of our financial and operating results for the quarter ended June 30, 2014:

 

•

As of June 30, 2014, we had 281 consolidated buildings aggregating 55.9 million square feet as compared to 243 consolidated buildings aggregating 44.6 million square feet as of June 30, 2013.

 

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During the quarter ended June 30, 2014, we leased approximately 2.5 million square feet, which included 1.4 million square feet of new leases and expansions, and 1.1 million square feet of renewals and future leases. Future leases represent new leases for units that are entered into while the units are occupied by the current customer.

 

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In April 2014, we sold 20 industrial buildings aggregating 2.8 million square feet for net proceeds of $125.3 million and recognized gains of $24.5 million. All of these buildings were previously classified as held for sale.

 

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Our net operating income(1) was $57.5 million for the quarter ended June 30, 2014, as compared to net operating income of $41.6 million for the same period in 2013.

 

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Our same store net operating income(1) was $37.3 million for the quarter ended June 30, 2014, as compared to $36.1 million for the same period in 2013.

 

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Our net income was $20.4 million, or $0.10 per share, for the quarter ended June 30, 2014. This compares to a net loss of $14.2 million, or $0.09 per share, for the same period in 2013. These results include: (i) gain on sale of real estate properties of $24.5 million for the quarter ended June 30, 2014; and (ii) non-recurring acquisition-related expenses of $1.5 million for the quarter ended June 30, 2014, and $10.6 million for the same period in 2013.

 

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We had Company-defined Funds from Operations (“Company-Defined FFO”)(2) of $32.7 million, or $0.16 per share, for the quarter ended June 30, 2014, as compared to $24.3 million, or $0.15 per share, for the same period in 2013.

Our operating results for the quarters ended June 30, 2014 and 2013 are not directly comparable, as we were in the acquisition phase of our life cycle during 2013, and as such, the results of our operations were significantly impacted by the timing of our acquisitions and the equity raised through our public offerings.

 

 

 

(1)	See “Selected Financial Data” for additional information regarding net operating income and same store net operating income, as well as “Definitions” for a reconciliation of net operating income to GAAP net income (loss).

(2)	See “Funds from Operations” for a reconciliation of GAAP net income (loss) to Company-defined FFO, as well as “Definitions” for additional information.

 

Second Quarter 2014 Supplemental Reporting Package				Page 3

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Consolidated Statements of Operations

 

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
(in thousands, except per share data)		2014				2013				2014				2013
Revenues:
Rental revenues		$	76,866			$	55,302			$	158,403			$	106,556
Total revenues			76,866				55,302				158,403				106,556
Operating expenses:
Rental expenses			19,407				13,715				42,652				26,798
Real estate-related depreciation and amortization			35,244				26,602				72,860				53,884
General and administrative expenses			1,886				1,792				3,684				3,453
Asset management fees, related party			7,314				5,222				14,636				9,754
Acquisition-related expenses, related party			1,543				4,376				1,742				5,334
Acquisition-related expenses			-				6,197				354				7,968
Total operating expenses			65,394				57,904				135,928				107,191
Operating income (loss)			11,472				(2,602)				22,475				(635)
Other income (expenses):
Equity in loss of unconsolidated joint ventures			(9)				(170)				(30)				(1,456)
Interest expense and other			(15,513)				(11,440)				(31,310)				(23,038)
Gain on disposition of real estate properties			24,471				-				24,471				-
Total other income (expenses)			8,949				(11,610)				(6,869)				(24,494)
Net income (loss)			20,421				(14,212)				15,606				(25,129)
Net income (loss) attributable to noncontrolling interests			-				-				-				-
Net income (loss) attributable to common stockholders		$	20,421			$	(14,212)			$	15,606			$	(25,129)
Weighted-average shares outstanding			209,419				166,255				208,780				153,938
Net income (loss) per common share - basic and diluted		$	0.10			$	(0.09)			$	0.07			$	(0.16)

 

Second Quarter 2014 Supplemental Reporting Package				Page 4

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Consolidated Balance Sheets

 

 

(in thousands)		June 30, 2014				December 31, 2013
ASSETS
Net investment in real estate properties		$	3,460,132			$	3,499,570
Investment in unconsolidated joint ventures			8,118				8,066
Cash and cash equivalents			6,976				18,358
Restricted cash			2,948				2,813
Straight-line rent receivable			36,272				28,614
Tenant receivables, net			4,648				5,497
Notes receivable			3,612				3,612
Deferred financing costs, net			10,543				11,543
Deferred acquisition costs			55,397				25,390
Other assets			2,859				10,601
Assets held for sale			1,285				-
Total assets		$	3,592,790			$	3,614,064
LIABILITIES AND EQUITY
Accounts payable and accrued expenses		$	33,917			$	35,789
Tenant prepaids and security deposits			36,677				44,719
Intangible lease liability, net			28,589				31,858
Debt			1,897,593				1,876,631
Distributions payable			32,706				32,301
Other liabilities			4,394				684
Total liabilities			2,033,876				2,021,982
Total stockholders’ equity			1,558,913				1,592,081
Noncontrolling interests			1				1
Total liabilities and equity		$	3,592,790			$	3,614,064
Shares outstanding			209,116				206,743

 

Second Quarter 2014 Supplemental Reporting Package				Page 5

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Consolidated Statements of Cash Flows

 

		For the Six Months
		Ended June 30,
($ in thousands)		2014				2013
Operating activities:
Net income (loss)		$	15,606			$	(25,129)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Real estate-related depreciation and amortization			72,860				53,884
Equity in loss of unconsolidated joint ventures			30				1,456
Gain on disposition of real estate properties			(24,471)				-
Straight-line rent and amortization of above- and below-market leases			(6,975)				(4,055)
Other			1,106				1,186
Changes in operating assets and liabilities			(7,352)				17,036
Net cash provided by operating activities			50,804				44,378
Investing activities:
Real estate acquisitions			(72,054)				(523,979)
Acquisition deposits			(43,181)				(3,975)
Capital expenditures and development activities			(51,261)				(27,169)
Investments in unconsolidated joint ventures			-				(8,413)
Proceeds from dispostion of real estate properties			125,310				-
Other			(47)				(132)
Net cash used in investing activities			(41,233)				(563,668)
Financing activities:
Repayments of mortgage notes			(3,185)				(1,485)
Proceeds from lines of credit			115,000				235,000
Repayments of lines of credit			(90,000)				(140,000)
Proceeds from issuance of common stock			-				498,361
Offering costs for issuance of common stock			(638)				(45,154)
Distributions paid to common stockholders			(32,515)				(22,336)
Redemptions of common stock			(9,085)				(6,918)
Other			(530)				(234)
Net cash (used in) provided by financing activities			(20,953)				517,234
Net decrease in cash and cash equivalents			(11,382)				(2,056)
Cash and cash equivalents, at beginning of period			18,358				24,550
Cash and cash equivalents, at end of period		$	6,976			$	22,494

 

Second Quarter 2014 Supplemental Reporting Package				Page 6

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Funds from Operations (1)

Our second quarter 2014 Company-defined FFO was $0.16 per share, as compared to $0.15 per share for the second quarter 2013. There can be no assurances that the current level of Company-defined FFO will be maintained.

 

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
(in thousands, except per share data)		2014				2013				2014				2013
Net income (loss)		$	20,421			$	(14,212)			$	15,606			$	(25,129)
Net income (loss) per common share		$	0.10			$	(0.09)			$	0.07			$	(0.16)
Reconciliation of net income (loss) to FFO:
Net income (loss)		$	20,421			$	(14,212)			$	15,606			$	(25,129)
Add (deduct) NAREIT-defined adjustments:
Real estate-related depreciation and amortization			35,244				26,602				72,860				53,884
Real estate-related depreciation and amortization of unconsolidated joint ventures			-				1,298				9				3,158
Gain on disposition of real estate properties			(24,471)				-				(24,471)				-
FFO		$	31,194			$	13,688			$	64,004			$	31,913
FFO per common share		$	0.15			$	0.08			$	0.31			$	0.21
Reconciliation of FFO to Company-defined FFO:
FFO		$	31,194			$	13,688			$	64,004			$	31,913
Add (deduct) Company-defined adjustments:
Acquisition costs			1,543				10,573				2,096				13,302
Acquisition costs of unconsolidated joint ventures			-				21				-				79
Company-defined FFO		$	32,737			$	24,282			$	66,100			$	45,294
Company-defined FFO per common share		$	0.16			$	0.15			$	0.32			$	0.29
Weighted-average shares outstanding			209,419				166,255				208,780				153,938

 

 

 

 

 

(1)	See “Definitions” for additional information regarding Funds from Operations (“FFO”) and Company-defined FFO.

 

Second Quarter 2014 Supplemental Reporting Package				Page 7

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Selected Financial Data

The following table presents selected consolidated financial information, which has been derived from our consolidated financial statements. The information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes thereto, and as such, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014. The same store operating portfolio for the three months ended June 30, 2014 and 2013 included 178 buildings owned as of April 1, 2013, and represented 63% of total rentable square feet or 65% of total revenues as of June 30, 2014. The same store operating portfolio for the six months ended June 30, 2014 and 2013 included 171 buildings owned as of January 1, 2013, and represented 60% of total rentable square feet or 62% of total revenues as of June 30, 2014.

 

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
($ in thousands, except per share data)		2014				2013				2014				2013
Operating data:
Rental revenues from same store operating properties(1)		$	49,954			$	48,234			$	97,912			$	94,118
Rental revenues from other properties(1)			26,912				7,068				60,491				12,438
Total rental revenues			76,866				55,302				158,403				106,556
Rental expenses from same store operating properties(1)			12,644				12,181				26,488				23,774
Rental expenses from other properties(1)			6,763				1,534				16,164				3,024
Total rental expenses			19,407				13,715				42,652				26,798
NOI from same store operating properties			37,310				36,053				71,424				70,344
NOI from other properties			20,149				5,534				44,327				9,414
Total NOI (2)		$	57,459			$	41,587			$	115,751			$	79,758
Less straight-line rents		$	(4,025)			$	(3,648)			$	(9,050)			$	(5,930)
Plus amortization of above market leases, net			654				820				2,075				1,875
Cash NOI (2)		$	54,088			$	38,759			$	108,776			$	75,703
Adjusted EBITDA (3)		$	48,571			$	36,701			$	97,763			$	70,348
Distributions:
Total distributions declared		$	32,706			$	25,973			$	65,221			$	48,078
Distributions declared per common share		$	0.15625			$	0.15625			$	0.31250			$	0.31250
Cash flow data:
Net cash provided by operating activities		$	30,794			$	27,044			$	50,804			$	44,378
Net cash provided (used in) by investing activities		$	3,079			$	(455,893)			$	(41,233)			$	(563,668)
Net cash (used in) provided by financing activities		$	(42,682)			$	418,368			$	(20,953)			$	517,234
Capital expenditures:
Development activity		$	21,813			$	15,318			$	33,887			$	16,708
Tenant improvements and leasing commissions		$	5,507			$	4,404			$	13,125			$	8,498
Property maintenance and improvements		$	2,893			$	1,521			$	4,249			$	1,963
Total capital expenditures		$	30,213			$	21,243			$	51,261			$	27,169

 

 

(1)	See “Definitions” for additional information regarding “same store operating properties” and “other properties.”

(2)	See “Definitions” for a reconciliation of net operating income to GAAP net income (loss) and for a reconciliation of cash net operating income to GAAP net income (loss).

(3)	See “Definitions” for a reconciliation of adjusted EBITDA to GAAP net income (loss).

 

Second Quarter 2014 Supplemental Reporting Package				Page 8

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Portfolio Overview

Our portfolio consists primarily of quality, functional industrial buildings with generic features designed for operating flexibility and for high acceptance by a wide range of customers. As of June 30, 2014, the weighted-average age of our buildings (based on square feet) was 13.7 years.

Portfolio Data

 

		As of
		June 30,				December 31,				June 30,
(square feet in thousands)		2014				2013				2013
Number of consolidated buildings (1)			281				296				243
Number of unconsolidated buildings (2)			2				1				30
Total number of buildings			283				297				273
Rentable square feet of consolidated buildings (1)			55,859				57,230				44,636
Rentable square feet of unconsolidated buildings (2)			710				180				6,367
Total rentable square feet			56,569				57,410				51,003
Total number of customers			533				553				527
Percent occupied of operating portfolio			93%				94%				92%
Percent occupied of total portfolio			89%				91%				91%
Percent leased of operating portfolio			94%				95%				93%
Percent leased of total portfolio			91%				93%				93%

Markets by Total Rentable Square Feet

as of June 30, 2014

 

 

 

(1)	Includes one building classified as held for sale as of June 30, 2014.

(2)	In September 2013, we acquired our partner’s equity interest in the Fund I Partnership joint venture. As of the date of the acquisition, the Fund I Partnership included 31 buildings aggregating approximately 7.2 million square feet.

 

Second Quarter 2014 Supplemental Reporting Package				Page 9

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Portfolio Overview

As of June 30, 2014, we owned and managed a well-diversified industrial portfolio located in 19 major industrial markets throughout the U.S. Approximately 72% (based on square feet) and 73% (based on annual base rent) of our total portfolio was located in our top-tier industrial markets⁽¹⁾.

 

																						Percent
		Number				Rentable																of Total
		of				Square				Occupied				Leased				Annualized				Annualized
($ and square feet in thousands)		Buildings				Feet				Rate				Rate				Base Rent				Base Rent
Operating Properties:
Atlanta			19				4,905				86.0 %				92.1 %			$	13,960				6.1 %
Austin			7				748				90.6				97.4				4,269				1.9
Baltimore / D.C.			24				4,550				95.8				95.8				21,637				9.4
Chicago			19				3,967				90.7				90.7				16,125				7.0
Dallas			23				3,218				97.2				97.2				13,043				5.7
Denver			1				554				100.0				100.0				3,348				1.5
Houston			27				2,803				88.6				88.6				13,077				5.7
Indianapolis			7				2,698				92.9				92.9				11,494				5.0
Memphis			6				2,176				89.3				89.3				5,541				2.4
Nashville			6				2,531				100.0				100.0				8,499				3.7
New Jersey			12				2,182				91.1				92.4				10,424				4.5
Pennsylvania			29				5,248				96.1				96.1				22,489				9.8
Phoenix			17				4,646				83.1				83.1				20,188				8.8
Portland			8				948				88.1				89.5				4,111				1.8
Salt Lake City			4				1,140				97.9				100.0				5,337				2.3
San Francisco Bay Area			8				1,171				94.7				94.7				6,350				2.8
Seattle / Tacoma			10				1,950				96.1				99.7				10,488				4.6
South Florida			21				1,793				97.7				97.7				12,287				5.4
Southern California			21				5,936				99.9				99.9				24,921				10.9
Total Operating Properties			269				53,164				93.1				94.0				227,588				99.3
Development Properties:
Houston			3				537				7.1				7.1				-				-
New Jersey			5				546				43.4				54.2				1,709				0.7
Salt Lake City			1				416				-				-				-				-
Southern California			3				1,196				-				43.5				-				-
Total Development Properties			12				2,695				10.2				31.7				1,709				0.7
Total Portfolio			281				55,859				89.1 %				91.0 %			$	229,297				100.0 %

 

 

(1)	Our top-tier industrial markets include: Atlanta, Baltimore / D.C., Chicago, Dallas, Houston, New Jersey, Pennsylvania, San Francisco Bay Area, Seattle / Tacoma, South Florida and Southern California.

 

Second Quarter 2014 Supplemental Reporting Package				Page 10

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Lease Expirations & Top Customers

As of June 30, 2014, our consolidated real estate portfolio consisted of 281 industrial buildings occupied by 533 customers with 577 leases.

Lease Expirations

During the second quarter of 2014, we leased approximately 2.5 million square feet, which included 1.4 million square feet of new leases and expansions and 1.1 million square feet of renewals and future leases. Future leases represent new leases for units that are entered into while the units are occupied by the current customer. Expansions represented approximately 2.6% of the total leasing activity for the quarter ended June 30, 2014.

 

								Percent								Percent
		Number						of Total								of Total
		of		Occupied				Occupied				Annualized				Annualized
($ and square feet in thousands)		Leases		Square Feet				Square Feet				Base Rent				Base Rent
Remainder of 2014(1)		40			2,687				5.4 %			$	12,740				5.6 %
2015		106			5,232				10.5				25,254				11.0
2016		95			5,885				11.8				28,036				12.2
2017		96			5,286				10.6				24,307				10.6
2018		73			7,903				15.9				34,906				15.2
2019		55			5,405				10.9				25,549				11.2
2020		29			3,037				6.1				13,281				5.8
2021		24			3,888				7.8				19,799				8.6
2022		20			3,910				7.8				17,896				7.8
2023		12			1,226				2.5				4,740				2.1
Thereafter		27			5,323				10.7				22,789				9.9
Total occupied		577			49,782				100.0 %			$	229,297				100.0 %

Customers

Of the 533 customers as of June 30, 2014, there were no customers that individually represented more than 10% of total annualized base rent or total occupied square feet. The following table reflects our 10 largest customers, based on annualized base rent, which occupied a combined 10.9 million square feet as of June 30, 2014:

 

		Percent of Total				Percent of Total
		Annualized				Occupied
Customer		Base Rent				Square Feet
Amazon.com, LLC			6.0 %				5.0 %
Home Depot USA INC.			3.6				3.9
Hanesbrands, Inc.			2.7				2.6
Belkin International			2.3				1.6
CEVA Logistics U.S.			2.3				2.9
U.S. Government			1.6				1.1
GlaxoSmithKlein			1.5				1.3
United Natural Foods, Inc.			1.5				1.1
FedEx			1.2				0.9
Harbor Freight Tools			1.1				1.6
Total			23.8 %				22.0 %

 

 

 

(1)	Includes month-to-month leases.

 

Second Quarter 2014 Supplemental Reporting Package				Page 11

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Acquisitions / Dispositions / Development Summary

Acquisitions

During the second quarter of 2014, we acquired four buildings totaling 1.0 million square feet for a purchase price of approximately $66.2 million.

As of June 30, 2014, the Company’s aggregate gross investment in properties was approximately $3.7 billion.

Assets Held for Sale

As of June 30, 2014, we had one industrial building totaling 31,000 square feet that met the criteria as held for sale.

Dispositions

During the second quarter of 2014, we sold to third-parties 20 industrial buildings aggregating 2.8 million square feet for net proceeds of $125.3 million, which were previously classified as held for sale. The dispositions included:

 

•

One building totaling 1.3 million square feet located in the Atlanta market.

 

•

Five buildings totaling 0.9 million square feet located in the Dallas market.

 

•

13 buildings totaling 0.5 million square feet located in the Portland market.

 

•

One building totaling 0.1 million square feet located in the Tampa market.

 

Second Quarter 2014 Supplemental Reporting Package				Page 12

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Development Overview

Development Overview

The following summarizes our development portfolio and projects under development as of June 30, 2014:

 

				Number		Rentable								Cumulative
($ and square				of		Square				Percent				Costs				Projected				Completion		Percent		Percent
feet in thousands)		Market		Buildings		Feet(1)				Owned				Incurred(2)				Investment				Date(3)		Occupied		Leased
Development Portfolio(4)
South Bay DC		So. California		1			266				100%			$	34,708			$	36,404			Q3-2013		- %		- %
Ontario Mills DC		So. California		1			520				100%				39,477				42,221			Q3-2013		- %		100%
Fairfield Blgs 2-4		New Jersey		3			321				100%				36,103				37,742			Q3-2013		60%		79%
Pine Brook Blgs B&C		New Jersey		2			225				100%				25,848				27,008			Q3-2013		19%		19%
Imperial DC		Houston		1			328				100%				19,291				21,531			Q1-2014		- %		- %
Westport DC Bldg C		Salt Lake City		1			416				100%				21,414				25,199			Q2-2014		- %		- %
Chino DC		So. California		1			410				100%				32,298				35,678			Q2-2014		- %		- %
Beltway Crossing DC		Houston		2			209				100%				13,667				15,767			Q2-2014		18%		18%
Total Development Portfolio				12			2,695				100%			$	222,806			$	241,550					10%		32%
Projects Under Development
Under Construction
I-95 DC		Baltimore / D.C.		1			449				100%			$	26,254			$	32,852			Q3-2014				100%
Centerpointe 4 Expansion		So. California		1			501				100%				23,308				38,926			Q3-2014				100%
Franklin Square II		Baltimore / D.C.		1			192				100%				3,025				13,985			Q4-2014				- %
Tamarac II		South Florida		1			104				100%				2,047				11,242			Q1-2015				- %
Tamarac III		South Florida		1			42				100%				886				4,929			Q1-2015				- %
Total Under Construction				5			1,288				100%				55,520				101,934							74%
Pre-Construction
Miami III		South Florida		1			102				100%				2,890				9,132							- %
Miami IV		South Florida		1			88				100%				2,514				8,104							- %
Leigh Valley III		Pennsylvania		1			106				100%				1,357				8,709							- %
Total Pre-Construction				3			296				100%				6,761				25,945							- %
Total Projects Under Development				8			1,584				100%			$	62,281			$	127,879							60%
Development Properties Transferred to Operating Portfolio
Northpoint CC		Dallas		1			301				100%			$	14,548			$	14,548			Q4-2013		100%		100%
Pine Brook Bldg A		New Jersey		1			91				100%				10,143				10,143			Q3-2013		94%		94%
South San Francisco II DC		San Francisco Bay Area		1			85				100%				10,967				10,967			Q2-2013		39%		62%
				3			477				100%			$	35,658			$	35,658					88%		92%

 

 

 

 

(1)	Rentable square feet for pre-construction projects is projected and cannot be assured.

(2)	As of June 30, 2014.

(3)	The completion date represents the acquisition date, date of building shell completion or estimated date of shell completion.

(4)

The development portfolio includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet stabilized. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building’s completion or a building achieving 90% occupancy.

 

Second Quarter 2014 Supplemental Reporting Package				Page 13

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Debt

Summary of Consolidated Debt

As of June 30, 2014, we had approximately $1.9 billion of consolidated indebtedness, which was comprised of borrowings under our lines of credit and term loans, and our mortgage note financings. Our consolidated debt had a weighted-average remaining term of approximately 5.4 years. The following is a summary of our consolidated debt as of June 30, 2014:

 

		Weighted-Average
		Stated Interest Rate				Balance as of
($ in thousands)		as of June 30, 2014		Maturity Date		June 30, 2014
Lines of credit		1.95%		August 2015 - January 2017		$	275,000
Term loans(1)		2.12%		January 2018 - January 2019			500,000
Fixed-rate mortage notes		4.26%		June 2015 - November 2024			1,113,513
Variable-rate mortgage note		2.19%		May 2015			9,080
Total / weighted-average mortgage notes		4.25%					1,122,593
Total / weighted-average consolidated debt		3.35%				$	1,897,593
Fixed-rate debt(2)		4.02%					69%
Variable-rate debt(2)		1.85%					31%
Total / weighted-average		3.35%					100%

Scheduled Principal Payments of Debt

As of June 30, 2014, the principal payments due on our consolidated debt during each of the next five years and thereafter were as follows:

 

($ in thousands)		Lines of Credit (3)				Term Loans				Mortgage Notes				Total
Remainder of 2014		$	-			$	-			$	3,583			$	3,583
2015			190,000				-				52,985				242,985
2016			-				-				20,040				20,040
2017			85,000				-				62,174				147,174
2018			-				200,000				151,918				351,918
Thereafter			-				300,000				826,557				1,126,557
Total principal payments			275,000				500,000				1,117,257				1,892,257
Unamortized premium on assumed debt			-				-				5,336				5,336
Total		$	275,000			$	500,000			$	1,122,593			$	1,897,593

 

(1)

Effective January 14, 2014, the interest rate for the $200.0 million term loan was fixed through the use of interest rate swaps at an all-in interest rate of 2.68% as of June 30, 2014. The forward-starting interest rate swap agreements relating to the $300.0 million term loan has an effective date of January 20, 2015 and will have an all-in interest rate ranging from 3.31% to 4.16%, depending on our consolidated leverage ratio at that time.

(2)	Assuming the effects of the forward-starting interest rate swap agreements relating to the $300.0 million term loan, approximately 85% of our total debt was fixed and 15% of our total debt was variable as of June 30, 2014.

(3)	Both lines of credit may be extended pursuant to two one-year extension options, subject to certain conditions.

 

Second Quarter 2014 Supplemental Reporting Package				Page 14

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Definitions

Annualized Base Rent. Annualized base rent is calculated as monthly base rent including the impact of any contractual tenant concessions (cash basis) per the terms of the lease as of June 30, 2014, multiplied by 12.

 

Adjusted EBITDA. Adjusted EBITDA represents net income (loss) attributable to common stockholders before interest, taxes, depreciation, amortization, stock-based compensation expense, gains on business combinations, and proportionate share of interest, depreciation and amortization from unconsolidated joint ventures. We use Adjusted EBITDA to measure our operating performance to provide investors relevant and useful information because it allows fixed income investors to view income from our operations on an unleveraged basis before the effects of non-cash items, such as depreciation and amortization.

 

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
($ in thousands)		2014				2013				2014				2013
Reconciliation of net income (loss) to adjusted EBITDA:
Net income (loss)		$	20,421			$	(14,212)			$	15,606			$	(25,129)
Interest expense			15,513				11,440				31,310				23,038
Proportionate share of interest expense from unconsolidated joint venture			8				857				8				1,894
Real estate-related depreciation and amortization			35,244				26,602				72,860				53,884
Proportionate share of real estate-related depreciation and amortization from unconsolidated joint ventures			-				1,298				9				3,158
Acquisition costs			1,543				10,573				2,096				13,302
Gain on disposition of real estate properties			(24,471)				-				(24,471)				-
Proportionate share of acquisition costs from unconsolidated joint ventures			-				21				-				79
Share-based compensation expense			313				122				345				122
Adjusted EBITDA		$	48,571			$	36,701			$	97,763			$	70,348

 

Consolidated Portfolio. The consolidated portfolio excludes properties owned through our unconsolidated joint ventures.

 

Development Portfolio. The development portfolio includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet reached stabilization. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building’s completion or a building achieving 90% occupancy.

 

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

 

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

 

Second Quarter 2014 Supplemental Reporting Package				Page 15

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Definitions

 

Company-defined FFO. Similar to FFO, Company-defined FFO is a non-GAAP measure that excludes real estate-related depreciation and amortization and gains or losses on sales of assets, and also excludes non-recurring acquisition-related costs (including acquisition fees paid to the Advisor) and a non-recurring loss from the early extinguishment of debt, each of which are characterized as expenses in determining net income (loss) under GAAP. Loss from the early extinguishment of debt is excluded because it was a loss recognized as part of a one-time transaction. The purchase of operating properties has been a key strategic objective of our business plan focused on generating growth in operating income and cash flow in order to make distributions to investors. However, as the corresponding acquisition-related costs are paid in cash, all paid and accrued acquisition-related costs negatively impact our operating performance and 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, unless the Advisor determines to waive the payment or reimbursement of these acquisition-related costs, then such costs will be paid from additional debt, operational earnings or cash flow, net proceeds from the sale of properties, or ancillary cash flows. As such, Company-defined FFO may not be a complete indicator of our operating performance, especially during periods in which properties are being acquired, and may not be a useful measure of the long-term operating performance of our properties if we do not continue to operate our business plan as disclosed.

Management does not include historical acquisition-related expenses in its evaluation of future operating performance, as such costs are one-time costs related to the acquisition. In addition, management does not include a non-recurring loss from the early extinguishment of debt in its evaluation of future operating performance as the transaction that resulted in the loss was driven by factors relating to the capital markets, rather than factors specific to the on-going operating performance of our properties. We use Company-defined FFO to, among other things: (i) evaluate and compare the potential performance of the portfolio after the acquisition phase is complete, and (ii) evaluate potential performance to determine liquidity event strategies. We believe Company-defined FFO facilitates a comparison to other REITs that are not engaged in significant acquisition activity and have similar operating characteristics as us. We believe investors are best served if the information that is made available to them allows them to align their analyses and evaluation with the same performance metrics used by management in planning and executing our business strategy. We believe that these performance metrics will assist investors in evaluating the potential performance of the portfolio after the completion of the acquisition phase. However, these supplemental, non-GAAP measures are not necessarily indicative of future performance and should not be considered as an alternative to net income (loss) or to cash flows from operating activities and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs. Neither the SEC, NAREIT, nor any regulatory body has passed judgment on the acceptability of the adjustments used to calculate Company-defined FFO. In the future, the SEC, NAREIT, or a regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry at which point we may adjust our calculation and characterization of Company-defined FFO.

GAAP. Generally accepted accounting principles used in the United States.

Net Operating Income (“NOI”) and Cash NOI. We define (i) NOI as GAAP rental revenues less GAAP rental expenses and (ii) cash NOI as NOI (as previously defined), excluding non-cash amounts recorded for straight-line rents and the amortization of above and below market leases. We consider NOI and cash NOI to be appropriate supplemental performance measures. We believe NOI and cash NOI provide useful information to our investors regarding our financial condition and results of operations because NOI and cash NOI reflect the operating performance of our properties and exclude certain items that are not considered to be controllable in connection with the management of the properties, such as real estate-related depreciation and amortization, acquisition-related expenses, general and administrative expenses, and interest expense. However, NOI and cash NOI should not be viewed as alternative measures of our financial performance since NOI and cash NOI excludes such expenses, which could materially impact our results of operations. Further, our NOI and cash NOI may not be comparable to that of other real estate companies as they may use different methodologies for calculating NOI and cash NOI. Therefore, we believe net income (loss), as defined by GAAP, to be the most appropriate GAAP measure to evaluate our overall performance. Refer to the reconciliation below of our GAAP net income (loss) to NOI and cash NOI.

 

Second Quarter 2014 Supplemental Reporting Package				Page 16

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Definitions

 

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
($ in thousands)		2014				2013				2014				2013
GAAP net income (loss)		$	20,421			$	(14,212)			$	15,606			$	(25,129)
Real estate-related depreciation and amortization			35,244				26,602				72,860				53,884
General and administrative expenses			1,886				1,792				3,684				3,453
Asset management fees			7,314				5,222				14,636				9,754
Acquisition costs			1,543				10,573				2,096				13,302
Other (income) expenses			(8,949)				11,610				6,869				24,494
NOI		$	57,459			$	41,587			$	115,751			$	79,758
Straight-line rents			(4,025)				(3,648)				(9,050)				(5,930)
Amortization of above market leases, net			654				820				2,075				1,875
Cash NOI		$	54,088			$	38,759			$	108,776			$	75,703

Occupied Rate / Leased Rate. The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced.

Operating Portfolio. The operating portfolio includes stabilized properties.

Same Store Operating Properties. The same store portfolio includes operating properties owned for the entirety of both the current year period and prior year period for which the operations have been stabilized. Properties that do not meet the same store criteria are included in “other properties” in “Selected Financial Data” above. The same store operating portfolio for the three months ended June 30, 2014 and 2013 included 178 buildings owned as of April 1, 2013. The same store operating portfolio for the six months ended June 30, 2014 and 2013 included 171 buildings owned as of January 1, 2013.

 

Second Quarter 2014 Supplemental Reporting Package				Page 17