Exhibit 99.2

 

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TABLE OF CONTENTS

 

PERFORMANCE			3
NET ASSET VALUE			4
FINANCIAL HIGHLIGHTS			6
PORTFOLIO PROFILE			7
BALANCE SHEETS			8
STATEMENTS OF OPERATIONS			9
FUNDS FROM OPERATIONS			10
RESULTS OF OPERATIONS			12
FINANCE & CAPITAL			14
REAL PROPERTIES			17
LEASING ACTIVITY			18
INVESTMENT ACTIVITY			21
DEFINITIONS			23

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Statements included in this portfolio performance and review 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 portfolio performance and review package for definitions of terms used herein.

 

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PERFORMANCE

 

 

Dividend Capital Diversified Property Fund Inc. is a daily NAV-based REIT and has invested in a diverse portfolio of real property and real estate related investments. As used herein, “the Portfolio,” “we,” “our” and “us” refer to Dividend Capital Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.

Quarter Highlights

 

•

Total return of 2.54% for the quarter; 8.48% for the last 12 months

 

•

Acquired two Class A office buildings in the Cherry Creek submarket of Denver, Colorado

 

•

Reported percentage leased of 92.8% as of September 30, 2014

 

•

Paid weighted-average distribution of $0.0872/share

 

 

 

(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 23. For a description of key assumptions used in calculating the value of our real properties as of September 30, 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.

(2)

In addition to the markets shown, 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, Fayetteville, AR, Jacksonville, FL, Louisville, KY, Minneapolis/St. Paul, MN, Pittsburgh, PA, and San Antonio, TX.

(3)

Represents the compounded return realized from reinvested distributions before class specific expenses. We pay our dealer manager (1) a dealer manager fee equal to 1/365th of 0.60% of our NAV per share for Class A shares and Class W shares for each day, (2) a dealer manager fee equal to 1/365th of 0.10% of our NAV per share for Class I shares for each day and (3) for Class A shares only, a distribution fee equal to 1/365th of 0.50% of our NAV per share for Class A shares for each day.

(4)

Excludes the impact of up-front commissions paid with respect to certain Class A shares. We pay selling commissions on Class A shares sold in the primary offering of up to 3.0% of the NAV per share, which may be higher or lower due to rounding. Selling commissions may be reduced or eliminated to or for the account of certain categories of purchasers.

(5)	Total return represents the compound annual rate of return assuming reinvestment of all dividend distributions. Past performance is not a guarantee of future results.

(6)	Q4 2012 represents the first full quarter for which we have complete NAV return data. As such, we use 9/30/12 as “inception” for the purpose of calculating cumulative returns since inception.

 

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NET ASSET VALUE

 

 

The following table sets forth the components of NAV for the Portfolio as of the end of each of the five quarters ending September 30, 2014, as determined in accordance with our valuation procedures. 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
		September 30, 2014 (1)				June 30, 2014 (2)				March 31, 2014 (3)				December 31, 2013 (4)				September 30, 2013 (5)
Real properties:
Office		$	1,442,900			$	1,354,250			$	1,355,230			$	1,378,080			$	1,278,930
Industrial			263,150				261,700				261,900				430,770				421,700
Retail			745,155				743,465				715,225				716,525				713,315
Total real properties			2,451,205				2,359,415				2,332,355				2,525,375				2,413,945
Debt related investments			94,673				94,414				94,180				123,935				127,055
Cash and other assets, net of other liabilities			663				7,036				77,452				3,904				21,132
Debt obligations			(1,182,819	)			(1,139,657	)			(1,182,210	)			(1,325,286	)			(1,240,881	)
Outside investors’ interests			(10,310	)			(10,570	)			(10,512	)			(16,004	)			(15,751	)
Aggregate Fund NAV		$	1,353,412			$	1,310,638			$	1,311,265			$	1,311,924			$	1,305,500
Total Fund Interests outstanding			190,967				187,310				188,318				189,280				190,163
NAV per Fund Interest		$	7.09			$	7.00			$	6.96			$	6.93			$	6.87

 

(1)

For information about the valuation procedures and key assumptions used in these calculations, 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 for the period ended September 30, 2014, filed with the Securities and Exchange Commission on November 12, 2014.

(2)

For information about the valuation procedures and key assumptions used in these calculations, 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 for the period ended June 30, 2014, filed with the Securities and Exchange Commission on August 12, 2014.

(3)

For information about the valuation procedures and key assumptions used in these calculations, 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 for the period ended March 31, 2014, filed with the Securities and Exchange Commission on May 13, 2014.

(4)	For information about the valuation procedures and key assumptions used in these calculations, please refer to “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of our 2013 Annual Report on Form 10-K.

(5)

For information about the valuation procedures and key assumptions used in these calculations, 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 for the period ended September 30, 2013, filed with the Securities and Exchange Commission on November 12, 203.

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 accounting principles generally accepted in the United States (“GAAP”) from which one can derive our net book value per share by dividing our stockholders’ equity by shares of our common stock outstanding as of the date of measurement.

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

 

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NET ASSET VALUE (continued)

 

 

The following table sets forth the quarterly changes to the components of NAV for the Portfolio, for each of the most recent four quarters, for the twelve month period ended September 30, 2014, and for the nine month period ended September 30, 2014 (amounts in thousands, except per share information):

 

		Three Months Ended																Previous Four Quarters				Nine Months Ended September 30, 2014
		December 31, 2013				March 31, 2014				June 30, 2014				September 30, 2014
NAV as of beginning of period		$	1,305,500			$	1,311,924			$	1,311,265			$	1,310,638			$	1,305,500			$	1,311,924
Fund level changes to NAV
Realized/unrealized gains (losses) on net assets			9,615				2,821				3,745				14,391				30,572				20,957
Income accrual			23,564				23,612				23,266				23,733				94,175				70,611
Net dividend accrual			(16,697	)			(16,607	)			(16,620	)			(16,698	)			(66,622	)			(49,925	)
Advisory fee			(3,806	)			(3,743	)			(3,802	)			(3,901	)			(15,252	)			(11,446	)
Performance based fee			(52	)			(19	)			(1	)			(189	)			(261	)			(209	)
Class specific changes to NAV
Dealer Manager fee			(9	)			(14	)			(23	)			(37	)			(83	)			(74	)
Distribution fee			(1	)			(3	)			(7	)			(8	)			(19	)			(18	)
NAV as of end of period before share sale/redemption activity		$	1,318,114			$	1,317,971			$	1,317,823			$	1,327,929			$	1,348,010			$	1,341,820
Share sale/redemption activity
Shares sold			8,782				9,249				30,715				44,429				93,175				84,393
Shares redeemed			(14,972	)			(15,955	)			(37,900	)			(18,946	)			(87,773	)			(72,801	)
NAV as of end of period		$	1,311,924			$	1,311,265			$	1,310,638			$	1,353,412			$	1,353,412			$	1,353,412
Shares outstanding beginning of period			190,163				189,280				188,318				187,310				190,163				189,280
Shares sold			1,278				1,332				4,409				6,332				13,351				12,073
Shares redeemed			(2,161	)			(2,294	)			(5,417	)			(2,675	)			(12,547	)			(10,386	)
Shares outstanding end of period			189,280				188,318				187,310				190,967				190,967				190,967
NAV per share as of beginning of period		$	6.87			$	6.93			$	6.96			$	7.00			$	6.87			$	6.93
Change in NAV per share			0.06				0.03				0.04				0.09				0.22				0.16
NAV per share as of end of period		$	6.93			$	6.96			$	7.00			$	7.09			$	7.09			$	7.09

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.

 

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FINANCIAL HIGHLIGHTS

 

 

Amounts in thousands, except per share information and percentages.

 

		As of or for the Three Months Ended																				As of or For the Nine Months Ended
Selected Operating Data (as adjusted) (1)		September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013				September 30, 2014				September 30, 2013
Total revenues		$	58,591			$	56,814			$	58,068			$	60,288			$	60,490			$	173,473			$	196,513
Net income (loss)			(7,514	)			3,816				31,988				(1,452	)			45,331				28,292				57,926
Portfolio Statistics
Operating properties			69				68				68				82				82				69				82
Square feet			12,000				11,732				11,652				15,250				15,077				12,000				15,077
Percentage leased at end of period			92.8	%			92.6	%			92.2	%			93.6	%			95.9	%			92.8	%			95.9	%
Earnings Per Share
Net (loss) income per share		$	(0.04	)		$	0.02			$	0.15			$	(0.02	)		$	0.24			$	0.13			$	0.31
Funds from Operations (“FFO”) per share (2)		$	0.12			$	0.12			$	0.11			$	0.11			$	0.12			$	0.36			$	0.37
Company-defined FFO per share (2)		$	0.13			$	0.12			$	0.11			$	0.12			$	0.12			$	0.36			$	0.37
Weighted average number of common shares outstanding — basic			178,729				177,529				176,873				177,548				178,201				177,717				178,415
Weighted average number of common shares outstanding — diluted			191,422				190,386				189,993				190,942				191,783				190,605				192,263
Net Asset Value (“NAV”) (3)
NAV per share at the end of period		$	7.09			$	7.00			$	6.96			$	6.93			$	6.87			$	7.09			$	6.87
High NAV per share during period		$	7.09			$	7.00			$	6.96			$	6.93			$	6.89			$	7.09			$	6.89
Low NAV per share during period		$	7.00			$	6.96			$	6.93			$	6.84			$	6.83			$	6.93			$	6.71
Weighted average distributions per share		$	0.0872			$	0.0873			$	0.0874			$	0.0874			$	0.0875			$	0.2620			$	0.2625
Weighted average closing dividend yield - annualized			4.92	%			4.99	%			5.02	%			5.05	%			5.10	%			4.93	%			5.10	%
Weighted average total return for the period			2.53	%			1.75	%			1.72	%			2.24	%			1.72	%			6.11	%			6.37	%
Aggregate fund NAV at end of period		$	1,353,412			$	1,310,638			$	1,311,265			$	1,311,924			$	1,305,500			$	1,353,412			$	1,305,500
Consolidated Debt
Leverage (4)			47	%			47	%			49	%			50	%			49	%			47	%			49	%
Secured borrowings		$	871,230			$	875,968			$	918,716			$	1,023,472			$	969,265			$	871,230			$	969,265
Secured borrowings as % of total borrowings			73	%			76	%			77	%			77	%			78	%			73	%			78	%
Unsecured borrowings		$	317,500			$	270,000			$	270,000			$	300,000			$	270,000			$	317,500			$	270,000
Unsecured borrowings as % of total borrowings			27	%			24	%			23	%			23	%			22	%			27	%			22	%
Fixed rate borrowings (5)		$	1,062,890			$	1,067,538			$	1,110,196			$	1,214,892			$	1,060,505			$	1,062,890			$	1,060,505
Fixed rate borrowings as % of total borrowings			89	%			93	%			93	%			92	%			86	%			89	%			86	%
Floating rate borrowings		$	125,840			$	78,430			$	78,520			$	108,580			$	178,760			$	125,840			$	178,760
Floating rate borrowings as % of total borrowings			11	%			7	%			7	%			8	%			14	%			11	%			14	%
Total borrowings		$	1,188,730			$	1,145,968			$	1,188,716			$	1,323,472			$	1,239,265			$	1,188,730			$	1,239,265

 

(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 of FFO and Company-Defined FFO to GAAP net income, see section titled “Funds from Operations” beginning on page 10.

(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 23. For a description of key assumptions used in calculating the value of our real properties as of September 30, 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.

 

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PORTFOLIO PROFILE

 

 

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 September 30, 2014 (dollar and square footage amount in thousands).

 

		Real Properties (1)																Debt Related Investments, Net
As of or for the three months ended September 30, 2014		Total				Office				Industrial				Retail								Grand Total
Number of investments			69				25				13				31				11				80
Square footage			12,000				5,230				3,670				3,100				N/A				12,000
Percentage leased at period end			92.8	%			94.8	%			87.9	%			95.2	%			N/A				92.8	%
Net operating income (“NOI”)(2)		$	43,989			$	26,608			$	5,220			$	12,161			$	1,798			$	45,787
Segment as % of total NOI			96.1	%			58.1	%			11.4	%			26.6	%			3.9	%			100.0	%
NOI — cash basis (3)		$	42,649			$	26,935			$	4,186			$	11,528			$	1,798			$	44,447
Fair Value (4)		$	2,451,205			$	1,442,900			$	263,150			$	745,155			$	94,673			$	2,545,878
Segment as % of total Fair Value			96.3	%			56.7	%			10.3	%			29.3	%			3.7	%			100.0	%

 

(1)

“As of” information includes all real properties that we owned as of September 30, 2014. Operations information provided here and throughout this document is presented inclusive of amounts related to properties that have been disposed of as of September 30, 2014, including amounts that are classified within discontinued operations in our 2013 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

(2)	For a reconciliation of NOI to GAAP net income, see section titled “Results of Operations” beginning on page 12.

(3)	For a reconciliation of NOI – Cash Basis to NOI and to GAAP net income, see section titled “Results of Operations” beginning on page 12.

(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 23. For a description of key assumptions used in calculating the value of our real properties as of September 30, 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 of September 30, 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.

 

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BALANCE SHEETS

 

 

The following table presents our consolidated balance sheets, as adjusted, as of the end of each of the five quarters ended September 30, 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
		September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013
ASSETS
Investments in real property		$	2,450,058			$	2,376,245			$	2,352,401			$	2,570,480			$	2,463,767
Accumulated depreciation and amortization			(512,427	)			(489,273	)			(469,466	)			(502,847	)			(481,521	)
Total net investments in real property			1,937,631				1,886,972				1,882,935				2,067,633				1,982,246
Debt related investments, net			94,673				94,414				94,180				123,935				127,055
Total net investments			2,032,304				1,981,386				1,977,115				2,191,568				2,109,301
Cash and cash equivalents			27,814				52,880				81,292				24,778				40,003
Restricted cash			25,784				25,212				35,209				25,556				27,410
Other assets, net			62,271				60,345				67,856				63,507				62,603
Total Assets		$	2,148,173			$	2,119,823			$	2,161,472			$	2,305,409			$	2,239,317
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes and other secured borrowings		$	871,230			$	875,968			$	918,716			$	1,023,472			$	969,265
Unsecured borrowings			317,500				270,000				270,000				300,000				270,000
Intangible lease liabilities, net			78,545				74,393				72,389				77,549				77,833
Other liabilities			101,657				117,322				93,724				99,377				94,466
Total Liabilities			1,368,932				1,337,683				1,354,829				1,500,398				1,411,564
Equity:
Stockholders’ equity:
Common stock			1,787				1,746				1,755				1,760				1,767
Additional paid-in capital			1,589,520				1,566,332				1,576,970				1,582,886				1,588,760
Distributions in excess of earnings			(883,418	)			(860,790	)			(848,768	)			(860,747	)			(843,855	)
Accumulated other comprehensive loss			(9,515	)			(10,672	)			(10,586	)			(10,794	)			(12,893	)
Total stockholders’ equity			698,374				696,616				719,371				713,105				733,779
Noncontrolling interests			80,867				85,524				87,272				91,906				93,974
Total Equity			779,241				782,140				806,643				805,011				827,753
Total Liabilities and Equity		$	2,148,173			$	2,119,823			$	2,161,472			$	2,305,409			$	2,239,317

 

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STATEMENTS OF OPERATIONS

 

 

The following table presents our condensed consolidated statements of operations, as adjusted, for each of the five quarters ended September 30, 2014, and for the nine month periods ended September 30, 2014 and 2013. 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																				Nine Months Ended
		September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013				September 30, 2014				September 30, 2013
REVENUE:
Rental revenue		$	56,793			$	55,054			$	56,055			$	57,498			$	58,181			$	167,902			$	188,854
Debt related income			1,798				1,760				2,013				2,790				2,309				5,571				7,659
Total Revenue			58,591				56,814				58,068				60,288				60,490				173,473				196,513
EXPENSES:
Rental expense			12,804				11,770				13,714				13,048				12,363				38,288				44,643
Real estate depreciation and amortization expense			21,918				22,213				22,350				25,093				24,285				66,481				83,098
General and administrative expenses			2,739				3,125				2,819				2,886				2,211				8,682				7,087
Advisory fees, related party			4,083				3,853				3,743				3,898				3,813				11,678				11,221
Acquisition-related expenses			214				252				—				337				—				466				—
Impairment of real estate property			9,500				—				—				2,600				—				9,500				—
Total Operating Expenses			51,258				41,213				42,626				47,862				42,672				135,095				146,049
Other Income (Expenses):
Interest and other income (expense)			429				334				(81	)			111				(376	)			683				(337	)
Interest expense			(15,276	)			(15,105	)			(16,465	)			(17,761	)			(17,603	)			(46,846	)			(60,228	)
Loss on extinguishment of debt and financing commitments			—				—				(63	)			(1,808	)			(4	)			(63	)			(699	)
Gain on sale of real property			—				2,986				33,155				5,580				45,496				36,140				68,726
Net (Loss) Income			(7,514	)			3,816				31,988				(1,452	)			45,331				28,292				57,926
Net loss (income) attributable to noncontrolling interests			475				(330	)			(4,550	)			85				(3,257	)			(4,405	)			(4,087	)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(7,039	)		$	3,486			$	27,438			$	(1,367	)		$	42,074			$	23,887			$	53,839
NET (LOSS) INCOME PER BASIC AND DILUTED COMMON SHARE		$	(0.04	)		$	0.02			$	0.15			$	(0.02	)		$	0.24			$	0.13			$	0.31
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic			178,729				177,529				176,873				177,548				178,201				177,717				178,415
Diluted			191,422				190,386				189,993				190,942				191,783				190,605				192,263
Weighted average distributions declared per common share		$	0.0872			$	0.0873			$	0.0874			$	0.0874			$	0.0875			$	0.2620			$	0.2625

 

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FUNDS FROM OPERATIONS

 

 

The following tables present NAREIT-Defined Funds From Operations (“FFO”) and Company-defined FFO for each of the five quarters ended September 30, 2014, and for the nine month periods ended September 30, 2014 and 2013. Operating data in these tables are presented inclusive of amounts relating to real properties that have been disposed or classified as held for sale at the end of the period and reclassified as discontinued operations in our GAAP financial statements (amounts in thousands except for per share amounts and percentages):

 

		Three Months Ended																				Nine Months Ended
		September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013				September 30, 2014				September 30, 2013
Reconciliation of net earnings to FFO:
Net (loss) income attributable to common stockholders		$	(7,039	)		$	3,486			$	27,438			$	(1,367	)		$	42,074			$	23,887			$	53,839
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense			21,918				22,213				22,350				25,093				24,285				66,481				83,098
Gain on disposition of real property			—				(2,986	)			(33,155	)			(5,580	)			(45,496	)			(36,140	)			(68,726	)
Impairment of real property			9,500				—				—				2,600				—				9,500				—
Noncontrolling interests’ share of adjustments			(2,187	)			(1,399	)			2,989				(1,772	)			1,281				(597	)			(1,965	)
FFO attributable to common shares-basic			22,192				21,314				19,622				18,974				22,144				63,131				66,246
FFO attributable to dilutive OP units			1,576				1,544				1,456				1,431				1,688				4,575				5,143
FFO attributable to common shares-diluted		$	23,768			$	22,858			$	21,078			$	20,405			$	23,832			$	67,706			$	71,389
FFO per share-basic and diluted		$	0.12			$	0.12			$	0.11			$	0.11			$	0.12			$	0.36			$	0.37
FFO payout ratio			70	%			73	%			79	%			82	%			70	%			74	%			71	%
Reconciliation of FFO to Company-Defined FFO:
FFO attributable to common shares-basic		$	22,192			$	21,314			$	19,622			$	18,974			$	22,144			$	63,131			$	66,246
Add (deduct) our adjustments:
Acquisition-related expenses			214				252				—				337				—				466				—
Loss on extinguishment of debt and financing commitments			—				—				63				1,808				4				63				699
Noncontrolling interests’ share of our adjustments			(14	)			(17	)			(4	)			(150	)			—				(35	)			(51	)
Company-Defined FFO attributable to common shares-basic			22,392				21,549				19,681				20,969				22,148				63,625				66,894
Company-Defined FFO attributable to dilutive OP units			1,590				1,561				1,460				1,582				1,688				4,611				5,194
Company-Defined FFO attributable to common shares-diluted		$	23,982			$	23,110			$	21,141			$	22,551			$	23,836			$	68,236			$	72,088
Company-Defined FFO per share-basic and diluted		$	0.13			$	0.12			$	0.11			$	0.12			$	0.12			$	0.36			$	0.37
Weighted average number of shares outstanding
Basic			178,729				177,529				176,873				177,548				178,201				177,717				178,415
Diluted			191,422				190,386				189,993				190,942				191,783				190,605				192,263

 

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FUNDS FROM OPERATIONS (continued)

 

 

The following table presents certain other supplemental information for each of the five quarters ended September 30, 2014, and for the nine month periods ended September 30, 2014 and 2013 (Amounts in thousands):

 

		Three Months Ended																				Nine Months Ended
		September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013				September 30, 2014				September 30, 2013
Other Supplemental Information
Capital Expenditures Summary
Recurring capital expenditures		$	2,501			$	1,597			$	3,789			$	6,980			$	4,416			$	7,887			$	14,192
Non-recurring capital improvements			284				1,401				210				1,177				964				1,895				2,882
Total Capital Expenditures			2,785				2,998				3,999				8,157				5,380				9,782				17,074
Other non-cash adjustments
Straight-line rent (increase) to rental revenue			(1,150	)			(485	)			(1,305	)			(1,497	)			(1,640	)			(2,939	)			(7,367	)
Amortization of above- and below- market rent decrease (increase) to rental revenue			(124	)			152				(108	)			(21	)			37				(80	)			(223	)
Amortization of loan costs and hedges - increase to interest expense			1,205				1,192				1,208				1,202				1,233				3,605				4,051
Amortization of mark-to-market adjustments on borrowings - (decrease) increase to interest expense			(276	)			(283	)			100				338				343				(459	)			1,010
Total other non-cash adjustments		$	(345	)		$	576			$	(105	)		$	22			$	(27	)		$	127			$	(2,529	)

 

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RESULTS OF OPERATIONS

 

 

The following tables present revenue and net operating income (“NOI”) of our four operating segments, as adjusted, for each of the five quarters ending September 30, 2014, and for the nine month periods ended September 30, 2014 and 2013. Our same store portfolio includes all operating properties owned for the entirety of all periods presented, and includes 66 properties acquired prior to January 1, 2013, and owned through September 30, 2014, comprising approximately 11.3 million square feet. (amounts in thousands):

 

		Three Months Ended																				Nine Months Ended
		September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013				September 30, 2014				September 30, 2013
Revenue:
Same store real property:
Office		$	31,461			$	31,107			$	31,029			$	30,359			$	30,414			$	93,597			$	88,959
Industrial			5,825				6,035				5,814				6,222				6,512				17,674				19,886
Retail			14,836				14,863				15,006				14,509				14,274				44,705				42,483
Total same store real property revenue			52,122				52,005				51,849				51,090				51,200				155,976				151,328
2013/2014 Acquisitions/Dispositions			4,671				3,049				4,206				6,408				6,981				11,926				37,526
Debt related investments			1,798				1,760				2,013				2,790				2,309				5,571				7,659
Total		$	58,591			$	56,814			$	58,068			$	60,288			$	60,490			$	173,473			$	196,513
NOI:
Same store real property:
Office		$	24,278			$	24,452			$	23,523			$	23,518			$	23,631			$	72,254			$	69,345
Industrial			5,220				5,416				4,986				5,590				5,875				15,622				18,303
Retail			11,631				11,745				11,429				11,056				11,207				34,805				32,875
Total same store real property NOI			41,129				41,613				39,938				40,164				40,713				122,681				120,523
2013/2014 Acquisitions/Dispositions			2,860				1,671				2,403				4,286				5,105				6,933				23,688
Debt related investments			1,798				1,760				2,013				2,790				2,309				5,571				7,659
Total		$	45,787			$	45,044			$	44,354			$	47,240			$	48,127			$	135,185			$	151,870
NOI — cash basis:
Same store real property:
Office		$	25,191			$	25,594			$	23,959			$	23,349			$	23,610			$	74,744			$	68,508
Industrial			4,186				4,770				4,238				4,971				5,620				13,194				16,947
Retail			11,056				11,108				10,805				10,473				10,524				32,969				31,064
Total same store real property NOI — cash basis			40,433				41,472				39,002				38,793				39,754				120,907				116,519
2013/2014 Acquisitions/Dispositions			2,216				1,414				1,837				4,053				4,381				5,467				19,990
Debt related investments			1,798				1,760				2,013				2,790				2,309				5,571				7,659
Total		$	44,447			$	44,646			$	42,852			$	45,636			$	46,444			$	131,945			$	144,168

 

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RESULTS OF OPERATIONS (continued)

 

 

The following tables present a reconciliation of NOI – Cash Basis and NOI of our four operating segments, as adjusted, to GAAP net income attributable to common stockholders for each of the five quarters ending September 30, 2014, and for the nine month periods ended September 30, 2014 and 2013 (amounts in thousands):

 

		Three Months Ended																				Nine Months Ended
		September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013				September 30, 2014				September 30, 2013
NOI — cash basis		$	44,447			$	44,646			$	42,852			$	45,636			$	46,444			$	131,945			$	144,168
Straight line rent			1,150				485				1,305				1,497				1,640				2,939				7,367
Net amortization of above- and below-market lease assets and liabilities, and other non-cash adjustments to rental revenue			190				(87	)			197				107				43				301				335
NOI		$	45,787			$	45,044			$	44,354			$	47,240			$	48,127			$	135,185			$	151,870
Real estate depreciation and amortization expense			(21,918	)			(22,213	)			(22,350	)			(25,093	)			(24,285	)			(66,481	)			(83,098	)
General and administrative expenses			(2,739	)			(3,125	)			(2,819	)			(2,886	)			(2,211	)			(8,682	)			(7,087	)
Advisory fees, related party			(4,083	)			(3,853	)			(3,743	)			(3,898	)			(3,813	)			(11,678	)			(11,221	)
Acquisition-related expenses			(214	)			(252	)			—				(337	)			—				(466	)			—
Impairment of real estate property			(9,500	)			—				—				(2,600	)			—				(9,500	)			—
Interest and other income			429				334				(81	)			111				(376	)			683				(337	)
Interest expense			(15,276	)			(15,105	)			(16,465	)			(17,761	)			(17,603	)			(46,846	)			(60,228	)
Loss on extinguishment of debt and financing commitments			—				—				(63	)			(1,808	)			(4	)			(63	)			(699	)
Gain on sale of real property			—				2,986				33,155				5,580				45,496				36,140				68,726
Net (income) loss attributable to noncontrolling interests			475				(330	)			(4,550	)			85				(3,257	)			(4,405	)			(4,087	)
Net (loss) income attributable to common stockholders		$	(7,039	)		$	3,486			$	27,438			$	(1,367	)		$	42,074			$	23,887			$	53,839

The following tables present details regarding our capital expenditures for each of the five quarters ending September 30, 2014, and for the nine month periods ended September 30, 2014 and 2013 (amounts in thousands):

 

		Three Months Ended																				Nine Months Ended
		September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013				September 30, 2014				September 30, 2013
Recurring Capital Expenditures:
Land and building improvements		$	311			$	546			$	1,056			$	1,140			$	2,385			$	1,913			$	3,688
Tenant improvements			1,045				406				1,770				3,828				1,215				3,221				3,979
Leasing costs			1,145				645				963				2,012				816				2,753				6,525
Total recurring capital expenditures		$	2,501			$	1,597			$	3,789			$	6,980			$	4,416			$	7,887			$	14,192
Non-recurring Capital Expenditures:
Land and building improvements		$	94			$	19			$	22			$	201			$	418			$	135			$	1,353
Tenant improvements			149				1,113				9				872				145				1,271				831
Leasing costs			41				269				179				104				401				489				698
Total non-recurring capital expenditures		$	284			$	1,401			$	210			$	1,177			$	964			$	1,895			$	2,882

 

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FINANCE & CAPITAL

 

 

The following table describes certain information about our capital structure. Amounts reported as financing capital and our joint venture partners’ interests are presented on a GAAP basis. Amounts reported as equity capital other than our joint venture partners’ interests are presented based on the NAV as of September 30, 2014 (shares and dollar amounts other than price per share / unit in thousands).

 

FINANCING:														As of September 30, 2014
Mortgage notes and other secured borrowings														$	871,230
Unsecured borrowings															317,500
Financing obligations															17,947
Total Financing														$	1,206,677
EQUITY:		Shares / Units				Percentage of aggregate Shares and Units outstanding				NAV Per Share / Unit				Value
Class E Common Stock			164,359				86.1	%		$	7.09			$	1,164,842
Class A Common Stock			987				0.5	%			7.09				6,990
Class W Common Stock			767				0.4	%			7.09				5,430
Class I Common Stock			12,616				6.6	%			7.09				89,415
Class E OP Units			12,238				6.4	%			7.09				86,735
Total/Weighted Average			190,967				100.0	%			7.09			$	1,353,412
Joint venture partners’ noncontrolling interests															2,453
Total Equity															1,355,865
TOTAL CAPITALIZATION														$	2,562,542

 

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FINANCE & CAPITAL (continued)

 

 

The following table presents a summary of our borrowings as of September 30, 2014 (dollar amounts in thousands):

 

		Weighted Average Stated Interest Rate				Outstanding Balance				Gross Investment Amount Securing Borrowings (1)
Fixed rate mortgages			5.8	%		$	825,589			$	1,640,386
Floating rate mortgages			3.2	%			8,340				15,916
Total mortgage notes			5.8	%			833,929				1,656,302
Repurchase facilities (2)			2.8	%			37,301				51,594
Total secured borrowings			5.6	%			871,230				1,707,896
Line of credit			1.8	%			47,500				N/A
Term loan (2)			2.1	%			270,000				N/A
Total unsecured borrowings			2.0	%			317,500				N/A
Total borrowings			4.7	%		$	1,188,730			$	1,707,896

 

(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 $115.0 million and before accumulated depreciation and amortization of approximately $512.4 million as of September 30, 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 September 30, 2014. The stated interest rates disclosed above include the impact of these swaps.

The following table presents a summary of our covenants and our actual results as of September 30, 2014:

 

						Actual as of:
Portfolio-Level Covenants:		Covenant				September 30, 2014				June 30, 2014				March 31, 2014				December 31, 2013				September 30, 2013
Leverage			< 60	%			46.5	%			45.4	%			47.6	%			49.8	%			48.2	%
Fixed Charge Coverage			> 1.50				2.09				2.00				1.91				1.96				1.98
Secured Indebtedness			< 55	%			33.6	%			34.2	%			36.3	%			38.0	%			37.2	%
Unencumbered Pool Covenants:
Unencumbered Debt Yield			> 11	%			18.4	%			21.6	%			17.6	%			16.2	%			18.6	%
Leverage			< 60	%			40.8	%			33.5	%			38.7	%			46.2	%			38.7	%

 

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FINANCE & CAPITAL (continued)

 

 

The following table presents a detailed analysis of our borrowings outstanding as of September 30, 2014 (dollar amounts in thousands).

 

		As of September 30, 2014
Borrowings		Principal Balance				Secured / Unsecured				Maturity Date				Extension Options				% of Total Borrowings				Fixed or Floating Interest Rate				Current Interest Rate
Repurchase Facility		$	37,301				Secured				5/30/2015				2 -1 Year				3.1	%			Floating	(1)			2.84	%
Orleans & Whitman			21,236				Secured				7/1/2015				None				1.8	%			Fixed				6.02	%
Campus Road Office Center			33,797				Secured				7/10/2015				None				2.8	%			Fixed				4.75	%
Preston Sherry Plaza			22,555				Secured				9/1/2015				None				1.9	%			Fixed				5.85	%
Mansfield			8,427				Secured				10/1/2015				None				0.7	%			Fixed				6.03	%
Total 2015			123,316																10.4	%							4.68	%
Abington			4,761				Secured				1/1/2016				None				0.4	%			Fixed				6.75	%
Hyannis			4,714				Secured				1/1/2016				None				0.4	%			Fixed				6.75	%
Austin-Mueller Health Center (Seton)			18,529				Secured				1/1/2016				None				1.6	%			Fixed				7.50	%
40 Boulevard			8,340				Secured				1/24/2016				None				0.7	%			Floating				3.16	%
Line of Credit			47,500				Unsecured				1/31/2016				2 -1 Year				4.0	%			Floating				1.75	%
DeGuigne			7,240				Secured				2/1/2016				None				0.6	%			Fixed				7.78	%
Washington Commons			21,300				Secured				2/1/2016				None				1.8	%			Fixed				5.94	%
1300 Connecticut			34,242				Secured				4/10/2016				None				2.9	%			Fixed				7.25	%
1300 Connecticut B Note			11,684				Secured				4/10/2016				None				1.0	%			Fixed				5.53	%
Riverport Industrial Portfolio			8,197				Secured				4/1/2016				None				0.7	%			Fixed				7.38	%
655 Montgomery			57,218				Secured				6/11/2016				None				4.8	%			Fixed				6.01	%
Jay Street			23,500				Secured				7/11/2016				None				2.0	%			Fixed				6.05	%
Bala Pointe			24,000				Secured				9/1/2016				None				2.0	%			Fixed				5.89	%
Lundy Avenue (2)			13,579				Secured				11/8/2016				None				1.1	%			Fixed				5.60	%
Harborside			111,825				Secured				12/10/2016				2 -1 Year				9.4	%			Fixed				5.50	%
Total 2016			396,629																33.4	%							5.51	%
Shiloh Road			22,700				Secured				1/8/2017				None				1.9	%			Fixed				5.57	%
Bandera Road			21,500				Secured				2/8/2017				None				1.8	%			Fixed				5.46	%
Eastern Retail Portfolio			110,000				Secured				6/11/2017				None				9.3	%			Fixed				5.51	%
Wareham			24,400				Secured				8/8/2017				None				2.1	%			Fixed				6.13	%
Kingston			10,574				Secured				11/1/2017				None				0.9	%			Fixed				6.33	%
Sandwich			15,825				Secured				11/1/2017				None				1.3	%			Fixed				6.33	%
Total 2017			204,999																17.2	%							5.69	%
Term Loan			270,000				Unsecured				1/31/2018				None				22.7	%			Floating	(1)			2.06	%
NOIP Fixed			174,270				Secured				7/1/2020				None				14.7	%			Fixed				5.46	%
Norwell			5,675				Secured				10/1/2022				None				0.5	%			Fixed				6.76	%
Harwich			5,693				Secured				9/1/2028				None				0.5	%			Fixed				5.24	%
New Bedford			8,000				Secured				12/1/2029				None				0.7	%			Fixed				5.91	%
Total 2018 - 2029			463,638																39.0	%							3.50	%
Total borrowings			1,188,582																100.0	%							4.67	%
Add: mark-to-market adjustment on assumed debt			2,237
Less: GAAP principal amortization on restructured debt			(2,089	)
Total Borrowings (GAAP basis)		$	1,188,730

 

(1)	100% of our 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 September 30, 2014. The stated interest rates disclosed above include the impact of these swaps.

(2)	Subsequent to September 30, 2014, we disposed of the property securing the Lundy Avenue mortgage via a foreclosure sale, resulting in the cancellation of the related principal balance.

 

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REAL PROPERTIES

 

 

The following table describes our operating property portfolio as of September 30, 2014 (dollar and square feet amounts in thousands):

 

Market		Number of Properties				Gross Investment Amount				Net Rentable Square Feet				Secured Indebtedness (1)				% of Gross Investment Amount				% of Total Net Rentable Square Feet				% Leased (2)
Office Properties:
Washington, DC			3			$	282,752				878			$	59,759				11.5	%			7.3	%			99.5	%
Northern New Jersey			2				249,724				807				127,992				10.2	%			6.7	%			100.0	%
East Bay, CA			1				145,242				405				—				5.9	%			3.4	%			100.0	%
Dallas, TX			3				118,423				619				46,167				4.8	%			5.2	%			94.0	%
San Francisco, CA			1				118,012				269				57,218				4.8	%			2.2	%			91.1	%
Denver, CO			2				98,241				395				—				4.0	%			3.3	%			96.1	%
Los Angeles, CA			3				77,276				450				31,277				3.2	%			3.8	%			75.3	%
Silicon Valley, CA			2				61,591				196				30,740				2.5	%			1.6	%			84.4	%
Princeton, NJ			1				51,163				167				33,797				2.1	%			1.4	%			100.0	%
Miami, FL			1				48,244				240				19,163				2.0	%			2.0	%			100.0	%
Chicago, IL			2				47,024				305				29,640				1.9	%			2.5	%			86.5	%
Austin, TX			1				44,978				156				18,529				1.8	%			1.3	%			100.0	%
Philadelphia, PA			1				41,257				173				24,000				1.7	%			1.4	%			95.7	%
Minneapolis/St Paul, MN			1				29,447				107				—				1.2	%			0.9	%			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 $26.15 per sq. ft.			25				1,425,069				5,230				478,282				58.1	%			43.5	%			94.8	%
Industrial Properties:
Los Angeles, CA			1				78,160				107				16,740				3.2	%			0.9	%			100.0	%
Dallas, TX			2				43,928				568				26,224				1.8	%			4.7	%			48.9	%
Houston, TX			1				41,338				465				18,337				1.7	%			3.9	%			100.0	%
Louisville, KY			4				26,278				736				8,197				1.1	%			6.1	%			92.9	%
Central Kentucky			1				26,240				727				11,454				1.1	%			6.1	%			100.0	%
Cleveland, OH			1				23,805				230				8,590				1.0	%			1.9	%			100.0	%
Chicago, IL			1				20,660				575				8,810				0.8	%			4.8	%			100.0	%
Silicon Valley, CA			1				19,002				177				13,579				0.8	%			1.5	%			41.3	%
Denver, CO			1				6,232				85				2,764				0.3	%			0.7	%			100.0	%
Total Industrial: 13 properties, nine markets with average annual rent of $5.77 per sq. ft.			13				285,643				3,670				114,695				11.8	%			30.6	%			87.9	%
Retail Properties:
Boston, MA			25				460,313				1,962				109,304				18.7	%			16.4	%			94.0	%
Philadelphia, PA			1				104,653				426				67,800				4.3	%			3.6	%			100.0	%
Washington, DC			1				62,516				233				—				2.6	%			1.9	%			98.4	%
Raleigh, NC			1				45,277				142				26,200				1.8	%			1.2	%			100.0	%
San Antonio, TX			1				32,065				161				21,500				1.3	%			1.3	%			89.6	%
Jacksonville, FL			1				19,494				73				—				0.8	%			0.6	%			100.0	%
Pittsburgh, PA			1				15,028				103				16,000				0.6	%			0.9	%			91.3	%
Total Retail: 31 properties, seven markets with average annual rent of $16.15 per sq. ft.			31				739,346				3,100				240,804				30.1	%			25.9	%			95.2	%
Grand Total/Weighted Average			69			$	2,450,058				12,000			$	833,781				100.0	%			100.0	%			92.8	%

 

(1)	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.

(2)	Based on executed leases as of September 30, 2014.

 

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LEASING ACTIVITY

 

 

The following graphs highlight our total portfolio and same store portfolio percentage leased at the end of each of the five quarters ended September 30, 2014, by segment and in total:

 

 

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LEASING ACTIVITY (continued)

 

 

The following table presents our lease expirations, by segment and in total, as of September 30, 2014 (dollars 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)			62			$	3,155				1.6	%			325				34			$	1,487				69				3			$	315				157				25			$	1,353				99
2015			98				13,714				7.0	%			999				57				7,693				490				2				1,464				195				39				4,557				314
2016			73				22,829				11.7	%			1,032				45				18,554				698				1				726				121				27				3,549				213
2017			62				44,334				22.6	%			1,808				37				36,400				965				3				4,670				602				22				3,264				241
2018			81				9,219				4.7	%			398				56				7,389				297				1				39				3				24				1,791				98
2019			94				31,657				16.2	%			1,597				59				23,325				969				2				1,143				213				33				7,189				415
2020			49				12,832				6.5	%			618				21				4,805				204				—				—				—				28				8,027				414
2021			24				16,686				8.5	%			1,754				14				9,778				416				4				4,884				1,251				6				2,024				87
2022			21				8,875				4.5	%			515				12				4,418				196				—				—				—				9				4,457				319
2023			20				17,488				8.9	%			835				11				13,397				553				—				—				—				9				4,091				282
Thereafter			31				15,209				7.8	%			1,255				6				2,444				102				2				5,364				682				23				7,401				471
Total			615			$	195,998				100.0	%			11,136				352			$	129,690				4,959				18			$	18,605				3,224				245			$	47,703				2,953

 

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

The following table presents our top 10 tenants by annualized base rent and their related industry sector, as of September 30, 2014 (dollars and square feet 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		$	22,992				11.7	%			594				5.3	%
2		Northrop Grumman		2		Professional, Scientific and Technical Services			17,928				9.2	%			699				6.3	%
3		Sybase		1		Publishing Information (except Internet)			17,283				8.8	%			405				3.6	%
4		Stop & Shop		15		Food and Beverage Stores			13,860				7.1	%			872				7.8	%
5		Nokia Siemens Networks US LLC		1		Telecommunications			5,143				2.6	%			294				2.6	%
6		CEVA Freight/Logistics		2		Truck Transportation			4,490				2.3	%			550				5.0	%
7		Novo Nordisk		1		Chemical Manufacturing			4,444				2.3	%			167				1.5	%
8		Seton Health Care		1		Hospitals			4,339				2.2	%			156				1.4	%
9		Crawford and Company		1		Insurance Carriers and Related Activities			3,951				2.0	%			240				2.2	%
10		Shaw’s Supermarket		4		Food and Beverage Stores			3,872				2.0	%			240				2.2	%
		Total		29				$	98,302				50.2	%			4,217				37.9	%

 

(1)	Annualized base rent represents the annualized monthly base rent of executed leases as of September 30, 2014.

 

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LEASING ACTIVITY (continued)

 

 

The following series of tables details leasing activity during the four quarters ended September 30, 2014:

 

Quarter		Number of Leases Signed				Gross Leasable Area (“GLA”) Signed				Average Rent Per Sq. Ft.				Average Growth / Straight Line Rent				Weighted Average Lease term (mos)				Tenant Improvements & Incentives Per Sq. Ft.				Average Free Rent (mos)
Office Comparable (1)
Q3 2014			10				87,176			$	25.26				10.8	%			94			$	18.62				2.0
Q2 2014			11				32,049				18.64				44.4	%			53				14.81				1.3
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
Total — twelve months			42				419,339			$	19.89				9.3	%			58			$	11.83				0.7
Industrial Comparable (1)
Q3 2014			3				852,000			$	3.25				-4.2	%			74			$	3.65				1.7
Q2 2014			—				—				—				—				—				—				—
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				—
Total — twelve months			7				1,606,613			$	3.33				1.8	%			104			$	2.55				1.0
Retail Comparable (1)
Q3 2014			9				32,770			$	23.54				7.7	%			44			$	0.65				—
Q2 2014			15				69,035				21.17				14.0	%			62				2.51				—
Q1 2014			13				155,852				18.39				8.8	%			61				0.67				—
Q4 2013			11				146,537				13.41				13.1	%			59				2.93				0.0
Total — twelve months			48				404,194			$	17.39				10.9	%			59			$	1.80				0.0
Total Comparable Leasing (1)
Q3 2014			22				971,946			$	6.13				2.1	%			75			$	4.90				1.7
Q2 2014			26				101,084				20.45				21.5	%			59				6.41				0.4
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
Total — twelve months			97				2,430,146			$	6.76				7.5	%			89			$	4.03				0.8
Total Leasing
Q3 2014			31				1,055,135			$	6.76								74			$	6.32				1.7
Q2 2014			32				113,278				20.49								58				7.68				0.6
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
Total — twelve months			133				2,863,195			$	7.64								84			$	5.82				0.9

 

(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.

 

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INVESTMENT ACTIVITY

 

 

The following tables describes changes in our portfolio from December 31, 2012 through September 30, 2014 (dollars and square feet in thousands):

 

						Square Feet
Properties and Square Feet Activity		Number of Properties				Total				Office				Industrial				Retail
Properties owned as of
December 31, 2012			94				19,086				7,053				8,965				3,068
2013 Acquisitions			1				269				269				—				—
2013 Dispositions			(13	)			(4,111	)			(2,192	)			(1,919	)			—
Building remeasurement and other (1)			—				6				2				—				4
December 31, 2013			82				15,250				5,132				7,046				3,072
Q1 2014 Dispositions			(14	)			(3,598	)			(102	)			(3,386	)			(110	)
Q2 2014 Acquisitions			1				138				—				—				138
Q2 2014 Dispositions			(1	)			(60	)			(60	)			—				—
Q3 2014 Acquisitions			1				262				262				—				—
Building remeasurement and other (1)			—				8				(2	)			10				—
September 30, 2014			69				12,000				5,230				3,670				3,100

 

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

 

Property acquisitions		Location				Acquisition Date				Number of Properties				Purchase Price				Square Feet
2013:
655 Montgomery (1)			San Francisco, CA				11/7/2013				1			$	109,710				269
2014:
Durgin Square			Portsmouth, NH				5/28/2014				1			$	24,700				138
1st Avenue Plaza			Denver, CO				8/22/2014				1			$	75,000				262

 

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

 

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INVESTMENT ACTIVITY (continued)

 

 

Property dispositions		Segment				Location				Disposition Date				Number of Properties				Sales Price				Square Feet
(dollars and square feet 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
During the second quarter of 2014
Shadelands			Office				East Bay, CA				6/13/2014				1			$	5,700				60
Total for the second quarter of 2014															1			$	5,700				60

 

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

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

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

 

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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 Portfolio’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 September 30, 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.

 

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DEFINITIONS (continued)

 

 

Funds from Operations (“FFO”)

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

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 2013 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 certain of our derivatives and other financing commitments. 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.

 

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DEFINITIONS (continued)

 

 

Limitations of FFO and Company-Defined FFO

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

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

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

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

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

 

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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:

 

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

 

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

 

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

Quarterly Report on Form 10-Q

We refer to our Quarterly Report on Form 10-Q for the period ended September 30, 2014, filed with the Securities and Exchange Commission on November 12, 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 2013 Annual Report on Form 10-K as our “Valuation Procedures.”

 

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