10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
     For the quarterly period ended June 30, 2014

OR

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
     For the transition period from              to             

Commission File Number 001-33201 (DCT Industrial Trust Inc.) 333-195185 (DCT Industrial Operating Partnership LP)

 

 

DCT INDUSTRIAL TRUST INC.

DCT INDUSTRIAL OPERATING PARTNERSHIP LP

(Exact name of registrant as specified in its charter)

 

 

 

Maryland (DCT Industrial Trust Inc.)

Delaware (DCT Industrial Operating Partnership LP)

 

82-0538520

82-0538522

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

518 Seventeenth Street, Suite 800  
Denver, Colorado   80202
(Address of principal executive offices)   (Zip Code)

(303) 597-2400

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

DCT Industrial Trust Inc.    Yes  x    No  ¨   DCT Industrial Operating Partnership LP.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

DCT Industrial Trust Inc.    Yes  x    No  ¨   DCT Industrial Operating Partnership LP     Yes  x    No  ¨

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

DCT Industrial Trust Inc.:

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

DCT Industrial Operating Partnership LP:

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

DCT Industrial Trust Inc.    Yes  ¨    No  x   DCT Industrial Operating Partnership LP     Yes  ¨    No  x

 

 

As of July 25, 2014, 333,445,535 shares of common stock of DCT Industrial Trust Inc., par value $0.01 per share, were outstanding.

 

 

 


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EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the period ended June 30, 2014 of DCT Industrial Trust Inc., a Maryland corporation, and DCT Industrial Operating Partnership LP, a Delaware limited partnership. Except as otherwise indicated herein, the terms “Company,” “we,” “our” and “us” refer to DCT Industrial Trust Inc. and its subsidiaries, including its operating partnership, DCT Industrial Operating Partnership LP. When we use the term “DCT,” we are referring to DCT Industrial Trust Inc. by itself, and not including any of its subsidiaries, and when we use the term the “Operating Partnership,” we are referring to DCT Industrial Operating Partnership LP by itself, and not including any of its subsidiaries.

We are a leading industrial real estate company specializing in the acquisition, development, leasing and management of bulk distribution and light industrial properties located in high-volume distribution markets in the United States. DCT has elected to be treated as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We are structured as an umbrella partnership REIT under which substantially all of our current and future business is, and will be, conducted through a majority owned and controlled subsidiary, DCT Industrial Operating Partnership LP, a Delaware limited partnership, for which DCT is the sole general partner. We own our properties through the Operating Partnership and its subsidiaries. As of June 30, 2014, DCT owned approximately 95.1% of the outstanding equity interests in the Operating Partnership.

We operate DCT and the Operating Partnership as one enterprise. The management of DCT consists of the same members as the management of the Operating Partnership. As general partner with control of the Operating Partnership, DCT consolidates the Operating Partnership for financial reporting purposes. DCT does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities of DCT and the Operating Partnership are the same on their respective financial statements.

We believe combining the quarterly reports on Form 10-Q of DCT and the Operating Partnership into this single report results in the following benefits:

 

    enhances investors’ understanding of DCT and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

 

    eliminates duplicative disclosures and provides a more streamlined and readable presentation as a substantial portion of the Company’s disclosures apply to both DCT and the Operating Partnership; and

 

    creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

We believe it is important to understand the few differences between DCT and the Operating Partnership in the context of how we operate as an interrelated consolidated company. DCT’s only material asset is its ownership of partnership interests in the Operating Partnership. As a result, DCT does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity. DCT itself has not issued any debt, but guarantees the unsecured debt of the Operating Partnership. The Operating Partnership holds substantially all the assets of the business and conducts the operations of the business. Except for net proceeds from equity issuances by DCT, which are contributed to the Operating Partnership, the Operating Partnership generates capital through its operations, its borrowings and the issuance of partnership units to third parties.

Stockholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of DCT and those of the Operating Partnership. Equity interests in the Operating Partnership held by entities other than DCT are classified within partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in DCT’s financial statements. Equity interests of 4.9% of the Operating Partnership were owned by executives and non-affiliated limited partners as of June 30, 2014.

To help investors understand the differences between DCT and the Operating Partnership, this report provides separate consolidated financial statements for DCT and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes distinct information related to each entity.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for DCT and the Operating Partnership in order to establish that the requisite certifications have been made and that DCT and the Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.

 

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DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Index to Form 10-Q

 

         Page  

PART I.    

  FINANCIAL INFORMATION   

Item 1.    

  Consolidated Financial Statements:   
  DCT Industrial Trust Inc.   
  Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013      3   
  Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)      4   
  Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013 (unaudited)      5   
  Consolidated Statement of Changes in Equity for the six months ended June 30, 2014 (unaudited)      6   
  Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)      7   
  DCT Industrial Operating Partnership LP   
  Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013      8   
  Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)      9   
  Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013 (unaudited)      10   
  Consolidated Statement of Changes in Capital for the six months ended June 30, 2014 (unaudited)      11   
  Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)      12   
  DCT Industrial Trust Inc. and DCT Industrial Operating Partnership LP   
  Notes to Consolidated Financial Statements (unaudited)      13   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      36   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      57   

Item 4.

  Controls and Procedures      58   

PART II.    

  OTHER INFORMATION   

Item 1.

  Legal Proceedings      59   

Item 1A.

  Risk Factors      59   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      59   

Item 3.

  Defaults upon Senior Securities      59   

Item 4.

  Mine Safety Disclosure      59   

Item 5.

  Other Information      59   

Item 6.

  Exhibits      59   

SIGNATURES

     60   

 

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DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share information)

 

     June 30,
2014
    December 31,
2013
 
     (unaudited)        

ASSETS

    

Land

   $ 905,871      $ 883,804   

Buildings and improvements

     2,712,597        2,615,879   

Intangible lease assets

     85,699        82,758   

Construction in progress

     86,831        88,610   
  

 

 

   

 

 

 

Total investment in properties

     3,790,998        3,671,051   

Less accumulated depreciation and amortization

     (699,087     (654,097
  

 

 

   

 

 

 

Net investment in properties

     3,091,911        3,016,954   

Investments in and advances to unconsolidated joint ventures

     100,301        124,923   
  

 

 

   

 

 

 

Net investment in real estate

     3,192,212        3,141,877   

Cash and cash equivalents

     20,335        32,226   

Restricted cash

     9,850        12,621   

Deferred loan costs, net

     9,144        10,251   

Straight-line rent and other receivables, net of allowance for doubtful accounts of $672 and $2,178, respectively

     53,043        46,247   

Other assets, net

     13,667        14,545   

Assets held for sale

     43,725        8,196   
  

 

 

   

 

 

 

Total assets

   $ 3,341,976      $ 3,265,963   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Liabilities:

    

Accounts payable and accrued expenses

   $ 61,623      $ 63,281   

Distributions payable

     24,648        23,792   

Tenant prepaids and security deposits

     24,007        28,542   

Other liabilities

     10,877        10,122   

Intangible lease liabilities, net

     20,731        20,389   

Line of credit

     73,000        39,000   

Senior unsecured notes

     1,122,512        1,122,407   

Mortgage notes

     284,728        290,960   

Liabilities related to assets held for sale

     5,137        278   
  

 

 

   

 

 

 

Total liabilities

     1,627,263        1,598,771   
  

 

 

   

 

 

 

Equity:

    

Preferred stock, $0.01 par value, 50,000,000 shares authorized, none outstanding

     —          —     

Shares-in-trust, $0.01 par value, 100,000,000 shares authorized, none outstanding

     —          —     

Common stock, $0.01 par value, 500,000,000 shares authorized, 332,774,216 and 320,265,949 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively

     3,328        3,203   

Additional paid-in capital

     2,604,412        2,512,024   

Distributions in excess of earnings

     (980,153     (941,019

Accumulated other comprehensive loss

     (29,078     (30,402
  

 

 

   

 

 

 

Total stockholders’ equity

     1,598,509        1,543,806   

Noncontrolling interests

     116,204        123,386   
  

 

 

   

 

 

 

Total equity

     1,714,713        1,667,192   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 3,341,976      $ 3,265,963   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited, in thousands, except per share information)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

REVENUES:

        

Rental revenues

   $ 83,302      $ 69,324      $ 165,921      $ 136,633   

Institutional capital management and other fees

     308        707        1,072        1,520   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     83,610        70,031        166,993        138,153   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Rental expenses

     9,433        8,945        21,835        17,294   

Real estate taxes

     13,711        11,607        26,908        22,186   

Real estate related depreciation and amortization

     37,270        31,594        73,703        61,790   

General and administrative

     7,498        7,362        14,332        13,703   

Impairment losses

     376        —          4,735        —     

Casualty and involuntary conversion (gain) loss

     (340     58        (340     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     67,948        59,566        141,173        114,971   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     15,662        10,465        25,820        23,182   

OTHER INCOME (EXPENSE):

        

Development profit, net of taxes

     1,288        —          2,016        268   

Equity in earnings of unconsolidated joint ventures, net

     697        571        4,310        962   

Gain on acquisitions and dispositions of real estate interests

     —          —          2,045        —     

Interest expense

     (16,182     (15,327     (32,238     (32,187

Interest and other income (expense)

     (23     63        5        227   

Income tax benefit (expense) and other taxes

     241        (323     184        (432
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     1,683        (4,551     2,142        (7,980

Income from discontinued operations

     5,215        16,218        5,224        21,283   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before gain on sale of real estate

     6,898        11,667        7,366        13,303   

Gain on sale of real estate

     372        —          372        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income of DCT Industrial Trust Inc.

     7,270        11,667        7,738        13,303   

Net income attributable to noncontrolling interests

     (469     (858     (620     (1,215
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

     6,801        10,809        7,118        12,088   
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

     (170     (174     (336     (346
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income attributable to common stockholders

   $ 6,631      $ 10,635      $ 6,782      $ 11,742   
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER COMMON SHARE—BASIC

        

Income (loss) from continuing operations

   $ 0.01      $ (0.02   $ 0.01      $ (0.03

Income from discontinued operations

     0.01        0.06        0.01        0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 0.02      $ 0.04      $ 0.02      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER COMMON SHARE—DILUTED

        

Income (loss) from continuing operations

   $ 0.01      $ (0.02   $ 0.01      $ (0.03

Income from discontinued operations

     0.01        0.06        0.01        0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 0.02      $ 0.04      $ 0.02      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

        

Basic

     329,119        290,977        326,543        286,047   

Diluted

     330,252        290,977        327,635        286,047   
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributions declared per common share

   $ 0.07      $ 0.07      $ 0.14      $ 0.14   

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited, in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
         2014             2013             2014             2013      

Consolidated net income of DCT Industrial Trust Inc.

   $ 7,270      $ 11,667      $ 7,738      $ 13,303   

Other comprehensive income:

        

Net derivative gain (loss) on cash flow hedging instruments

     (518     918        (846     924   

Net reclassification adjustment on cash flow hedging instruments

     1,172        1,094        2,328        2,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     654        2,012        1,482        3,110   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     7,924        13,679        9,220        16,413   

Comprehensive income attributable to noncontrolling interests

     (513     (1,144     (778     (1,600
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to common stockholders

   $ 7,411      $ 12,535      $ 8,442      $ 14,813   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Equity

(unaudited, in thousands)

 

    Total
Equity
   

 

Common Stock

    Additional
Paid-in
Capital
    Distributions
in Excess
of Earnings
    Accumulated
Other
Comprehensive
Loss
    Non-
controlling
Interests
 
      Shares     Amount          

Balance at December 31, 2013

  $ 1,667,192        320,266      $ 3,203      $ 2,512,024      $ (941,019   $ (30,402   $ 123,386   

Net income

    7,738        —          —          —          7,118        —          620   

Other comprehensive income

    1,482        —          —          —          —          1,324        158   

Issuance of common stock, net of offering costs

    85,818        11,307        113        85,705        —          —          —     

Issuance of common stock, stock-based compensation plans

    (274     281        3        (277     —          —          —     

Amortization of stock-based compensation

    2,752        —          —          885        —          —          1,867   

Distributions to common stockholders and noncontrolling interests

    (49,300     —          —          —          (46,252     —          (3,048

Capital contribution from noncontrolling interests

    101        —          —          —          —          —          101   

Purchases and redemptions of noncontrolling interests

    (796     920        9        6,075        —          —          (6,880
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

  $ 1,714,713        332,774      $ 3,328      $ 2,604,412      $ (980,153   $ (29,078   $ 116,204   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited, in thousands)

 

     Six Months Ended
June 30,
 
     2014     2013  

OPERATING ACTIVITIES:

    

Consolidated net income of DCT Industrial Trust Inc.

   $ 7,738      $ 13,303   

Adjustments to reconcile consolidated net income of DCT Industrial Trust Inc. to net cash provided by operating activities:

    

Real estate related depreciation and amortization

     73,703        66,861   

Gain on acquisitions and dispositions of real estate interests

     (7,534     (17,508

Distributions of earnings from unconsolidated joint ventures

     2,284        2,962   

Equity in earnings of unconsolidated joint ventures, net

     (4,310     (962

Casualty and involuntary conversion gain

     (340     (2

Impairment losses

     4,735        —     

Stock-based compensation

     2,211        1,875   

Straight-line rent

     (5,303     (2,719

Other

     2,669        2,789   

Changes in operating assets and liabilities:

    

Other receivables and other assets

     11,871        3,359   

Accounts payable, accrued expenses and other liabilities

     (7,228     (8,976
  

 

 

   

 

 

 

Net cash provided by operating activities

     80,496        60,982   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Real estate acquisitions

     (116,074     (200,523

Capital expenditures and development activities

     (84,120     (70,856

Proceeds from dispositions of real estate investments

     31,932        112,468   

Investments in unconsolidated joint ventures

     (940     (1,046

Proceeds from casualties and involuntary conversion

     491        5,553   

Distributions of investments in unconsolidated joint ventures

     16,757        1,155   

Other investing activities

     (2,792     (245
  

 

 

   

 

 

 

Net cash used in investing activities

     (154,746     (153,494
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Proceeds from senior unsecured revolving line of credit

     76,000        199,000   

Repayments of senior unsecured revolving line of credit

     (42,000     (192,000

Proceeds from senior unsecured notes

     —          225,000   

Repayments of senior unsecured notes

     —          (175,000

Proceeds from mortgage notes

     —          16,498   

Principal payments on mortgage notes

     (8,033     (15,320

Proceeds from issuance of common stock

     86,654        75,920   

Offering costs for issuance of common stock and OP Units

     (1,110     (975

Redemption of noncontrolling interests

     (796     (752

Dividends to common stockholders

     (45,367     (39,781

Distributions to noncontrolling interests

     (3,077     (3,958

Contributions from noncontrolling interests

     101        723   

Other financing activity

     (13     84   
  

 

 

   

 

 

 

Net cash provided by financing activities

     62,359        89,439   
  

 

 

   

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

     (11,891     (3,073

CASH AND CASH EQUIVALENTS, beginning of period

     32,226        12,696   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, end of period

   $ 20,335      $ 9,623   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information

    

Cash paid for interest, net of capitalized interest

   $ 30,378      $ 30,568   

Supplemental Disclosures of Non-Cash Activities

    

Retirement of fully depreciated and amortized assets, net

   $ 14,420      $ 17,950   

Redemptions of OP Units settled in shares of common stock

   $ 6,084      $ 9,230   

Assumption of mortgage note in connection with real estate acquired

   $ 7,459      $ —     

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except unit information)

 

     June 30,
2014
    December 31,
2013
 
     (unaudited)        

ASSETS

    

Land

   $ 905,871      $ 883,804   

Buildings and improvements

     2,712,597        2,615,879   

Intangible lease assets

     85,699        82,758   

Construction in progress

     86,831        88,610   
  

 

 

   

 

 

 

Total investment in properties

     3,790,998        3,671,051   

Less accumulated depreciation and amortization

     (699,087     (654,097
  

 

 

   

 

 

 

Net investment in properties

     3,091,911        3,016,954   

Investments in and advances to unconsolidated joint ventures

     100,301        124,923   
  

 

 

   

 

 

 

Net investment in real estate

     3,192,212        3,141,877   

Cash and cash equivalents

     20,335        32,226   

Restricted cash

     9,850        12,621   

Deferred loan costs, net

     9,144        10,251   

Straight-line rent and other receivables, net of allowance for doubtful accounts of $672 and $2,178, respectively

     53,043        46,247   

Other assets, net

     13,667        14,545   

Assets held for sale

     43,725        8,196   
  

 

 

   

 

 

 

Total assets

   $ 3,341,976      $ 3,265,963   
  

 

 

   

 

 

 

LIABILITIES AND CAPITAL

    

Liabilities:

    

Accounts payable and accrued expenses

   $ 61,623      $ 63,281   

Distributions payable

     24,648        23,792   

Tenant prepaids and security deposits

     24,007        28,542   

Other liabilities

     10,877        10,122   

Intangible lease liabilities, net

     20,731        20,389   

Line of credit

     73,000        39,000   

Senior unsecured notes

     1,122,512        1,122,407   

Mortgage notes

     284,728        290,960   

Liabilities related to assets held for sale

     5,137        278   
  

 

 

   

 

 

 

Total liabilities

     1,627,263        1,598,771   
  

 

 

   

 

 

 

Partners’ Capital:

    

General Partner:

    

OP Units, 3,499,420 and 3,379,271 issued and outstanding as of June 30, 2014 and December 31, 2013, respectively

     17,333        16,872   

Limited Partners:

    

OP Units, 346,442,628 and 334,547,822 issued and outstanding as of June 30, 2014 and December 31, 2013, respectively

     1,715,962        1,670,362   

Accumulated other comprehensive loss

     (30,577     (32,077
  

 

 

   

 

 

 

Total partners’ capital

     1,702,718        1,655,157   

Noncontrolling interests

     11,995        12,035   
  

 

 

   

 

 

 

Total capital

     1,714,713        1,667,192   
  

 

 

   

 

 

 

Total liabilities and capital

   $ 3,341,976      $ 3,265,963   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited, in thousands, except per unit information)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

REVENUES:

        

Rental revenues

   $ 83,302      $ 69,324      $ 165,921      $ 136,633   

Institutional capital management and other fees

     308        707        1,072        1,520   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     83,610        70,031        166,993        138,153   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Rental expenses

     9,433        8,945        21,835        17,294   

Real estate taxes

     13,711        11,607        26,908        22,186   

Real estate related depreciation and amortization

     37,270        31,594        73,703        61,790   

General and administrative

     7,498        7,362        14,332        13,703   

Impairment losses

     376        —          4,735        —     

Casualty and involuntary conversion (gain) loss

     (340     58        (340     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     67,948        59,566        141,173        114,971   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     15,662        10,465        25,820        23,182   

OTHER INCOME (EXPENSE):

        

Development profit, net of taxes

     1,288        —          2,016        268   

Equity in earnings of unconsolidated joint ventures, net

     697        571        4,310        962   

Gain on acquisitions and dispositions of real estate interests

     —          —          2,045        —     

Interest expense

     (16,182     (15,327     (32,238     (32,187

Interest and other income (expense)

     (23     63        5        227   

Income tax benefit (expense) and other taxes

     241        (323     184        (432
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     1,683        (4,551     2,142        (7,980

Income from discontinued operations

     5,215        16,218        5,224        21,283   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before gain on sale of real estate

     6,898        11,667        7,366        13,303   

Gain on sale of real estate

     372        —          372        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income of DCT Industrial Operating Partnership LP

     7,270        11,667        7,738        13,303   

Net income attributable to noncontrolling interests

     (103     (108     (236     (373
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to OP Unitholders

     7,167        11,559        7,502        12,930   
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

     (170     (174     (336     (346
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income attributable to OP Unitholders

   $ 6,997      $ 11,385      $ 7,166      $ 12,584   
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER OP UNIT—BASIC

        

Income (loss) from continuing operations

   $ 0.01      $ (0.02   $ 0.01      $ (0.03

Income from discontinued operations

     0.01        0.06        0.01        0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to OP Unitholders

   $ 0.02      $ 0.04      $ 0.02      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER OP UNIT—DILUTED

        

Income (loss) from continuing operations

   $ 0.01      $ (0.02   $ 0.01      $ (0.03

Income from discontinued operations

     0.01        0.06        0.01        0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to OP Unitholders

   $ 0.02      $ 0.04      $ 0.02      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE OP UNITS OUTSTANDING:

        

Basic

     346,477        310,623        344,133        306,010   

Diluted

     347,610        310,623        345,225        306,010   
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributions declared per OP Unit

   $ 0.07      $ 0.07      $ 0.14      $ 0.14   

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited, in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Consolidated net income of DCT Industrial Operating Partnership LP

   $ 7,270      $ 11,667      $ 7,738      $ 13,303   

Other comprehensive income:

        

Net derivative gain (loss) on cash flow hedging instruments

     (518     918        (846     924   

Net reclassification adjustment on cash flow hedging instruments

     1,172        1,094        2,328        2,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     654        2,012        1,482        3,110   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     7,924        13,679        9,220        16,413   

Comprehensive income attributable to noncontrolling interests

     (50     (108     (218     (373
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to OP Unitholders

   $ 7,874      $ 13,571      $ 9,002      $ 16,040   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Statement of Changes in Capital

(unaudited, in thousands)

 

    Total
Capital
    General Partner     Limited Partners     Accumulated
Other
Comprehensive

Loss
    Non-
controlling
Interests
 
      OP Units     OP Units      
      Units     Amount     Units     Amount      

Balance at December 31, 2013

  $ 1,667,192        3,379      $ 16,872        334,548      $ 1,670,362      $ (32,077   $ 12,035   

Net income

    7,738        —          75        —          7,427        —          236   

Other comprehensive income (loss)

    1,482        —          —          —          —          1,500        (18

Issuance of OP Units, net of selling costs

    85,818        —          —          11,307        85,818        —          —     

Issuance of OP Units, share-based compensation plans

    (274     —          —          814        (274     —          —     

Amortization of share-based compensation

    2,752        —          —          —          2,752        —          —     

Distributions to OP Unitholders and noncontrolling interests

    (49,300     —          (489     —          (48,452     —          (359

Capital contribution from noncontrolling interests

    101        —          —          —          —          —          101   

Redemption of limited partner OP Units

    (796     —          —          (106     (796     —          —     

Conversion of limited partner OP Units to OP Units of general partner

    —          120        875        (120     (875     —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

  $ 1,714,713        3,499      $ 17,333        346,443      $ 1,715,962      $ (30,577   $ 11,995   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited, in thousands)

 

     Six Months Ended
June 30,
 
     2014     2013  

OPERATING ACTIVITIES:

    

Consolidated net income of DCT Industrial Operating Partnership LP

   $ 7,738      $ 13,303   

Adjustments to reconcile consolidated net income of DCT Industrial Operating Partnership LP to net cash provided by operating activities:

    

Real estate related depreciation and amortization

     73,703        66,861   

Gain on acquisitions and dispositions of real estate interests

     (7,534     (17,508

Distributions of earnings from unconsolidated joint ventures

     2,284        2,962   

Equity in earnings of unconsolidated joint ventures, net

     (4,310     (962

Casualty and involuntary conversion gain

     (340     (2

Impairment losses

     4,735        —     

Share-based compensation

     2,211        1,875   

Straight-line rent

     (5,303     (2,719

Other

     2,669        2,789   

Changes in operating assets and liabilities:

    

Other receivables and other assets

     11,871        3,359   

Accounts payable, accrued expenses and other liabilities

     (7,228     (8,976
  

 

 

   

 

 

 

Net cash provided by operating activities

     80,496        60,982   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Real estate acquisitions

     (116,074     (200,523

Capital expenditures and development activities

     (84,120     (70,856

Proceeds from dispositions of real estate investments

     31,932        112,468   

Investments in unconsolidated joint ventures

     (940     (1,046

Proceeds from casualties and involuntary conversion

     491        5,553   

Distributions of investments in unconsolidated joint ventures

     16,757        1,155   

Other investing activities

     (2,792     (245
  

 

 

   

 

 

 

Net cash used in investing activities

     (154,746     (153,494
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Proceeds from senior unsecured revolving line of credit

     76,000        199,000   

Repayments of senior unsecured revolving line of credit

     (42,000     (192,000

Proceeds from senior unsecured notes

     —          225,000   

Repayments of senior unsecured notes

     —          (175,000

Proceeds from mortgage notes

     —          16,498   

Principal payments on mortgage notes

     (8,033     (15,320

Proceeds from the issuance of OP Units in exchange for contributions from the REIT, net

     85,544        74,945   

OP Unit redemptions

     (796     (752

Distributions paid on OP Units

     (48,085     (42,830

Distributions paid to noncontrolling interests

     (359     (909

Contributions from noncontrolling interests

     101        723   

Other financing activity

     (13     84   
  

 

 

   

 

 

 

Net cash provided by financing activities

     62,359        89,439   
  

 

 

   

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

     (11,891     (3,073

CASH AND CASH EQUIVALENTS, beginning of period

     32,226        12,696   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, end of period

   $ 20,335      $ 9,623   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information

    

Cash paid for interest, net of capitalized interest

   $ 30,378      $ 30,568   

Supplemental Disclosures of Non-Cash Activities

    

Retirement of fully depreciated and amortized assets

   $ 14,420      $ 17,950   

Assumption of mortgage note in connection with real estate acquired

   $ 7,459      $ —     

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

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DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

DCT INDUSTRIAL OPERATING PARTERNSHIP LP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization

DCT Industrial Trust Inc. is a leading industrial real estate company specializing in the acquisition, development, leasing and management of bulk distribution and light industrial properties located in high-volume distribution markets in the United States (“U.S.”). As used herein, the terms “Company,” “we,” “our” and “us” refer to DCT Industrial Trust Inc. and its subsidiaries, including its operating partnership, DCT Industrial Operating Partnership LP. When we use the term “DCT,” we are referring to DCT Industrial Trust Inc. by itself, and not including any of its subsidiaries, and when we use the term the “Operating Partnership,” we are referring to DCT Industrial Operating Partnership LP by itself, and not including any of its subsidiaries.

DCT was formed as a Maryland corporation in April 2002 and has elected to be treated as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We are structured as an umbrella partnership REIT under which substantially all of our current and future business is, and will be, conducted through a majority owned and controlled subsidiary, DCT Industrial Operating Partnership LP, a Delaware limited partnership, for which DCT is the sole general partner. DCT owns properties through the Operating Partnership and its subsidiaries. As of June 30, 2014, DCT owned approximately 95.1% of the outstanding equity interests in the Operating Partnership.

As of June 30, 2014, the Company owned interests in approximately 74.0 million square feet of properties leased to approximately 900 customers, including:

 

    65.1 million square feet comprising 409 consolidated operating properties, including 0.9 million square feet comprising eight consolidated buildings classified as held for sale, which were 92.9% occupied;

 

    8.6 million square feet comprising 25 unconsolidated properties which were 97.7% occupied and operated on behalf of four institutional capital management partners; and

 

    0.3 million square feet comprising two consolidated buildings in development.

The Company also has eight buildings under construction and several projects in predevelopment.

Note 2 – Summary of Significant Accounting Policies

Interim Financial Information 

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Consolidated Financial Statements include all adjustments, consisting of normal recurring items, necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with DCT’s audited Consolidated Financial Statements as of December 31, 2013 and related notes thereto as filed on Form 10-K on February 21, 2014 and in conjunction with the Operating Partnership’s audited Consolidated Financial Statements as of December 31, 2013 and related notes thereto as filed on Amendment No. 2 to Form S-4 on April 21, 2014.

Basis of Presentation and Principles of Consolidation

The accompanying Consolidated Financial Statements include the financial position, results of operations and cash flows of the Company, the Operating Partnership, their wholly-owned qualified REIT subsidiaries and taxable REIT subsidiaries, and their consolidated joint ventures, in which they have a controlling interest.

 

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Equity interests in the Operating Partnership held by entities other than DCT are classified within partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in DCT’s financial statements. Equity interests in entities consolidated into the Operating Partnership that are held by third parties are reflected in our accompanying balance sheets as noncontrolling interests in consolidated entities. We also have noncontrolling partnership interests in unconsolidated institutional capital management and other joint ventures, which are accounted for under the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.

We hold interests in both consolidated and unconsolidated joint ventures. All joint ventures over which we have financial and operating control, and variable interest entities (“VIEs”) in which we have determined that we are the primary beneficiary, are included in the Consolidated Financial Statements. We use the equity method of accounting for joint ventures over which we do not have a controlling interest or where we do not exercise significant control over major operating and management decisions but where we exercise significant influence and include our share of earnings or losses of these joint ventures in our consolidated results of operations.

We analyze our joint ventures in accordance with GAAP to determine whether they are VIEs and, if so, whether we are the primary beneficiary. Our judgment with respect to our level of influence or control over an entity and whether we are the primary beneficiary of a VIE involves consideration of various factors including the form of our ownership interest, our representation on the entity’s board of directors, the size of our investment (including loans) and our ability to participate in major decisions. Our ability to correctly assess our influence or control over an entity affects the presentation of these investments in the Consolidated Financial Statements and, consequently, our financial position and results of operations.

Use of Estimates

The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

We record rental revenues on a straight-line basis under which contractual rent increases are recognized evenly over the lease term. Certain properties have leases that provide for tenant occupancy during periods where no rent is due or where minimum rent payments change during the term of the lease. Accordingly, we record receivables from tenants that we expect to collect over the remaining lease term rather than currently, which are recorded as a straight-line rent receivable. When we acquire a property, the terms of existing leases are considered to commence as of the acquisition date for the purposes of this calculation. The total increase to “Rental revenues” due to straight-line rent adjustments was approximately $3.2 million and $5.3 million for the three and six months ended June 30, 2014, respectively, and approximately $1.2 million and $2.5 million for the three and six months ended June 30, 2013, respectively.

Tenant recovery income includes payments and amounts due from tenants pursuant to their leases for real estate taxes, insurance and other recoverable property operating expenses and is recognized as “Rental revenues” during the same period the related expenses are incurred. Tenant recovery income recognized as “Rental revenues” was approximately $18.6 million and $38.6 million for the three and six months ended June 30, 2014, respectively, and $16.0 million and $31.1 million for the three and six months ended June 30, 2013, respectively.

We maintain an allowance for estimated losses that may result from the inability of our tenants to make required payments. If a tenant fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the net outstanding balances.

In connection with property acquisitions qualifying as business combinations, we may acquire leases with rental rates above or below the market rental rates. Such differences are recorded as an intangible lease asset or liability and amortized to “Rental revenues” over the reasonably assured term of the related leases. The unamortized balances of these assets and liabilities associated with the early termination of leases are fully amortized to their respective revenue line items in our Consolidated Statements of Operations on a straight-line basis over the estimated remaining contractual lease term. The total net impact to “Rental revenues” due to the amortization of above and below market rents was an increase of approximately $0.5 million and $0.9 million for the three and six months ended June 30, 2014, respectively, and approximately $0.4 million and $0.8 million for the three and six months ended June 30, 2013, respectively.

 

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Early lease termination fees are recorded in “Rental revenues” on a straight-line basis over the estimated remaining contractual lease term or upon collection if collectability is not assured. The total net impact to “Rental revenues” due to early lease termination fees was an increase of approximately $0.7 million and $1.6 million for the three and six months ended June 30, 2014, respectively, and approximately $0.2 million and $0.3 million for the three and six months ended June 30, 2013, respectively.

We earn revenues from asset management fees, acquisition fees, property management fees and fees for other services pursuant to joint venture and other agreements. These are included in our Consolidated Statements of Operations in “Institutional capital management and other fees.” We recognize revenues from asset management fees, acquisition fees, property management fees and fees for other services when the related fees are earned and are realized or realizable.

We develop certain properties for specific buyers, called build-to-suit projects. We make certain judgments based on the specific terms of each project as to the amount and timing of recognition of profits from the project. Projects are generally accounted for using the percentage of completion method or full accrual method. Profits under the percentage of completion method are based on our estimates of the percentage of completion of individual contracts, commencing when the work performed under the contracts reaches a point where the final costs can be estimated with reasonable accuracy. The percentage of completion estimates are based on a comparison of the contract expenditures incurred to the estimated final costs. Changes in job performance, job conditions and estimated profitability may result in revisions to the costs and income and are recognized in the period in which the revisions are determined. If the sale recognition criteria for using the percentage of completion or full accrual methods are not met, we apply another recognition method provided by GAAP, such as the installment or cost recovery methods. The profit recognized from these projects is reported net of estimated taxes, when applicable, and is included in “Development profit, net of taxes” in our Consolidated Statements of Operations.

New Accounting Standards

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard update (“ASU”) that changes the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The amendments in the ASU should be applied prospectively and are effective for us beginning January 1, 2015, with early adoption permitted. We adopted this standard effective January 1, 2014. As a result, we anticipate that fewer of our property dispositions made in the normal course of business will qualify for discontinued operations reporting. See Note 12 – Discontinued Operations and Assets Held for Sale for additional information.

In May 2014, the FASB issued an ASU that requires companies to recognize revenue from contracts with customers based upon the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted. The Company is in the process of evaluating the impact this guidance will have on its consolidated financial statements.

Note 3 – Investment in Properties

Our consolidated investment in properties consists of operating properties, properties under development, redevelopment properties, properties in pre-development and land held for future development or other purposes. The following table provides our historical cost of our investment in properties (in thousands):

 

     June 30,
2014
    December 31,
2013
 

Operating properties

   $ 3,631,377      $ 3,442,442   

Properties under development

     109,602        142,903   

Properties under redevelopment

     —          12,194   

Properties in pre-development including land held

     50,019        73,512   
  

 

 

   

 

 

 

Total Investment in Properties

     3,790,998        3,671,051   

Less accumulated depreciation and amortization

     (699,087     (654,097
  

 

 

   

 

 

 

Net Investment in Properties

   $ 3,091,911      $ 3,016,954   
  

 

 

   

 

 

 

 

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Table of Contents

Acquisition Activity

During the six months ended June 30, 2014, we acquired 12 buildings comprising 1.9 million square feet. These properties located in the Chicago, Dallas, Houston, Phoenix and Seattle markets were acquired for a total purchase price of approximately $113.3 million. This includes the Company’s purchase of its partner’s 50.0% interest in one building owned by IDI-DCT, LLC, for an incremental investment of $10.3 million (see Note 4 – Investments in and Advances to Unconsolidated Joint Ventures for further detail). Related to these acquisitions, we incurred acquisition costs of approximately $1.3 million during the six months ended June 30, 2014, included in “General and administrative” in our Consolidated Statements of Operations.

In addition, during the six months ended June 30, 2014, we acquired 42.2 acres of land in the Dallas and Seattle markets for approximately $9.8 million that is held for future development.

Development Activity

As of June 30, 2014, our properties under development include the following:

 

    Two buildings totaling 0.3 million square feet that are currently in lease-up as shell construction activities have been completed. One of these buildings, totaling 0.1 million square feet, is 88% leased.

 

    Eight projects under construction totaling 2.4 million square feet.

During the six months ended June 30, 2014, we recognized development profit, net of taxes of approximately $2.0 million related to the sales of 8th & Vineyard A and 8th & Vineyard B.

Disposition Activity

During the six months ended June 30, 2014, we sold five operating properties totaling 0.7 million square feet, to third parties for gross proceeds of approximately $29.8 million. We recognized gains of approximately $5.5 million on the disposition of two properties and recognized impairment losses of approximately $4.7 million on three properties. The estimated fair values of the impaired properties were based upon the contractual sales price, a Level 2 fair value measurement. The impairment loss is reflected in “Impairment losses” in the Consolidated Statements of Operations. See Note 12 – Discontinued Operations and Assets Held for Sale for additional information.

Intangible Lease Assets and Liabilities

Aggregate amortization expense for intangible lease assets recognized in connection with property acquisitions (excluding assets and liabilities related to above and below market rents; see Note 2 – Summary of Significant Accounting Policies for additional information) was approximately $3.8 million and $7.3 million for the three and six months ended June 30, 2014, respectively, and $2.8 million and $5.3 million for the three and six months ended June 30, 2013, respectively. Our intangible lease assets and liabilities include the following as of June 30, 2014 and December 31, 2013 (in thousands):

 

     June 30, 2014     December 31, 2013  
     Gross     Accumulated
Amortization
    Net     Gross     Accumulated
Amortization
    Net  

Other intangible lease assets

   $ 80,729      $ (32,559   $ 48,170      $ 77,383      $ (27,668   $ 49,715   

Above market rent

   $ 4,970      $ (1,702   $ 3,268      $ 5,375      $ (1,761   $ 3,614   

Below market rent

   $ (27,829   $ 7,098      $ (20,731   $ (26,562   $ 6,173      $ (20,389

 

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Note 4 – Investments in and Advances to Unconsolidated Joint Ventures

We enter into joint ventures primarily for purposes of operating and developing industrial real estate. Our investments in these joint ventures are included in “Investments in and advances to unconsolidated joint ventures” in our Consolidated Balance Sheets.

In January 2014, the TRT-DCT Ventures I and II disposed of all their properties. We received net proceeds of approximately $6.6 million from the transactions. Based on the structure of the transactions, we recognized a gain of approximately $0.9 million on the sale of our interest in TRT-DCT Venture I, included in “Gain on acquisitions and dispositions of real estate interests” in our Consolidated Statements of Operations and we recognized our share of the TRT-DCT Venture II’s gain on sale of properties, approximately $2.4 million, included in “Equity in earnings of unconsolidated joint ventures, net” in our Consolidated Statements of Operations.

During March 2014, we purchased our partner’s 50.0% interest in one building from the IDI-DCT, LLC joint venture for $10.3 million and recognized a gain of approximately $1.0 million, due to the step-up in accounting basis of our previously held interest. The gain is reflected in “Gain on acquisitions and dispositions of real estate interests.”

The following table summarizes our unconsolidated joint ventures as of June 30, 2014 and December 31, 2013 (dollars in thousands):

 

     As of June 30, 2014      Investments in and
Advances to as of
 

Unconsolidated Joint Ventures

   Ownership
Percentage
    Number of
Buildings
     June 30,
2014
     December 31,
2013
 

Institutional Joint Ventures:

       

DCT/SPF Industrial Operating LLC

     20.0     13      $ 40,817       $ 41,253  

TRT-DCT Venture I

     0.0     —           —           823  

TRT-DCT Venture II

     0.0     —           —           1,847  

TRT-DCT Venture III

     10.0     4        1,184         1,197  
    

 

 

    

 

 

    

 

 

 

Total Institutional Joint Ventures

       17        42,001         45,120  
       

 

 

    

 

 

 

Other:

          

Stirling Capital Investments (SCLA)(1)

     50.0     6        46,042         47,978  

IDI/DCT, LLC

     50.0     2        8,160         27,735  

IDI/DCT Buford, LLC (land only)

     75.0     —           4,098         4,090  
    

 

 

    

 

 

    

 

 

 

Total Other

       8        58,300         79,803  
    

 

 

    

 

 

    

 

 

 

Total

       25      $ 100,301       $ 124,923  
    

 

 

    

 

 

    

 

 

 

 

(1)  Although we contributed 100% of the initial cash equity capital required by the venture, our partners retain certain participation rights in the venture’s available cash flows.

Guarantees

There are no lines of credit or side agreements related to, or between, our unconsolidated joint ventures and us, and there are no derivative financial instruments between our unconsolidated joint ventures and us. In addition, we believe we have no material exposure to financial guarantees.

 

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Note 5 – Financial Instruments and Hedging Activities

Fair Value of Financial Instruments

As of June 30, 2014 and December 31, 2013, the fair values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximated their carrying values due to the short-term nature of settlement of these instruments. The fair values of other financial instruments subject to fair value disclosures were determined based on available market information and valuation methodologies we believe to be appropriate estimates for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. Our estimates may differ from the actual amounts that we could realize upon disposition. The following table summarizes these financial instruments (in thousands):

 

     Balances as of
June 30, 2014
    Balances as of
December 31, 2013
 
     Carrying
Amounts
    Estimated
Fair Value
    Carrying
Amounts
     Estimated
Fair Value
 

Borrowings(1):

      

Senior unsecured revolving credit facility

   $ 73,000      $ 73,000      $ 39,000       $ 39,000   

Fixed rate debt(2)

   $ 1,186,928      $ 1,296,530      $ 1,188,367       $ 1,263,722   

Variable rate debt

   $ 225,000      $ 225,821      $ 225,000       $ 226,153   

Interest rate contracts:

      

Interest rate swap asset (liability)(3)

   $ (38   $ (38   $ 212       $ 212   

 

(1)  The fair values of our borrowings were estimated using a discounted cash flow methodology. Credit spreads and market interest rates used to determine the fair value of these instruments are based on unobservable Level 3 inputs which management has determined to be its best estimate of current market values.
(2)  The carrying amount of our fixed rate debt includes premiums and discounts.
(3)  The fair value of our interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash flows and the discounted expected variable cash flows based on an expectation of future interest rates derived from Level 2 observable market interest rate curves. We also incorporate a credit valuation adjustment, which is derived using unobservable Level 3 inputs, to appropriately reflect both our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement. The asset or liability is included in “Other assets” or “Other liabilities,” respectively, in our Consolidated Balance Sheets.

The following table displays a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2014 and 2013. The table also displays gains and losses due to changes in fair value, including both realized and unrealized, recognized in the Consolidated Statements of Operations for Level 3 assets and liabilities. When assets and liabilities are transferred between levels, we recognize the transfer at the beginning of the period. There were no transfers between levels during the three and six months ended June 30, 2014 and 2013.

 

     During the
Six Months Ended
June 30,
 
     2014     2013  

Level 3 Assets (Liabilities):

    

Interest Rate Swaps:

    

Beginning balance at January 1

   $ 212      $ —     

Net unrealized gain (loss) included in accumulated other comprehensive loss

     (327     53   

Realized loss recognized in interest expense

     77        —     
  

 

 

   

 

 

 

Ending balance at June 30

   $ (38   $ 53   
  

 

 

   

 

 

 

Hedging Activities

To manage interest rate risk for variable rate debt and issuances of fixed rate debt, we primarily use treasury locks and interest rate swaps as part of our cash flow hedging strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Such derivatives have been used to hedge the variability in existing and future interest expense associated with existing variable rate borrowings and forecasted issuances of debt, which may include the issuances of new debt, as well as refinancing of existing debt upon maturity.

Accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the designation of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

 

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For derivatives designated as “cash flow” hedges, the effective portion of the changes in the fair value of the derivative is initially reported in “Other comprehensive income (“OCI”)” in our Consolidated Statements of Comprehensive Income (i.e., not included in earnings) and subsequently reclassified into earnings when the hedged transaction affects earnings or the hedging relationship is no longer effective at which time the ineffective portion of the derivative’s changes in fair value is recognized directly into earnings. We assess the effectiveness of each hedging relationship whenever financial statements are issued or earnings are reported and at least every three months. We do not use derivatives for trading or speculative purposes.

During June 2013, certain of our consolidated ventures entered into two pay-fixed, receive-floating interest rate swaps to hedge the variability of future cash flows attributable to changes in the 1 month LIBOR rates. The pay-fixed, receive-floating swaps have an effective date of June 2013 and a maturity date of June 2023. These interest rates swaps effectively fix the interest rate on the related debt instruments at 4.72%. As of June 30, 2014 and December 31, 2013, we had borrowings payable subject to pay-fixed, receive-floating interest rate swaps with aggregate principal balances of approximately $7.0 million and $7.1 million, respectively.

The following table presents the effect of our derivative financial instruments on our accompanying consolidated financial statements for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

     Three Months
Ended June 30,
    Six Months
Ended June 30,
 
     2014     2013     2014     2013  

Derivatives in Cash Flow Hedging Relationships

        

Interest Rate Swaps:

        

Amount of gain (loss) recognized in OCI for effective portion of derivatives

   $ (518   $ 918      $ (846   $ 924   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amount of loss reclassified from accumulated OCI for effective portion of derivatives into interest expense and equity in earnings of unconsolidated joint ventures

   $ (1,172   $ (1,094   $ (2,328   $ (2,186
  

 

 

   

 

 

   

 

 

   

 

 

 

Amount of loss recognized in interest expense due to missed forecast (ineffective portion and amount excluded from effectiveness testing)

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts reported in “Accumulated other comprehensive loss” related to derivatives will be amortized to “Interest expense” as interest payments are made on our current debt and anticipated debt issuances. During the next 12 months, we estimate that approximately $4.3 million will be reclassified from “Accumulated other comprehensive loss” to “Interest expense” resulting in an increase in interest expense.

Note 6 – Outstanding Indebtedness

As of June 30, 2014, our outstanding indebtedness of approximately $1.5 billion consisted of mortgage notes, senior unsecured notes and a senior unsecured revolving credit facility, excluding approximately $48.5 million representing our proportionate share of debt associated with unconsolidated joint ventures. As of December 31, 2013, our outstanding indebtedness of approximately $1.5 billion consisted of mortgage notes, senior unsecured notes and a senior unsecured revolving credit facility, excluding approximately $44.4 million representing our proportionate share of debt associated with unconsolidated joint ventures.

As of June 30, 2014, the gross book value of our consolidated properties was approximately $3.8 billion and the gross book value of all properties securing our mortgage debt was approximately $0.7 billion. As of December 31, 2013, the gross book value of our consolidated properties was approximately $3.7 billion and the gross book value of all properties securing our mortgage debt was approximately $0.7 billion. Our debt has various covenants with which we were in compliance as of June 30, 2014 and December 31, 2013.

Line of Credit

As of June 30, 2014, we had $73.0 million outstanding and $227.0 million available under our senior unsecured revolving credit facility. As of December 31, 2013, we had $39.0 million outstanding and $261.0 million available under our senior unsecured revolving credit facility.

 

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Table of Contents

Debt Assumptions

In June 2014, we assumed a mortgage note with an outstanding balance of approximately $6.5 million in connection with a property acquisition. The assumed note bears interest at 6.70% and requires monthly payments of principal and interest. The note matures in April 2020. We recorded approximately a $1.0 million premium in connection with the assumption of this note.

Guarantee of Debt

DCT has guaranteed the Operating Partnership’s obligations with respect to the senior unsecured notes and the senior unsecured revolving credit facility.

Note 7 – Noncontrolling Interests

DCT

Noncontrolling interests are the portion of equity, or net assets, in a subsidiary not attributable, directly or indirectly, to a parent. Noncontrolling interests of DCT primarily represent limited partnership interests in the Operating Partnership and equity interests held by third party partners in consolidated real estate investments, including related parties as discussed in Note 9 – Related Party Transactions.

The following table illustrates the noncontrolling interests’ share of consolidated net income during the three and six months ended June 30, 2014 and 2013 (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Noncontrolling interests’ share of (income) loss from continuing operations

   $ (202   $ 188      $ (353   $ 172   

Noncontrolling interests’ share of income from discontinued operations

     (267     (1,046     (267     (1,387
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to noncontrolling interests

   $ (469   $ (858   $ (620   $ (1,215
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Partnership

Equity interests in the Operating Partnership held by third parties and LTIP Units, as defined in Note 8 – Stockholders’ Equity of DCT and Partners’ Capital of the Operating Partnership, are classified as permanent equity of the Operating Partnership and as noncontrolling interests of DCT in the Consolidated Balance Sheets

All income attributable to noncontrolling interest holders for all periods presented in the Operating Partnership’s Consolidated Statements of Operations is income from continuing operations.

Note 8 – Stockholders’ Equity of DCT and Partners’ Capital of the Operating Partnership

DCT

Common Stock

As of June 30, 2014, approximately 332.8 million shares of common stock were issued and outstanding.

On May 29, 2013, the Company registered a third continuous equity offering program, to replace our continuous equity offering program previously registered on November 20, 2012. Pursuant to this offering, DCT may sell up to 20 million shares of common stock from time-to-time through May 29, 2016 in “at-the-market” offerings or certain other transactions. The Company intends to use the proceeds from any sale of shares for general corporate purposes, which may include funding acquisitions and repaying debt. During the six months ended June 30, 2014 approximately 11.3 million shares were issued through the third continuous equity offering program, at an average price of $7.69 per share for proceeds of $85.8 million, net of offering expenses. As of June 30, 2014, 5.3 million shares remain available to be issued under the current offering.

 

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Table of Contents

During the six months ended June 30, 2014, we issued approximately 0.3 million shares of common stock related to vested shares of restricted stock, phantom shares and stock option exercises. During the six months ended June 30, 2013, we issued approximately 0.2 million shares of common stock related to vested shares of restricted stock, phantom shares and stock option exercises.

Operating Partnership

OP Units

For each share of common stock issued by DCT, the Operating Partnership issues a corresponding OP Unit to DCT in exchange for the contribution of the proceeds from the stock issuances.

As of June 30, 2014 and December 31, 2013, DCT owned approximately 95.1% and 94.8%, respectively, of the outstanding equity interests in the Operating Partnership. The remaining common partnership interests in the Operating Partnership were owned by executives of the Company and non-affiliated limited partners.

DCT holds its interests through both general and limited partner units. The Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”) stipulates that the general partner shall at all times own a minimum of 1.0% of all outstanding OP Units. As a result, each reporting period certain of DCT’s limited partner units are converted to general partner units to satisfy this requirement as illustrated in the Consolidated Statement of Changes in Capital.

Limited partners have the right to require the Company to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the Partnership Agreement), provided that such OP Units have been outstanding for at least one year. The Company may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Shares Amount (generally one share of DCT’s common stock for each OP Unit), as defined in the Partnership Agreement.

During the six months ended June 30, 2014 and 2013, approximately 1.0 million and 1.4 million OP Units were redeemed for approximately $0.8 million and $0.8 million in cash and approximately 0.9 million and 1.3 million shares of DCT common stock, respectively.

As of June 30, 2014 and December 31, 2013, there were approximately 17.2 million and 17.7 million outstanding OP Units held by entities other than DCT and redeemable, with an aggregate redemption value of approximately $141.0 million and $125.9 million based on the $8.21 and $7.13 per share closing price of DCT’s common stock on June 30, 2014 and December 31, 2013, respectively.

Equity-Based Compensation

On October 10, 2006, the Company established the Long-Term Incentive Plan, as amended, to grant restricted stock, stock options and other awards to our personnel and directors, as defined in the plan. Awards granted under this plan are measured at fair value on the grant date and amortized to compensation expense on a straight-line basis over the service period during which the awards fully vest. Such expense is included in “General and administrative” expense in our Consolidated Statements of Operations. Options issued under the Long-Term Incentive Plan are valued using the Black-Scholes option pricing model, which relies on assumptions we make related to the expected term of the options, volatility, dividend yield and risk-free interest rate. During the six months ended June 30, 2014, we did not grant any stock options.

Restricted Stock

Holders of restricted stock have voting rights and rights to receive dividends. Restricted stock may not be sold, assigned, transferred, pledged or otherwise disposed of and is subject to a risk of forfeiture prior to the expiration of the applicable vesting period. Restricted stock is recorded at fair value on the date of grant and amortized to compensation expense on a straight-line basis over the service period during which term the stock fully vests. Restricted stock generally vests ratably over a period of four or five years, depending on the grant. During the six months ended June 30, 2014, we granted approximately 0.3 million shares of restricted stock to certain officers and employees at the weighted-average fair market value of $7.36 per share.

 

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Table of Contents

LTIP Units

Pursuant to the Long-Term Incentive Plan, as amended, the Company may grant limited partnership interests in the Operating Partnership called LTIP Units. Vested LTIP Units may be redeemed by the Company in cash or DCT common stock, at the discretion of the Company, on a one-for-one basis with common shares, subject to certain restrictions of the Partnership Agreement. LTIP Units receive distributions equally along with common shares. LTIP Units are valued by reference to the value of DCT’s common stock and generally vest ratably over a period of four to five years, depending on the grant. LTIP Unit equity compensation is amortized into expense over the service period during which the units vest.

During the six months ended June 30, 2014, approximately 0.6 million LTIP Units were granted to certain senior executives, which vest over a four year period with a total fair value of approximately $4.1 million at the date of grant as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 40% and a risk-free interest rate of 1.46%. During the six months ended June 30, 2014, approximately 0.1 million vested LTIP Units were converted into approximately 0.1 million common shares. As of June 30, 2014, approximately 3.6 million LTIP Units were outstanding of which approximately 1.7 million were vested.

During the six months ended June 30, 2013, approximately 0.7 million LTIP Units were granted to certain senior executives, which vest over a four year period with a total fair value of approximately $4.6 million at the date of grant as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 52% and risk-free interest rate of 0.84%. During the six months ended June, 2013, there were no conversions of vested LTIP Units. As of December 31, 2013, approximately 3.0 million LTIP Units were outstanding of which approximately 1.2 million were vested. In addition, during the six months ended June 30, 2013, we issued approximately 0.4 million LTIP Units for awards issued in connection with our multi-year outperformance program that ended December 31, 2012.

Note 9 – Related Party Transactions

8th & Vineyard Consolidated Joint Venture

In 2010, we entered into the 8th & Vineyard joint venture with Iowa Investments, LLC, an entity owned by one of our executives, to purchase 19.3 acres of land held for development in Southern California. Pursuant to the joint venture agreement, we will first receive a return of all capital along with a preferred return. Thereafter, Iowa Investments, LLC will receive a return of all capital along with a promoted interest. The land parcel acquired by 8th & Vineyard was purchased from an entity in which the same executive had a minority ownership. The total acquisition price of $4.7 million was determined to be at fair value.

During 2014, we completed the construction and disposition of two buildings. See Note 3 – Investment in Properties for additional information.

Southern California Consolidated Ventures

We entered into four agreements, two in December 2010 and two in January 2011, whereby we acquired a weighted average ownership interest, based on square feet, of approximately 48.4% in five bulk industrial buildings located in the Southern California market. Entities controlled by one of our executives have a weighted average ownership in these properties of approximately 43.7%, based on square feet, and the remaining 7.9% is held by a third party. Each venture partner will earn returns in accordance with their ownership interests. We have controlling rights including management of the operations of the properties and we have consolidated the properties in accordance with GAAP. The total acquisition price of $46.3 million was determined to be at fair value.

Note 10 – Earnings per Share/Unit

We use the two-class method of computing earnings per common share/unit which is an earnings allocation formula that determines earnings per share/unit for common stock/unit and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Under the two-class method, earnings per common share/unit are computed by dividing the sum of distributed earnings to common stockholders/OP Unitholders and undistributed earnings allocated to common stockholders/OP Unitholders by the weighted average number of common shares/units outstanding for the period.

A participating security is defined by GAAP as an unvested share-based payment award containing non-forfeitable rights to dividends and must be included in the computation of earnings per share/unit pursuant to the two-class method. Nonvested restricted stock and LTIP Units are considered participating securities as these share-based awards contain non-forfeitable rights to dividends irrespective of whether the awards ultimately vest or expire.

 

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Table of Contents

DCT

The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2014 and 2013 (in thousands, except per share amounts):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
         2014             2013             2014             2013      

Earnings per Common share – Basic and Diluted

        

Numerator

        

Income (loss) from continuing operations

   $ 1,683      $ (4,551   $ 2,142      $ (7,980

Gain on sale of real estate

     372        —          372        —     

(Income) loss attributable to noncontrolling interests

     (202     188        (353     172   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations attributable to common stockholders

     1,853        (4,363     2,161        (7,808

Less: Distributed and undistributed earnings allocated to participating securities

     (170     (174     (336     (346
  

 

 

   

 

 

   

 

 

   

 

 

 

Numerator for adjusted income (loss) from continuing operations attributable to common stockholders

     1,683        (4,537     1,825        (8,154
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

     5,215        16,218        5,224        21,283   

Noncontrolling interests’ share of income from discontinued operations

     (267     (1,046     (267     (1,387
  

 

 

   

 

 

   

 

 

   

 

 

 

Numerator for income from discontinued operations attributable to common stockholders

     4,948        15,172        4,957        19,896   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income attributable to common stockholders

   $ 6,631      $ 10,635      $ 6,782      $ 11,742   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator

        

Weighted average common shares outstanding – basic

     329,119        290,977        326,543        286,047   

Effect of dilutive securities:

        

Stock options and phantom stock

     1,133        —          1,092        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding – diluted

     330,252        290,977        327,635        286,047   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per Common Share – Basic

        

Income (loss) from continuing operations

   $ 0.01      $ (0.02   $ 0.01      $ (0.03

Income from discontinued operations

     0.01        0.06        0.01        0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 0.02      $ 0.04      $ 0.02      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per Common Share – Diluted

        

Income (loss) from continuing operations

   $ 0.01      $ (0.02   $ 0.01      $ (0.03

Income from discontinued operations

     0.01        0.06        0.01        0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 0.02      $ 0.04      $ 0.02      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Operating Partnership

The following table sets forth the computation of basic and diluted earnings per common unit for the three and six months ended June 30, 2014 and 2013 (in thousands, except per unit amounts):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2014     2013     2014     2013  

Earnings per OP Unit – Basic and Diluted

        

Numerator

        

Income (loss) from continuing operations

   $ 1,683      $ (4,551   $ 2,142      $ (7,980

Gain on sale of real estate

     372        —          372        —     

Income attributable to noncontrolling interests

     (103     (108     (236     (373
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations attributable to OP Unitholders

     1,952        (4,659     2,278        (8,353

Less: Distributed and undistributed earnings allocated to participating securities

     (170     (174     (336     (346
  

 

 

   

 

 

   

 

 

   

 

 

 

Numerator for adjusted income (loss) from continuing operations attributable to OP Unitholders

     1,782        (4,833     1,942        (8,699
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

     5,215        16,218        5,224        21,283   

Noncontrolling interests’ share of income from discontinued operations

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Numerator for income from discontinued operations attributable to OP Unitholders

     5,215        16,218        5,224        21,283   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income attributable to OP Unitholders

   $ 6,997      $ 11,385      $ 7,166      $ 12,584   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator

        

Weighted average OP Units outstanding – basic

     346,477        310,623        344,133        306,010   

Effect of dilutive securities:

        

Stock options and phantom stock

     1,133        —          1,092        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average OP Units outstanding – diluted

     347,610        310,623        345,225        306,010   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per OP Unit – Basic

        

Income (loss) from continuing operations

   $ 0.01      $ (0.02   $ 0.01      $ (0.03

Income from discontinued operations

     0.01        0.06        0.01        0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to OP Unitholders

   $ 0.02      $ 0.04      $ 0.02      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per OP Units – Diluted

        

Income (loss) from continuing operations

   $ 0.01      $ (0.02   $ 0.01      $ (0.03

Income from discontinued operations

     0.01        0.06        0.01        0.07   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to OP Unitholders

   $ 0.02      $ 0.04      $ 0.02      $ 0.04   
  

 

 

   

 

 

   

 

 

   

 

 

 

DCT and the Operating Partnership

Potentially Dilutive Shares

For the three and six months ended June 30, 2013, we excluded from diluted earnings per share the weighted average common share equivalents or common unit equivalents related to 5.9 million and 5.8 million stock options and phantom stock, respectively, because their effect would be anti-dilutive.

Additionally, for the three and six months ended June 30, 2014, DCT excluded from diluted earnings per share the weighted average common share equivalents related to 17.4 million and 17.6 million OP Units, respectively, because their effect would be anti-dilutive. During the same periods ended June 30, 2013, DCT excluded from diluted earnings per share the weighted average common share equivalents related to 19.6 million and 20.0 million OP Units, respectively, because their effect would be anti-dilutive.

 

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Table of Contents

Note 11 – Segment Information

The Company’s segments are based on our internal reporting of operating results used to assess performance based on our properties’ geographical markets. Our markets are aggregated into three reportable regions or segments, East, Central and West, which are based on the geographical locations of our properties. Management considers rental revenues and property net operating income aggregated by segment to be the appropriate way to analyze performance. Certain reclassifications have been made to prior year results to conform to the current presentation related to discontinued operations (see Note 12 – Discontinued Operations and Assets Held for Sale for additional information).

The following table reflects our total assets, net of accumulated depreciation and amortization, by segment, as of June 30, 2014 and December 31, 2013 (in thousands):

 

     June 30,
2014
     December 31,
2013
 

Segments:

     

East assets

   $ 1,013,242       $ 1,026,416   

Central assets

     1,099,516         1,034,814   

West assets

     1,084,545         1,018,246   
  

 

 

    

 

 

 

Total segment net assets

     3,197,303         3,079,476   

Non-segment assets:

     

Non-segment cash and cash equivalents

     8,687         25,671   

Other non-segment assets(1)

     135,986         152,620   

Assets held for sale(2)

     —           8,196   
  

 

 

    

 

 

 

Total assets

   $ 3,341,976       $ 3,265,963   
  

 

 

    

 

 

 

 

(1)  Other non-segment assets primarily consists of investments in and advances to unconsolidated joint ventures, deferred loan costs, other receivables and other assets.
(2)  Represents assets held for sale that meet the definition of a discontinued operation.

The following table sets forth the rental revenues of our segments in continuing operations for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2014      2013      2014      2013  

East

   $ 27,822       $ 22,637       $ 56,793       $ 44,517   

Central

     33,136         27,477         64,749         53,497   

West

     22,344         19,210         44,379         38,619   
  

 

 

    

 

 

    

 

 

    

 

 

 

Rental revenues

     83,302         69,324         165,921         136,633   

Institutional capital management and other fees

     308         707         1,072         1,520   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 83,610       $ 70,031       $ 166,993       $ 138,153   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following table sets forth property net operating income of our segments in continuing operations and a reconciliation of our property NOI to our reported “Income (loss) from continuing operations” for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

East

   $ 20,691      $ 16,116      $ 40,831      $ 31,985   

Central

     22,576        18,011        42,794        35,660   

West

     16,891        14,645        33,553        29,508   
  

 

 

   

 

 

   

 

 

   

 

 

 

Property NOI(1)

     60,158        48,772        117,178        97,153   

Institutional capital management and other fees

     308        707        1,072        1,520   

Gain on acquisitions and dispositions of real estate interests

     —          —          2,045        —     

Real estate related depreciation and amortization

     (37,270     (31,594     (73,703     (61,790

Casualty and involuntary conversion gain (loss)

     340        (58     340        2   

Development profit, net of taxes

     1,288        —          2,016        268   

General and administrative

     (7,498     (7,362     (14,332     (13,703

Impairment losses

     (376     —          (4,735     —     

Equity in earnings of unconsolidated joint ventures, net

     697        571        4,310        962   

Interest expense

     (16,182     (15,327     (32,238     (32,187

Interest and other income (expense)

     (23     63        5        227   

Income tax benefit (expense) and other taxes

     241        (323     184        (432
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

   $ 1,683      $ (4,551   $ 2,142      $ (7,980
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Property net operating income (“property NOI”) is defined as rental revenues, including reimbursements, less rental expenses and real estate taxes, which excludes institutional capital management fees, depreciation, amortization, casualty and involuntary conversion gains, impairment, general and administrative expenses, equity in earnings (loss) of unconsolidated joint ventures, interest expense, interest and other income (expense) and income tax benefit (expense) and other taxes. We consider property NOI to be an appropriate supplemental performance measure because property NOI reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of the property such as depreciation, amortization, impairment, general and administrative expenses and interest expense. However, property NOI should not be viewed as an alternative measure of our financial performance since it excludes expenses which could materially impact our results of operations. Further, our property NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating property NOI. Therefore, we believe net income (loss) attributable to common stockholders, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance.

Note 12 – Discontinued Operations and Assets Held for Sale

Assets Held for Sale

As of June 30, 2014 eight properties in our East operating segment are classified as held for sale. In July 2014, we completed the sale of all of these properties.

Discontinued Operations

We report results of operations from real estate assets that meet the definition of a component of an entity, have been sold or meet the criteria to be classified as held for sale, for which the disposal or expected disposal represents a strategic shift in operations, as discontinued operations. Real estate assets that meet the definition of a component of an entity and were disposed of or held for sale prior to January 1, 2014 are reported as discontinued operations. See Note 2 – Summary of Significant Accounting Policies for additional information regarding discontinued operations.

As of December 31, 2013, we had one operating property in our Central operating segment classified as held for sale that was subsequently sold in May 2014 and reported as a discontinued operation for the three and six months ended June 30, 2014.

 

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Table of Contents

The following table summarizes the components of income from discontinued operations for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Rental revenues

   $ 88      $ 5,502      $ 392      $ 11,490   

Rental expenses and real estate taxes

     18        (1,188     (67     (2,394

Real estate related depreciation and amortization

     —          (2,577     —          (5,071

General and administrative

     (10     (87     (37     (167
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     96        1,650        288        3,858   

Interest and other income (expense)

     2        (63     (17     (83

Income tax expense

     —          —          (32     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income and other income

     98        1,587        239        3,775   

Gain on acquisitions and dispositions of real estate interests

     5,117        14,631        5,117        17,508   

Adjustment to previously impaired properties

     —          —          (132     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

   $ 5,215      $ 16,218      $ 5,224      $ 21,283   
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 13 – Condensed Consolidating Financial Information

During October 2013, we issued $275.0 million aggregate principal amount of 4.50% senior notes at 99.038% of face value in a private placement. The senior notes are jointly and severally, fully and unconditionally guaranteed by DCT and certain of the Company’s wholly owned subsidiaries. During May 2014, we completed the exchange of these notes for SEC registered notes having substantially identical terms.

The following tables present the condensed consolidating financial information for (a) DCT Industrial Trust, Inc. (“Parent” and a guarantor), (b) DCT Industrial Operating Partnership LP (“Subsidiary Issuer”), (c) on a combined basis, the guarantor subsidiaries (“Subsidiary Guarantors”), and (d) on a combined basis, the non-guarantor subsidiaries (“Non-Guarantor Subsidiaries”). Additional columns present consolidating adjustments and consolidated totals as of June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013.

As the guarantees were made in connection with our note offering in October 2013, the Subsidiary Guarantors’ condensed consolidating information as of December 31, 2013 and for the period ended June 30, 2013 is presented based on the guarantors as of December 31, 2013. Subsequent to December 31, 2013, certain of our subsidiaries may be released from their guarantees, primarily due to the disposition of properties. These changes in guarantors are reflected prospectively.

Separate financial statements of the Subsidiary Guarantors are not presented because the guarantee by each 100% owned Subsidiary Guarantor is full and unconditional, joint and several. Furthermore, there are no significant legal restrictions on the Parent’s ability to obtain funds from its subsidiaries by dividend or loan.

Investments in consolidated subsidiaries are accounted for using the equity method for purposes of the combined presentation. The consolidating adjustments principally relate to the elimination of investments in consolidated subsidiaries and intercompany balances and transactions.

 

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Table of Contents

Condensed Consolidated Balance Sheets

June 30, 2014

(in thousands)

(unaudited)

 

     Parent      Subsidiary
Issuer
     Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

ASSETS

              

Land

   $ —         $ —         $ 754,473      $ 151,398      $ —        $ 905,871   

Buildings and improvements

     —           —           2,291,332        421,265        —          2,712,597   

Intangible lease assets

     —           —           60,062        25,637        —          85,699   

Construction in progress

     —           —           81,347        5,484        —          86,831   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total investment in properties

     —           —           3,187,214        603,784        —          3,790,998   

Less accumulated depreciation and amortization

     —           —           (582,687     (116,400     —          (699,087
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in properties

     —           —           2,604,527        487,384        —          3,091,911   

Investments in and advances to unconsolidated joint ventures

     —           99,692         609       —          —          100,301   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in real estate

     —           99,692         2,605,136        487,384        —          3,192,212   

Cash and cash equivalents

     —           10,539         9,528        268        —          20,335   

Restricted cash

     —           6,720         341        2,789        —          9,850   

Deferred loan costs, net

     —           8,664         —          480        —          9,144   

Straight-line rent and other receivables, net

     —           142         44,171        8,730        —          53,043   

Other assets, net

     —           6,276         3,571        3,820        —          13,667   

Intercompany receivables, net

     23,357         147,649         11,963        —          (182,969     —     

Investment in subsidiaries

     1,598,509         2,653,483         2,030        —          (4,254,022     —     

Assets held for sale

     —           —           34,317        9,408        —          43,725   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,621,866       $ 2,933,165       $ 2,711,057      $ 512,879      $ (4,436,991   $ 3,341,976   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

              

Liabilities:

              

Accounts payable and accrued expenses

   $ —         $ 10,179       $ 41,145      $ 10,299      $ —        $ 61,623   

Intercompany payables, net

     —           23,357         35,579        124,033        (182,969     —     

Distributions payable

     23,357         1,291         —          —          —          24,648   

Tenant prepaids and security deposits

     —           —           20,240        3,767        —          24,007   

Other liabilities

     —           108         6,469        4,300        —          10,877   

Intangible lease liabilities, net

     —           —           17,671        3,060        —          20,731   

Line of credit

     —           73,000         —          —          —          73,000   

Senior unsecured notes

     —           1,122,512         —          —          —          1,122,512   

Mortgage notes

     —           —           34,110        250,618        —          284,728   

Liabilities related to assets held for sale

     —           —           447        4,690        —          5,137   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     23,357         1,230,447         155,661        400,767        (182,969     1,627,263   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Equity:

              

Stockholders’ equity

     1,598,509         1,702,718         2,555,396        112,112        (4,370,226     1,598,509   

Noncontrolling interests

     —           —           —          —          116,204        116,204   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     1,598,509         1,702,718         2,555,396        112,112        (4,254,022     1,714,713   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,621,866       $ 2,933,165       $ 2,711,057      $ 512,879      $ (4,436,991   $ 3,341,976   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Three Months Ended June 30, 2014

(in thousands)

(unaudited)

 

    Parent     Subsidiary
Issuer
    Subsidiary
Guarantors
    Non-Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

REVENUES:

           

Rental revenues

  $ —        $ —        $ 69,889      $ 13,413      $ —        $ 83,302  

Institutional capital management and other fees

    —          74        —          350       (116     308  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    —          74        69,889        13,763        (116     83,610  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

           

Rental expenses

    —          —          8,083        1,350        —          9,433  

Real estate taxes

    —          —          11,432        2,279        —          13,711  

Real estate related depreciation and amortization

    —          —          31,382        5,888        —          37,270  

General and administrative

    —          7,401       87       10       —          7,498  

Impairment losses

    —          —          405       (29     —          376  

Casualty and involuntary conversion (gain) loss

    —          —          (340     —          —          (340
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    —          7,401       51,049        9,498        —          67,948  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    —          (7,327     18,840        4,265        (116     15,662  

OTHER INCOME (EXPENSE):

           

Development profit, net of taxes

    —          —          —          1,238       50        1,288  

Equity in earnings (loss) of unconsolidated joint ventures, net

    —          633       (2     —          66        697  

Interest expense

    —          (12,604     (1,155     (3,159     736       (16,182

Interest and other income (expense)

    —          772       (13     (15     (767     (23

Income tax benefit (expense) and other taxes

    —          (68     381       (72     —          241  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    —          (18,594     18,051        2,257        (31     1,683  

Income (loss) from discontinued operations

    —          —          —          5,184        31        5,215  

Equity in earnings of consolidated subsidiaries

    6,801        25,533       1,251       —          (33,585     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before gain on sale of real estate

    6,801        6,939       19,302        7,441        (33,585     6,898  

Gain on sale of real estate

    —          228       —          144       —          372  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

    6,801        7,167       19,302        7,585        (33,585     7,270  

Net income attributable to noncontrolling interests

    —          —          —          —          (469     (469
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

    6,801        7,167       19,302        7,585        (34,054     6,801  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

    —          (170     —          —          —          (170
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income (loss) attributable to common stockholders

  $ 6,801      $ 6,997     $ 19,302      $ 7,585      $ (34,054   $ 6,631  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 6,801      $ 7,167     $ 19,302      $ 7,585      $ (33,585   $ 7,270  

Other comprehensive income (loss):

           

Net derivative loss on cash flow hedging instruments

    —          (367     —          (151     —          (518

Net reclassification adjustment on cash flow hedging instruments

    —          1,133        —          39        —          1,172   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

    —          766        —          (112     —          654  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

    6,801        7,933        19,302        7,473        (33,585     7,924  

Comprehensive income attributable to noncontrolling interests

    —          —          —          —          (513     (513
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

  $ 6,801      $ 7,933      $ 19,302      $ 7,473      $ (34,098   $ 7,411  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Six Months Ended June 30, 2014

(in thousands)

(unaudited)

 

    Parent     Subsidiary
Issuer
    Subsidiary
Guarantors
    Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

REVENUES:

           

Rental revenues

  $ —        $ —        $ 138,964     $ 26,957     $ —        $ 165,921  

Institutional capital management and other fees

    —          454        —          818       (200     1,072  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    —          454        138,964       27,775       (200     166,993  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

           

Rental expenses

    —          —          19,048       2,787       —          21,835  

Real estate taxes

    —          —          22,349       4,559       —          26,908  

Real estate related depreciation and amortization

    —          —          61,607       12,096       —          73,703  

General and administrative

    —          13,782       180       370       —          14,332  

Impairment losses

    —          —          992       3,743       —          4,735  

Casualty and involuntary conversion gain

    —          —          (340     —          —          (340
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    —          13,782       103,836       23,555       —          141,173  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    —          (13,328     35,128       4,220       (200     25,820  

OTHER INCOME (EXPENSE):

           

Development profit, net of taxes

    —          —          —          1,966       50        2,016  

Equity in earnings (loss) of unconsolidated joint ventures, net

    —          4,190       (30     —          150        4,310  

Gain on acquisitions and dispositions of real estate interests

    —          1,947       —          98       —          2,045  

Interest expense

    —          (25,133     (2,037     (6,354     1,286       (32,238

Interest and other income (expense)

    —          1,324       (35     40       (1,324     5  

Income tax benefit (expense) and other taxes

    —          (136     464       (144     —          184  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    —          (31,136     33,490        (174     (38     2,142  

Income from discontinued operations

    —          —          —          5,186        38        5,224  

Equity in earnings of consolidated subsidiaries

    7,118        38,410       1,979       —          (47,507     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before gain on sale of real estate

    7,118        7,274       35,469        5,012        (47,507     7,366  

Gain on sale of real estate

    —          228       —          144       —          372  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

    7,118        7,502       35,469        5,156        (47,507     7,738  

Net income attributable to noncontrolling interests

    —          —          —          —          (620     (620
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

    7,118        7,502       35,469        5,156        (48,127     7,118  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

    —          (336     —          —          —          (336
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income (loss) attributable to common stockholders

  $ 7,118      $ 7,166     $ 35,469      $ 5,156      $ (48,127   $ 6,782  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 7,118      $ 7,502     $ 35,469      $ 5,156      $ (47,507   $ 7,738  

Other comprehensive income (loss):

           

Net derivative loss on cash flow hedging instruments

    —          (519     —          (327     —          (846

Net reclassification adjustment on cash flow hedging instruments

    —          2,251        —          77        —          2,328   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

    —          1,732        —          (250     —          1,482  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

    7,118        9,234        35,469        4,906        (47,507     9,220  

Comprehensive income attributable to noncontrolling interests

    —          —          —          —          (778     (778
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

  $ 7,118      $ 9,234      $ 35,469      $ 4,906      $ (48,285   $ 8,442  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2014

(in thousands)

(unaudited)

 

     Parent     Subsidiary
Issuer
    Subsidiary
Guarantors
    Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

OPERATING ACTIVITIES:

            

Net cash provided by (used in) operating activities

   $ —        $ (27,557   $ 86,860      $ 21,193      $ —        $ 80,496   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES:

            

Real estate acquisitions

     —          —          (105,923     (10,151     —          (116,074

Capital expenditures and development activities

     —          —          (80,406     (3,714     —          (84,120

Proceeds from dispositions of real estate investments

     —          1,988        4,812        25,132        —          31,932   

Investments in unconsolidated joint ventures

     —          (940     —          —          —          (940

Proceeds from casualties and involuntary conversion

     —          —          449        42        —          491   

Distributions of investments in unconsolidated joint ventures

     —          16,757        —          —          —          16,757   

Other investing activities

     —          (2,555     4        (241     —          (2,792
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     —          15,250        (181,064     11,068        —          (154,746
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES:

            

Proceeds from senior unsecured revolving line of credit

     —          76,000        —          —          —          76,000   

Repayments of senior unsecured revolving line of credit

     —          (42,000     —          —          —          (42,000

Principal payments on mortgage notes

     —          —          (334     (7,699     —          (8,033

Proceeds from issuance of common stock

     86,654        86,654        —          —          (86,654     86,654   

Offering costs for issuance of common stock and OP Units

     (1,110     (1,110     —          —          1,110        (1,110

Net payments relating to intercompany financing

     (40,177     (75,953     104,106        (28,153     40,177        —     

Redemption of noncontrolling interests

     —          (796     —          —          —          (796

Dividends to common stockholders

     (45,367     (45,367     —          —          45,367        (45,367

Distributions to noncontrolling interests

     —          (2,718     —          (359     —          (3,077

Contributions from noncontrolling interests

     —          —          —          101        —          101   

Other financing activity

     —          38        (40     (11     —          (13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     —          (5,252     103,732        (36,121     —          62,359   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     —          (17,559     9,528        (3,860     —          (11,891

Cash and cash equivalents, beginning of period

     —          28,098       —          4,128       —          32,226  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ —        $ 10,539      $ 9,528      $ 268      $ —        $ 20,335   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

Condensed Consolidated Balance Sheets

December 31, 2013

(in thousands)

 

     Parent      Subsidiary
Issuer
     Subsidiary
Guarantors
    Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

ASSETS

              

Land

   $ —         $ —         $ 728,556     $ 155,248     $ —        $ 883,804  

Buildings and improvements

     —           —           2,192,623       423,256       —          2,615,879  

Intangible lease assets

     —           —           56,429       26,329       —          82,758  

Construction in progress

     —           —           75,235       13,375       —          88,610  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total investment in properties

     —           —           3,052,843       618,208       —          3,671,051  

Less accumulated depreciation and amortization

     —           —           (543,781     (110,316     —          (654,097
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in properties

     —           —           2,509,062       507,892       —          3,016,954  

Investments in and advances to unconsolidated joint ventures

     —           124,285        638       —          —          124,923  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in real estate

     —           124,285        2,509,700       507,892       —          3,141,877  

Cash and cash equivalents

     —           28,098        —          4,128       —          32,226  

Restricted cash

     —           8,841        340       3,440       —          12,621  

Deferred loan costs, net

     —           9,737        —          514       —          10,251  

Straight-line rent and other receivables, net

     —           82        37,800       8,365       —          46,247  

Other assets, net

     —           3,313        7,343       3,889       —          14,545  

Intercompany receivables, net

     22,472        137,000        —          —          (159,472     —     

Investment in subsidiaries

     1,543,806        2,540,233        11,965       —          (4,096,004     —     

Assets held for sale

     —           —           8,196       —          —          8,196  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,566,278      $ 2,851,589      $ 2,575,344     $ 528,228     $ (4,255,476   $ 3,265,963  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

              

Liabilities:

              

Accounts payable and accrued expenses

   $ —         $ 11,140      $ 36,985     $ 15,156     $ —        $ 63,281  

Intercompany payables, net

     —           22,472        44,448       92,552       (159,472     —     

Distributions payable

     22,472        1,320        —          —          —          23,792  

Tenant prepaids and security deposits

     —           —           24,289       4,253       —          28,542  

Other liabilities

     —           93        7,177       2,852       —          10,122  

Intangible lease liability, net

     —           —           17,646       2,743       —          20,389  

Line of credit

     —           39,000        —          —          —          39,000  

Senior unsecured notes

     —           1,122,407        —          —          —          1,122,407  

Mortgage notes

     —           —           34,480       256,480       —          290,960  

Liabilities related to assets held for sale

     —           —           278       —          —          278  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     22,472        1,196,432        165,303       374,036       (159,472     1,598,771  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Equity:

              

Stockholders’ equity

     1,543,806        1,655,157        2,410,041       154,192       (4,219,390     1,543,806  

Noncontrolling interests

     —           —           —          —          123,386       123,386  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     1,543,806        1,655,157        2,410,041       154,192       (4,096,004     1,667,192  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,566,278      $ 2,851,589      $ 2,575,344     $ 528,228     $ (4,255,476   $ 3,265,963  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three Months Ended June 30, 2013

(in thousands)

(unaudited)

 

     Parent      Subsidiary
Issuer
    Subsidiary
Guarantors
    Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

REVENUES:

             

Rental revenues

   $ —         $ —        $ 56,141     $ 13,183     $ —        $ 69,324  

Institutional capital management and other fees

     —           226       —          576       (95     707  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —           226       56,141       13,759       (95     70,031  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

             

Rental expenses

     —           —          7,700       1,245       —          8,945  

Real estate taxes

     —           —          9,278       2,329       —          11,607  

Real estate related depreciation and amortization

     —           —          25,244       6,350       —          31,594  

General and administrative

     —           8,952       136       (1,726     —          7,362  

Casualty and involuntary conversion loss

     —           —          —          58       —          58  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —           8,952       42,358       8,256       —          59,566  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —           (8,726     13,783       5,503       (95     10,465  

OTHER INCOME (EXPENSE):

             

Equity in earnings of unconsolidated joint ventures, net

     —           475       1       —          95       571  

Interest expense

     —           (11,325     (1,317     (3,357     672       (15,327

Interest and other income (expense)

     —           686       10       1,744       (2,377     63  

Income tax expense and other taxes

     —           (248     (15     (60     —          (323
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     —           (19,138     12,462       3,830       (1,705     (4,551

Income from discontinued operations

     —           —          195       14,318       1,705       16,218  

Equity in earnings of consolidated subsidiaries

     10,809        30,697       7       —          (41,513     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     10,809        11,559       12,664       18,148       (41,513     11,667  

Net income attributable to noncontrolling interests

     —           —          —          —          (858     (858
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

     10,809        11,559       12,664       18,148       (42,371     10,809  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

     —           (174     —          —          —          (174
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income attributable to common stockholders

   $ 10,809      $ 11,385     $ 12,664     $ 18,148     $ (42,371   $ 10,635  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 10,809      $ 11,559     $ 12,664     $ 18,148     $ (41,513   $ 11,667  

Other comprehensive income

             

Net derivative gain on cash flow hedging instruments

     —           865       —          53       —          918  

Net reclassification adjustment on cash flow hedging instruments

     —           1,094       —          —          —          1,094  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     —           1,959       —          53       —          2,012  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     10,809        13,518       12,664       18,201       (41,513     13,679  

Comprehensive income attributable to noncontrolling interests

     —           —          —          —          (1,144     (1,144
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to common stockholders

   $ 10,809      $ 13,518     $ 12,664     $ 18,201     $ (42,657   $ 12,535  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

Condensed Consolidated Statements of Operations and Comprehensive Income

For the Six Months Ended June 30, 2013

(in thousands)

(unaudited)

 

     Parent      Subsidiary
Issuer
    Subsidiary
Guarantors
    Non-
Guarantor
Subsidiaries
    Consolidating
Adjustments
    Total
Consolidated
 

REVENUES:

             

Rental revenues

   $ —         $ —        $ 110,016      $ 26,617      $ —        $ 136,633   

Institutional capital management and other fees

     —           563        —          1,132        (175     1,520   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —           563        110,016        27,749        (175     138,153   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

             

Rental expenses

     —           —          14,739        2,555        —          17,294   

Real estate taxes

     —           —          17,561        4,625        —          22,186   

Real estate related depreciation and amortization

     —           —          49,060        12,730        —          61,790   

General and administrative

     —           14,326        181        (804     —          13,703   

Casualty and involuntary conversion (gain) loss

     —           —          (59     57        —          (2
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —           14,326        81,482        19,163        —          114,971   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —           (13,763     28,534        8,586        (175     23,182   

OTHER INCOME (EXPENSE):

             

Development profit, net of taxes

     —           —          —          268       —          268  

Equity in earnings of unconsolidated joint ventures, net

     —           781        6        —          175        962   

Interest expense

     —           (24,221     (2,619     (6,771     1,424        (32,187

Interest and other income (expense)

     —           1,429        10        3,596        (4,808     227   

Income tax benefit (expense) and other taxes

     —           (302     82        (212     —          (432
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     —           (36,076     26,013        5,467        (3,384     (7,980

Income from discontinued operations

     —           —          358        17,541        3,384        21,283   

Equity in earnings of consolidated subsidiaries

     12,088         49,006        192        —          (61,286     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     12,088         12,930        26,563        23,008        (61,286     13,303   

Net income attributable to noncontrolling interests

     —           —          —          —          (1,215     (1,215
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

     12,088         12,930        26,563        23,008        (62,501     12,088