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Section 1: 10-Q (10-Q)

Document



 
 
 
 
 
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 March 31, 2018
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.)
 
82-0538520
Delaware (DCT Industrial Operating Partnership LP)
 
82-0538522
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
555 17th Street, Suite 3700
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 
 
 
 
 
¨
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
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 
 
 
 
 
¨
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 April 27, 2018, 94,179,468 shares of common stock of DCT Industrial Trust Inc., par value $0.01 per share, were outstanding.
 
 
 
 
 

1




EXPLANATORY NOTE
This report combines the Quarterly Reports on Form 10-Q for the period ended March 31, 2018 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” or “DCT Industrial,” we are referring to DCT Industrial Trust Inc. by itself, and not including any of its subsidiaries, and when we use the term “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 ownership, acquisition, development, leasing and management of bulk-distribution and light-industrial properties located in high-demand distribution markets in the United States. DCT's actively managed portfolio is strategically located near population centers and well-positioned to take advantage of market dynamics. 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 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 March 31, 2018, DCT owned approximately 96.7% 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.
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 3.3% of the Operating Partnership were owned by executives and non-affiliated limited partners as of March 31, 2018.
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 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.

1


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.
  
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
DCT Industrial Operating Partnership LP
  
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
DCT Industrial Trust Inc. and DCT Industrial Operating Partnership LP
  
 
 
 
  
Item 2.
 
  
Item 3.
 
  
Item 4.
 
  
 
 
 
PART II.
 
  
 
 
 
 
Item 1.
 
  
Item 1A.
 
  
Item 2.
 
  
Item 3.
 
  
Item 4.
 
  
Item 5.
 
  
Item 6.
 
  
 
 
 
  

2




DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share information)
 
 
 
March 31, 2018
 
December 31, 2017
ASSETS
 
(unaudited)
 
 
Land
 
$
1,172,654

 
$
1,162,908

Buildings and improvements
 
3,336,574

 
3,284,976

Intangible lease assets
 
60,791

 
65,919

Construction in progress
 
162,794

 
149,994

Total investment in properties
 
4,732,813

 
4,663,797

Less accumulated depreciation and amortization
 
(947,731
)
 
(919,186
)
Net investment in properties
 
3,785,082

 
3,744,611

Investments in and advances to unconsolidated joint ventures
 
73,691

 
72,231

Net investment in real estate
 
3,858,773

 
3,816,842

Cash and cash equivalents
 
12,371

 
10,522

Restricted cash
 
68,613

 
14,768

Straight-line rent and other receivables, net of allowance for doubtful
   accounts of $413 and $425, respectively
 
81,980

 
80,119

Other assets, net
 
30,958

 
25,740

Assets held for sale
 
3,146

 
62,681

Total assets
 
$
4,055,841

 
$
4,010,672

 
 
 
 
 
LIABILITIES AND EQUITY
 
 

 
 

Liabilities:
 
 

 
 

Accounts payable and accrued expenses
 
$
95,020

 
$
115,150

Distributions payable
 
35,182

 
35,070

Tenant prepaids and security deposits
 
37,174

 
34,946

Other liabilities
 
36,511

 
34,172

Intangible lease liabilities, net
 
17,915

 
18,482

Line of credit
 
264,000

 
234,000

Senior unsecured notes
 
1,328,576

 
1,328,225

Mortgage notes
 
158,350

 
160,129

Liabilities related to assets held for sale
 
91

 
1,035

Total liabilities
 
1,972,819

 
1,961,209

 
 
 
 
 
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, 94,075,171
   and 93,707,264 shares issued and outstanding as of March 31, 2018 and
   December 31, 2017, respectively
 
941

 
937

Additional paid-in capital
 
2,999,304

 
2,985,122

Distributions in excess of earnings
 
(1,005,434
)
 
(1,022,605
)
Accumulated other comprehensive loss
 
(7,352
)
 
(11,893
)
Total stockholders’ equity
 
1,987,459

 
1,951,561

Noncontrolling interests
 
95,563

 
97,902

Total equity
 
2,083,022

 
2,049,463

Total liabilities and equity
 
$
4,055,841

 
$
4,010,672

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


3




DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited, in thousands, except per share information)
 
 
 
Three Months Ended March 31,
 
 
2018

2017
REVENUES:
 
 
 
 

Rental revenues
 
$
109,423

 
$
105,424

Institutional capital management and other fees
 
384

 
472

Total revenues
 
109,807

 
105,896

 
 
 
 
 
OPERATING EXPENSES:
 
 

 
 

Rental expenses
 
10,239

 
9,462

Real estate taxes
 
16,724

 
16,766

Real estate related depreciation and amortization
 
41,232

 
41,605

General and administrative
 
7,464

 
7,192

Casualty loss (gain)
 
5

 
(270
)
Total operating expenses
 
75,664

 
74,755

Operating income
 
34,143

 
31,141

 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 

 
 

Equity in earnings of unconsolidated joint ventures, net
 
1,077

 
1,516

Gain on dispositions of real estate interests
 
32,190

 
26

Interest expense
 
(16,050
)
 
(16,755
)
Interest and other income (expense)
 
34

 
(5
)
Impairment loss on land
 
(371
)
 

Income tax expense and other taxes
 
(81
)
 
(134
)
Consolidated net income of DCT Industrial Trust Inc.
 
50,942

 
15,789

Net income attributable to noncontrolling interests
 
(2,119
)
 
(830
)
Net income attributable to common stockholders
 
48,823

 
14,959

Distributed and undistributed earnings allocated to participating securities
 
(271
)
 
(161
)
Adjusted net income attributable to common stockholders
 
$
48,552

 
$
14,798

 
 
 
 
 
NET EARNINGS PER COMMON SHARE:
 
 

 
 

Basic
 
$
0.52

 
$
0.16

Diluted
 
$
0.52

 
$
0.16

 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic
 
93,812

 
91,751

Diluted
 
93,837

 
91,884

 
 
 
 
 
Distributions declared per common share
 
$
0.36

 
$
0.31

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


4




DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
 
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Consolidated net income of DCT Industrial Trust Inc.
 
$
50,942

 
$
15,789

Other comprehensive income:
 
 

 
 

Net derivative gain on cash flow hedging instruments
 
3,655

 
361

Net reclassification adjustment on cash flow hedging instruments
 
1,100

 
1,486

Other comprehensive income
 
4,755

 
1,847

Comprehensive income
 
55,697

 
17,636

Comprehensive income attributable to noncontrolling interests
 
(2,333
)
 
(899
)
Comprehensive income attributable to common stockholders
 
$
53,364

 
$
16,737

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


5




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 Comprehen-
sive Loss
 
Non-controlling
Interests
 
 
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2017
 
$
2,049,463

 
93,707

 
$
937

 
$
2,985,122

 
$
(1,022,605
)
 
$
(11,893
)
 
$
97,902

Cumulative effect of revenue
   accounting change (Note 2)
 
2,256

 

 

 

 
2,256

 

 

Net income
 
50,942

 

 

 

 
48,823

 

 
2,119

Other comprehensive income
 
4,755

 

 

 

 

 
4,541

 
214

Issuance of common stock, net
of offering costs
 
10,769

 
191

 
2

 
10,767

 

 

 

Issuance of common stock, stock-based compensation plans
 
(907
)
 
28

 
1

 
(908
)
 

 

 

Amortization of stock-based compensation
 
1,869

 

 

 
440

 

 

 
1,429

Distributions to common stockholders and noncontrolling interests
 
(35,413
)
 

 

 

 
(33,908
)
 

 
(1,505
)
Capital contributions from noncontrolling interests
 
443

 

 

 

 

 

 
443

Redemptions of noncontrolling interests
 
(1,155
)
 
149

 
1

 
3,883

 

 

 
(5,039
)
Balance at March 31, 2018
 
$
2,083,022

 
94,075

 
$
941

 
$
2,999,304

 
$
(1,005,434
)
 
$
(7,352
)
 
$
95,563

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


6


DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, in thousands)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
OPERATING ACTIVITIES:
 
 

 
 

Consolidated net income of DCT Industrial Trust Inc.
 
$
50,942

 
$
15,789

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

 
 

Real estate related depreciation and amortization
 
41,232

 
41,605

Gain on dispositions of real estate interests
 
(32,190
)
 

Distributions of earnings from unconsolidated joint ventures
 
1,611

 
1,671

Equity in earnings of unconsolidated joint ventures, net
 
(1,077
)
 
(1,516
)
Impairment loss on land
 
371

 

Stock-based compensation
 
1,569

 
1,426

Casualty gain (loss)
 
5

 
(270
)
Straight-line rent
 
(1,634
)
 
(3,392
)
Other
 
1,180

 
1,338

Changes in operating assets and liabilities:
 
 

 
 

Other receivables and other assets
 
(2,385
)
 
250

Accounts payable, accrued expenses and other liabilities
 
(10,601
)
 
(4,703
)
Net cash provided by operating activities
 
49,023

 
52,198

INVESTING ACTIVITIES:
 
 

 
 

Real estate acquisitions
 
(14,653
)
 
(9,963
)
Capital expenditures and development activities
 
(78,093
)
 
(49,478
)
Proceeds from dispositions of real estate investments
 
98,740

 

Investments in unconsolidated joint ventures
 
(127
)
 
(3,727
)
Proceeds from casualties
 

 
270

Distributions of investments in unconsolidated joint ventures
 
383

 
503

Other investing activities
 
(1,737
)
 
(2,943
)
Net cash provided by (used in) investing activities
 
4,513

 
(65,338
)
FINANCING ACTIVITIES:
 
 

 
 

Proceeds from senior unsecured revolving line of credit
 
45,000

 
93,000

Repayments of senior unsecured revolving line of credit
 
(15,000
)
 
(61,000
)
Proceeds from senior unsecured notes
 

 
51,940

Repayments of senior unsecured notes
 

 
(25,000
)
Principal payments on mortgage notes
 
(1,694
)
 
(27,954
)
Net settlement on issuance of stock-based compensation awards
 
(907
)
 
(730
)
Proceeds from issuance of common stock
 
10,963

 
10,729

Offering costs for issuance of common stock and OP Units
 
(194
)
 
(464
)
Redemption of noncontrolling interests
 
(1,155
)
 
(780
)
Dividends to common stockholders
 
(33,779
)
 
(28,402
)
Distributions paid to noncontrolling interests
 
(1,522
)
 
(1,310
)
Contributions from noncontrolling interests
 
443

 
80

Other financing activity
 

 
(608
)
Net cash provided by financing activities
 
2,155

 
9,501

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
55,691

 
(3,639
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
 
25,845

 
18,074

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
 
$
81,536

 
$
14,435

 
 
 

 
 

Supplemental Disclosures of Cash Flow Information
 
 
 
 
Cash paid for interest, net of capitalized interest
 
$
14,574

 
$
14,264

Supplemental Disclosures of Non-Cash Activities
 
 

 
 

Retirement of fully depreciated and amortized assets
 
$
10,145

 
$
7,623

Redemptions of OP Units settled in shares of common stock
 
$
3,884

 
$
1,518

Increase in dividends declared and not paid
 
$
(112
)
 
$
(123
)
Decrease in capital expenditures accruals
 
$
7,816

 
$
6,088

Capitalized stock compensation
 
$
300

 
$
340

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

7


DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except unit information)
 
 
March 31, 2018
 
December 31, 2017
ASSETS
 
(unaudited)
 
 
Land
 
$
1,172,654

 
$
1,162,908

Buildings and improvements
 
3,336,574

 
3,284,976

Intangible lease assets
 
60,791

 
65,919

Construction in progress
 
162,794

 
149,994

Total investment in properties
 
4,732,813

 
4,663,797

Less accumulated depreciation and amortization
 
(947,731
)
 
(919,186
)
Net investment in properties
 
3,785,082

 
3,744,611

Investments in and advances to unconsolidated joint ventures
 
73,691

 
72,231

Net investment in real estate
 
3,858,773

 
3,816,842

Cash and cash equivalents
 
12,371

 
10,522

Restricted cash
 
68,613

 
14,768

Straight-line rent and other receivables, net of allowance
   for doubtful accounts of $413 and $425, respectively
 
81,980

 
80,119

Other assets, net
 
30,958

 
25,740

Assets held for sale
 
3,146

 
62,681

Total assets
 
$
4,055,841

 
$
4,010,672

 
 
 
 
 
LIABILITIES AND CAPITAL
 
 

 
 

Liabilities:
 
 

 
 

Accounts payable and accrued expenses
 
$
95,020

 
$
115,150

Distributions payable
 
35,182

 
35,070

Tenant prepaids and security deposits
 
37,174

 
34,946

Other liabilities
 
36,511

 
34,172

Intangible lease liabilities, net
 
17,915

 
18,482

Line of credit
 
264,000

 
234,000

Senior unsecured notes
 
1,328,576

 
1,328,225

Mortgage notes
 
158,350

 
160,129

Liabilities related to assets held for sale
 
91

 
1,035

Total liabilities
 
1,972,819

 
1,961,209

 
 
 
 
 
Partners' Capital:
 
 

 
 

General Partner:
 
 

 
 

OP Units, 973,166 and 969,565 issued and outstanding as of March
31, 2018 and December 31, 2017, respectively
 
20,748

 
20,467

Limited Partners:
 
 

 
 

OP Units, 96,343,447 and 95,986,961 issued and outstanding as of
   March 31, 2018 and December 31, 2017, respectively
 
2,054,071

 
2,026,234

Accumulated other comprehensive loss
 
(7,604
)
 
(12,303
)
Total partners' capital
 
2,067,215

 
2,034,398

Noncontrolling interests
 
15,807

 
15,065

Total capital
 
2,083,022

 
2,049,463

Total liabilities and capital
 
$
4,055,841

 
$
4,010,672

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


8


DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited, in thousands, except per unit information)
 
 
 
Three Months Ended March 31,
 
 
2018
 
2017
REVENUES:
 
 
 
 

Rental revenues
 
$
109,423

 
$
105,424

Institutional capital management and other fees
 
384

 
472

Total revenues
 
109,807

 
105,896

 
 
 
 
 
OPERATING EXPENSES:
 
 

 
 

Rental expenses
 
10,239

 
9,462

Real estate taxes
 
16,724

 
16,766

Real estate related depreciation and amortization
 
41,232

 
41,605

General and administrative
 
7,464

 
7,192

Casualty loss (gain)
 
5

 
(270
)
Total operating expenses
 
75,664

 
74,755

Operating income
 
34,143

 
31,141

 
 
 
 
 
OTHER INCOME (EXPENSE):
 
 

 
 

Equity in earnings of unconsolidated joint ventures, net
 
1,077

 
1,516

Gain on dispositions of real estate interests
 
32,190

 
26

Interest expense
 
(16,050
)
 
(16,755
)
Interest and other income (expense)
 
34

 
(5
)
Impairment loss on land
 
(371
)
 

Income tax expense and other taxes
 
(81
)
 
(134
)
Consolidated net income of DCT Industrial Operating Partnership LP
 
50,942

 
15,789

Net income attributable to noncontrolling interests
 
(388
)
 
(233
)
Net income attributable to OP Unitholders
 
50,554

 
15,556

Distributed and undistributed earnings allocated to participating securities
 
(271
)
 
(161
)
Adjusted net income attributable to OP Unitholders
 
$
50,283

 
$
15,395

 
 
 
 
 
NET EARNINGS PER OP UNIT:
 
 

 
 

Basic
 
$
0.52

 
$
0.16

Diluted
 
$
0.52

 
$
0.16

 
 
 
 
 
WEIGHTED AVERAGE OP UNITS OUTSTANDING:
Basic
 
97,135

 
95,416

Diluted
 
97,160

 
95,549

 
 
 
 
 
Distributions declared per OP Unit
 
$
0.36

 
$
0.31

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

9




DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
 
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Consolidated net income of DCT Industrial Operating Partnership LP
 
$
50,942

 
$
15,789

Other comprehensive income:
 
 

 
 

Net derivative gain on cash flow hedging instruments
 
3,655

 
361

Net reclassification adjustment on cash flow hedging instruments
 
1,100

 
1,486

Other comprehensive income
 
4,755

 
1,847

Comprehensive income
 
55,697

 
17,636

Comprehensive income attributable to noncontrolling interests
 
(444
)
 
(247
)
Comprehensive income attributable to OP Unitholders
 
$
55,253

 
$
17,389

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


10




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, 2017
 
$
2,049,463

 
970

 
$
20,467

 
95,987

 
$
2,026,234

 
$
(12,303
)
 
$
15,065

Cumulative effect of revenue accounting
   change (Note 2)
 
2,256

 

 
23

 

 
2,233

 

 

Net income
 
50,942

 

 
506

 

 
50,048

 

 
388

Other comprehensive income
 
4,755

 

 

 

 

 
4,699

 
56

Issuance of OP Units, net of selling costs
 
10,769

 

 

 
191

 
10,769

 

 

Issuance of OP Units, share-based
   compensation plans
 
(907
)
 

 

 
190

 
(907
)
 

 

Amortization of share-based compensation
 
1,869

 

 

 

 
1,869

 

 

Distributions to OP Unitholders
   and noncontrolling interests
 
(35,413
)
 

 
(352
)
 

 
(34,858
)
 

 
(203
)
Capital contributions from
   noncontrolling interests
 
443

 

 

 

 

 

 
443

Redemption of limited partner OP Units, net
 
(1,155
)
 

 

 
(21
)
 
(1,213
)
 

 
58

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

 
4

 
104

 
(4
)
 
(104
)
 

 

Balance at March 31, 2018
 
$
2,083,022

 
974

 
$
20,748

 
96,343

 
$
2,054,071

 
$
(7,604
)
 
$
15,807

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


11




DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, in thousands)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
OPERATING ACTIVITIES:
 
 

 
 

Consolidated net income of DCT Industrial Operating Partnership LP
 
$
50,942

 
$
15,789

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
 
41,232

 
41,605

Gain on dispositions of real estate interests
 
(32,190
)
 

Distributions of earnings from unconsolidated joint ventures
 
1,611

 
1,671

Equity in earnings of unconsolidated joint ventures, net
 
(1,077
)
 
(1,516
)
Impairment loss on land
 
371

 

Share-based compensation
 
1,569

 
1,426

Casualty gain (loss)
 
5

 
(270
)
Straight-line rent
 
(1,634
)
 
(3,392
)
Other
 
1,180

 
1,338

Changes in operating assets and liabilities:
 
 

 
 

Other receivables and other assets
 
(2,385
)
 
250

Accounts payable, accrued expenses and other liabilities
 
(10,601
)
 
(4,703
)
Net cash provided by operating activities
 
49,023

 
52,198

INVESTING ACTIVITIES:
 
 

 
 

Real estate acquisitions
 
(14,653
)
 
(9,963
)
Capital expenditures and development activities
 
(78,093
)
 
(49,478
)
Proceeds from dispositions of real estate investments
 
98,740

 

Investments in unconsolidated joint ventures
 
(127
)
 
(3,727
)
Proceeds from casualties
 

 
270

Distributions of investments in unconsolidated joint ventures
 
383

 
503

Other investing activities
 
(1,737
)
 
(2,943
)
Net cash provided by (used in) investing activities
 
4,513

 
(65,338
)
FINANCING ACTIVITIES:
 
 

 
 

Proceeds from senior unsecured revolving line of credit
 
45,000

 
93,000

Repayments of senior unsecured revolving line of credit
 
(15,000
)
 
(61,000
)
Proceeds from senior unsecured notes
 

 
51,940

Repayments of senior unsecured notes
 

 
(25,000
)
Principal payments on mortgage notes
 
(1,694
)
 
(27,954
)
Net settlement on issuance of share-based compensation awards
 
(907
)
 
(730
)
Proceeds from the issuance of OP Units in exchange for contributions from the REIT, net
 
10,769

 
10,265

OP Unit redemptions
 
(1,155
)
 
(780
)
Distributions paid on OP Units
 
(35,098
)
 
(29,631
)
Distributions paid to noncontrolling interests
 
(203
)
 
(81
)
Contributions from noncontrolling interests
 
443

 
80

Other financing activity
 

 
(608
)
Net cash provided by financing activities
 
2,155

 
9,501

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
55,691

 
(3,639
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
 
25,845

 
18,074

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
 
$
81,536

 
$
14,435

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 

 
 

Cash paid for interest, net of capitalized interest
 
$
14,574

 
$
14,264

Supplemental Disclosures of Non-Cash Activities
 
 

 
 

Retirement of fully depreciated and amortized assets
 
$
10,145

 
$
7,623

Decrease increase in capital expenditures accruals
 
$
7,816

 
$
6,088

Capitalized stock compensation
 
$
300

 
$
340


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

12




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 ownership, acquisition, development, leasing and management of bulk-distribution and light-industrial properties located in high-demand distribution markets in the United States. DCT's actively managed portfolio is strategically located near population centers and well-positioned to take advantage of market dynamics. 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” or “DCT Industrial,” we are referring to DCT Industrial Trust Inc. by itself, and not including any of its subsidiaries, and when we use the term “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 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 March 31, 2018, DCT owned approximately 96.7% of the outstanding equity interests in the Operating Partnership.
As of March 31, 2018, the Company owned interests in approximately 73.7 million square feet of properties leased to approximately 840 customers, including:
63.3 million square feet comprising 393 consolidated operating properties, including five properties totaling 101,000 square feet classified as held for sale, that were 97.7% occupied;
1.7 million square feet comprising six consolidated properties developed by DCT which are shell-construction complete and in lease-up;
0.1 million square feet comprising one consolidated property under redevelopment;
1.0 million square feet comprising four consolidated value-add acquisitions; and
7.6 million square feet comprising 21 unconsolidated properties that were 99.2% occupied and which we operated on behalf of two unconsolidated joint ventures.
In addition, the Company has 20 projects under construction and 13 projects in pre-development. See “Note 3 – Investment in Properties” for further details related to our development activity.

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 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 our audited Consolidated Financial Statements as of December 31, 2017 and related notes thereto included in our Form 10-K filed on February 16, 2018.
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.

13




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. 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 for the purposes of operating and developing industrial real estate. 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 where we exercise significant influence, but do not have control over major operating and management decisions and we 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 (or equivalent body), the size of our investment (including loans), our obligation or right to absorb its losses or receive its benefits and our ability to participate in major decisions.  
If a joint venture does not meet the characteristics of a VIE, we apply the voting interest model to determine whether the entity should be consolidated. Our ability to assess our influence or control over an entity affects the presentation of these investments in the Consolidated Financial Statements and our financial position and results of operations.
We concluded our Operating Partnership meets the criteria of a VIE as the Operating Partnership’s limited partners do not have the right to remove the general partner and do not have substantive participating rights in the operations of the Operating Partnership. Under the Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”), DCT is the primary beneficiary of the Operating Partnership as we have the obligation to absorb losses and receive benefits, and the power to control substantially all the activities which most significantly impact the economic performance of the Operating Partnership. Accordingly, the Operating Partnership is consolidated within DCT’s financial statements.
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.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash held in financial institutions and other highly liquid short-term investments with original maturities of three months or less. We have not realized any losses in our cash and cash equivalents and believe that these short-term instruments are not exposed to any significant credit risk. Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and capital replacement reserves, security deposits and amounts held by intermediary agents to be used for tax-deferred, like-kind exchange transactions. As of March 31, 2018, approximately $67.4 million of restricted cash was included in “Cash, Cash Equivalents and Restricted Cash” in our Consolidated Statements of Cash Flows related to tax deferred, like-kind exchange transactions.
The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within our Consolidated Balance Sheets to amounts reported within our Consolidated Statements of Cash Flows (in thousands):
 
 
As of March 31,
 
 
2018
 
2017
Cash and cash equivalents
 
$
12,371

 
$
12,353

Restricted cash
 
68,613

 
1,651

Restricted cash included in Other assets, net(1)
 
552

 
431

Total cash, cash equivalents and restricted cash
 
$
81,536

 
$
14,435


14




(1) Includes cash balances presented in assets held for sale in our Consolidated Balance Sheets.
Revenue Recognition
At the inception of a new lease arrangement, including new leases that arise from amendments, we assess the terms and conditions to determine the proper lease classification. A lease arrangement is classified as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee, (ii) lessee has a bargain purchase option during or at the end of the lease term, (iii) the lease term is equal to 75% or more of the underlying property’s economic life, or (iv) the present value of future minimum lease payments (excluding executory costs) are equal to 90% or more of the excess estimated fair value (over retained investment tax credits) of the leased building. Generally, our leases do not meet any of the listed criteria above and are classified as operating leases.
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, receivables from tenants that we expect to collect over the remaining lease term are recorded on the balance sheet as straight-line rent receivables. The total increase to “Rental revenues” due to straight-line rent adjustments was approximately $1.6 million and $3.4 million for the three months ended March 31, 2018, and 2017, respectively.
If the lease provides for tenant improvements, we determine whether the tenant improvements are owned by the tenant or us. When we are the owner of the tenant improvements, the tenant generally is not considered to have taken physical possession or have control of the leased asset until the tenant improvements are substantially complete. When we are the owner of the tenant improvements, any tenant improvements funded by the tenant are treated as lease payments which are deferred and amortized into rental revenues over the lease term. When the tenant is the owner of the tenant improvements, we record any tenant improvement allowance funded as a lease incentive and amortize it as a reduction of rental revenue over the lease term. Tenant recovery income includes reimbursements due from tenants pursuant to their leases for real estate taxes, insurance, repairs and maintenance and other recoverable property operating expenses and is recognized as “Rental revenues” during the period the related expenses are incurred. The reimbursements are recognized and presented on a gross basis, as the Company generally has control for fulfillment of services and other costs that are reimbursable, with respect to purchasing goods and services from third party suppliers. Tenant recovery income recognized as “Rental revenues” was approximately $26.9 million and $25.9 million for the three months ended March 31, 2018 and 2017, respectively. We maintain an allowance for estimated losses that may result from the inability of our customers to make required payments. If a customer 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 asset acquisitions or 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. We consider a reasonably assured term to be the measurement period equal to the remaining non-cancelable term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market 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 $0.7 million for the three months ended March 31, 2018 and 2017.
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. Early lease termination fees were approximately $0.4 million and $0.5 million for the three months ended March 31, 2018 and 2017, respectively.
We earn revenues from asset management fees, acquisition fees, property management fees and fees for other services pursuant to joint venture and other third-party 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 underlying performance obligations to the customer are satisfied, which is when the services are performed.

15




New Accounting Standards
New Accounting Standards Adopted
In May 2014, FASB issued ASU 2014-09 Revenue from Contracts with Customers (“ASU 2014-09”), 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 FASB subsequently issued additional ASUs which improve guidance and provide clarification of the new standard. The guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years beginning after December 15, 2016. The Company adopted the standard effective January 1, 2018 and utilized the modified retrospective transition method.
Given the nature of our business, our primary revenue stream is from relatively short-term operating leases with tenants. Additionally, our historical property dispositions have been cash sales with no contingencies and no future involvement in the property operations. Our revenues that are under the scope of ASU 2014-09 are related to our asset management fees, acquisition fees, property management fees and fees for other services pursuant to joint venture and other third-party agreements, which are included in our Consolidated Statements of Operations in “Institutional capital management and other fees" as shown below:
 
 
As of March 31,
 
 
2018
 
2017
Rental revenues
 
$
109,423

 
$
105,424

Institutional capital management and other fees
 
384

 
472

Total revenues
 
$
109,807

 
$
105,896

Substantially all of our revenues are generated from lease rentals, which fall under the scope of the new lease accounting ASU discussed below in New Accounting Standards Issued but not yet Adopted. We are still evaluating the treatment of nonlease components in our leases that primarily relate tenant recovery income for such items as common area maintenance expenses, which are also under the scope of the new lease accounting ASU.
As a result of adoption, the total impact to our financial statements in the first quarter of 2018 was a cumulative adjustment recorded as an increase of $2.3 million to “Investments in and advances to unconsolidated joint ventures” and a decrease to “Distributions in excess of earnings” related to the de-recognition of deferred gains related to a previous contributions of real estate properties into our joint ventures. No other material impacts to the Consolidated Financial Statements and related disclosures or internal control environment were identified upon adoption.

16




New Accounting Standards Issued but not yet Adopted
In February 2016, the FASB issued an ASU that modifies existing accounting standards for lease accounting. The new standard requires a lessee to record a lease asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. Leases in which we are the lessors will be accounted as sales-type leases, direct financing leases or operating leases. Revenue related to the lease components of a lease contract will be recognized on a straight-line basis. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted for fiscal years beginning after December 15, 2016.
The Company has a limited number of office and ground leases which will require further evaluation by the Company, but we anticipate they will be treated as operating leases, which will result in the Company recording a lease liability for our obligation for payments over the remaining lease term and an offsetting right-of-use asset in our Consolidated Balance Sheets. As disclosed in our annual Consolidated Financial Statements as of December 31, 2017 and related notes thereto included in our Form 10-K, we had $18.9 million of future noncancelable lease payments primarily related to our office and ground leases that will be required to be recorded on our Consolidated Balance Sheets. Our operating leases for which we are the lessee will generally have an expense pattern consistent with our historical recognition for operating leases. We don't anticipate the impact of the lease accounting ASU for leases in which we are the lessee to have a material impact on our Consolidated Financial Statements.
Leases in which we are the lessor will continue to be accounted for as operating leases with minimal impact on the Company's financial condition or results of operation; however, this standard may impact the timing of recognition and disclosures related to our tenant recovery income earned from leasing our consolidated operating properties. As such, we are currently evaluating the impact of nonlease components such as tenant recovery income. Additionally, the standard only allows for the capitalization of the initial direct costs that would have been incurred if the lease had not been obtained. The adoption of this guidance will impact our current policy regarding the capitalization of internal direct costs related to the successful origination of new leases and likely will reduce the amount of costs we currently capitalize for new leases. During the three months ended March 31, 2018, we capitalized $0.8 million of internal direct costs related to successful origination of new leases.
We are currently evaluating the impacts of the new lease standard, which includes taking inventory of leases in which we are the lessee, changing internal policies and processes with regards to the cost to obtain leases, evaluating the appropriate accounting treatment for nonlease elements in which we are the lessor and evaluating the impact on our internal controls. The standard requires a modified retrospective transition approach for all capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with an option to use certain transition relief. The Company expects to adopt this standard effective January 1, 2019.
Note 3 – Investment in Properties
Our consolidated investment in properties consists of our operating portfolio, value-add acquisitions, properties under development, properties in pre-development, redevelopment properties and land held for development or other purposes. The historical cost of our investment in properties was (in thousands):
 
 
As of March 31, 2018
 
As of December 31, 2017
Operating portfolio
 
$
4,261,599

 
$
4,249,242

Properties under development
 
320,062

 
280,492

Properties in pre-development
 
60,412

 
51,883

Properties under redevelopment(1)
 
9,838

 
9,481

Value-add acquisitions(2)
 
77,246

 
68,673

Land held(3)
 
3,656

 
4,026

Total investment in properties
 
4,732,813

 
4,663,797

Less accumulated depreciation and amortization
 
(947,731
)
 
(919,186
)
Net investment in properties
 
$
3,785,082

 
$
3,744,611

(1) 
Represents properties out of service while significant physical renovation of the property is underway or while the property is in lease-up subsequent to such renovation. May include properties taken out of service to change the properties' use and/or enhance its functionality.
(2) 
Consolidated properties that were acquired and upon acquisition met either of the following criteria:
Occupancy of less than 75% upon acquisition; or
Occupancy of less than 75% expected to occur due to known move-outs within 24 months of the acquisition date.

17




Consolidated properties that were acquired vacant or with known move-outs within 24 months of the acquisition date with the intention to have the property out of service for significant physical renovations are classified as redevelopment properties.
(3) 
Land held that is not intended to be improved or developed in the near future.
Acquisition Activity
During the three months ended March 31, 2018, we acquired one building totaling approximately 37.0 thousand square feet located in our Northern California market for a total purchase price of approximately $7.1 million. The building is classified as a Value-Add Acquisition as it was acquired via a sale-leaseback transaction with a short lease that expires on August 31, 2018.
Development Activity
Our properties under development include the following:
Six buildings in our Chicago, Dallas, Denver and Northern California markets totaling approximately 1.7 million square feet that we completed shell-construction as of March 31, 2018 with cumulative costs to date of approximately $106.8 million. These properties are 15.2% leased and occupied based on weighted average square feet as of March 31, 2018.
Twenty projects under construction totaling approximately 4.2 million square feet with cumulative costs to date of approximately $213.3 million.
During the three months ended March 31, 2018, we acquired approximately 9.2 acres of land for development in our Southern California market for approximately $7.3 million.
Disposition Activity
During the three months ended March 31, 2018, we sold six consolidated operating properties totaling approximately 1.9 million square feet from our Atlanta, Charlotte, Memphis, Northern California and Phoenix markets to third-parties for gross proceeds of approximately $100.9 million. We recognized gains of approximately $32.2 million on the disposition of these properties.
Impairment Loss on Land
During the three months ended March 31, 2018, the Company recognized a $0.4 million impairment loss on land held and used. Located in Reno, Nevada, the land was being held for future development. The land is currently under contract and in due diligence. Based on the Company’s intent to sell and various market estimates, we recorded an impairment to recognize the land at estimated fair value, which was primarily based on level 3 fair value inputs.
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 $2.2 million and $2.8 million for the three months ended March 31, 2018 and 2017, respectively. Our intangible lease assets and liabilities included the following (in thousands):
 
 
As of March 31, 2018
 
As of December 31, 2017
 
 
Gross
 
Accumulated
Amortization
 
Net
 
Gross
 
Accumulated
Amortization
 
Net
Other intangible lease assets
 
$
57,657

 
$
(34,125
)
 
$
23,532

 
$
62,785

 
$
(37,114
)
 
$
25,671

Above market rent
 
$
3,134

 
$
(1,870
)
 
$
1,264

 
$
3,134

 
$
(1,756
)
 
$
1,378

Below market rent
 
$
(28,624
)
 
$
10,709

 
$
(17,915
)
 
$
(28,883
)
 
$
10,401

 
$
(18,482
)
 
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.


18




The following table summarizes our unconsolidated joint ventures (dollars in thousands):
 
 
As of March 31, 2018
 
Investments in and Advances to as of
 
 
Ownership Percentage
 
Number of Buildings
 
March 31,
2018
 
December 31,
2017
Unconsolidated Joint Ventures
 
 
 
 
Institutional Joint Ventures:
 
 

 
 

 
 
 
DCT/SPF Industrial Operating LLC
 
20.0
%
 
13

 
$
38,595

 
$
36,630

TRT-DCT Venture III
 
10.0
%
 

 
220

 
220

Total Institutional Joint Ventures
 
 

 
13

 
38,815

 
36,850

Other:
 
 

 
 

 
 

 
 

SCLA(1)
 
50.0
%
 
8

 
34,876

 
35,381

Total
 
 

 
21

 
$
73,691

 
$
72,231

 
(1) 
Although we contributed 100% of the initial cash equity capital required by the venture, after return of certain preferential distributions on capital invested, profits and losses are generally split 50/50.
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 do not believe we have any material exposure to financial guarantees.

Note 5 – Financial Instruments and Hedging Activities
Fair Value of Financial Instruments
As of March 31, 2018, and December 31, 2017, 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):
 
 
As of March 31, 2018
 
As of December 31, 2017
 
 
Carrying
Amounts
 
Estimated
Fair Value
 
Carrying
Amounts
 
Estimated
Fair Value
Borrowings:(1)
 
 

 
 

 
 

 
 

Senior unsecured revolving credit facility
 
$
264,000

 
$
264,000

 
$
234,000

 
$
234,000

Fixed rate debt(2)
 
$
1,368,622

 
$
1,390,321

 
$
1,370,421

 
$
1,419,518

Variable rate debt
 
$
125,000

 
$
122,125

 
$
125,000

 
$
123,020

 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 

 
 

 
 

 
 

Interest rate swap asset(3)
 
$
7,387

 
$
7,387

 
$
3,866

 
$
3,866

 
(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 and excludes deferred loan costs.
(3) 
The fair values 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. The asset or liability is included in “Other assets, net” or “Other liabilities,” respectively, in our Consolidated Balance Sheets.
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 issuances of new debt, as well as refinancing of existing debt upon maturity.

19




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. 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.

For derivatives designated as “cash flow” hedges, the change 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 “Interest expense” when the hedged transaction affects earnings or the hedging relationship is no longer highly effective. 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 USD LIBOR rates. The pay-fixed, receive-floating interest rate swaps have an effective date of June 2013 and a maturity date of June 2023. These interest rate swaps effectively fix the interest rate on the related debt instruments at 4.72%. As of March 31, 2018, and December 31, 2017, we had borrowings payable subject to these pay-fixed, receive-floating interest rate swaps with aggregate principal balances of approximately $6.4 million for both periods presented.
During December 2015, we entered into a pay-fixed, receive-floating interest rate swap to hedge the variability of future cash flows attributable to changes in the 1 month USD LIBOR rates on our $200.0 million unsecured term loan. The pay-fixed, receive-floating interest rate swap has an effective date of December 2015 and a maturity date of December 2022. During December 2017, we amended the senior unsecured term loan, lowering our margin to between .90% to 1.75% per annum effective January 1, 2018. The interest rate swap effectively fixes the interest rate on the related debt instrument at 2.81%, however, there is no floor on the variable interest rate of the swap whereas the current variable rate debt is subject to a 0.0% floor. In the event that USD LIBOR is negative, the Company will make payments to the hedge counterparty equal to the negative spread between USD LIBOR and zero. As of March 31, 2018, and December 31, 2017, the entire $200.0 million principal amount of the term loan was subject to this pay-fixed, receive-floating interest rate swap.
The following table presents the effect of our derivative financial instruments on our accompanying Consolidated Financial Statements (in thousands):
 
 
For the Three Months Ended March 31,
 
 
2018
 
2017
Derivatives in Cash Flow Hedging Relationships
 
 

Interest Rate Swaps:
 
 
 
 

Amount of gain recognized in OCI for derivatives
 
$
3,655

 
$
361

Amount of loss reclassified from accumulated OCI for derivatives into interest expense and equity in earnings of unconsolidated joint ventures, net
 
$
(1,100
)
 
$
(1,486
)
Amount of loss recognized in interest expense (ineffective portion and amount excluded from effectiveness testing)
 
$

 
$
(30
)
 
 
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 $2.9 million will be reclassified from “Accumulated other comprehensive loss” to “Interest expense” resulting in an increase in interest expense.


20




Note 6 – Outstanding Indebtedness
As of March 31, 2018, our outstanding indebtedness of approximately $1.8 billion consisted of senior unsecured notes, bank unsecured credit facilities and mortgage notes, excluding approximately $51.7 million representing our proportionate share of non-recourse debt associated with unconsolidated joint ventures. As of December 31, 2017, our outstanding indebtedness of approximately $1.7 billion consisted of senior unsecured notes, bank unsecured credit facilities and mortgage notes, excluding approximately $51.9 million representing our proportionate share of non-recourse debt associated with unconsolidated joint ventures.
As of March 31, 2018, the gross book value of our consolidated properties was approximately $4.7 billion and the gross book value of all properties securing our mortgage debt was approximately $0.5 billion. As of December 31, 2017, the gross book value of our consolidated properties was approximately $4.7 billion and the gross book value of all properties securing our mortgage debt was approximately $0.5 billion. Our debt has various covenants with which we were in compliance as of March 31, 2018 and December 31, 2017.
Line of Credit
As of March 31, 2018, we had $264.0 million outstanding and $134.1 million available under our $400.0 million senior unsecured revolving credit facility, net of two letters of credit totaling $1.9 million. As of December 31, 2017, we had $234.0 million outstanding and $164.1 million available under our $400.0 million senior unsecured revolving credit facility, net of two letters of credit totaling $1.9 million.
Guarantee of Debt
DCT has guaranteed the Operating Partnership’s obligations with respect to the senior unsecured notes and the bank unsecured credit facilities.

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.
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.

Note 8 – Stockholders’ Equity of DCT and Partners’ Capital of the Operating Partnership
DCT
Common Stock
As of March 31, 2018, approximately 94.1 million shares of common stock were issued and outstanding.
On September 10, 2015, we registered a continuous equity offering program whereby the Company may issue 5.0 million shares of common stock, at a par value of $0.01 per share, from time-to-time through September 10, 2018 in “at-the-market” offerings or certain other transactions. During the three months ended March 31, 2018, we issued approximately 0.2 million shares of common stock through the continuous equity offering program, at a weighted average price of $57.36 per share for proceeds of approximately $10.8 million, net of offering costs. We used the proceeds for general corporate purposes, including funding developments and redevelopments. As of March 31, 2018, approximately 0.5 million shares of common stock remain available to be issued under the current offering.
During the three months ended March 31, 2018 and 2017, we issued approximately 28,000 and 31,000 shares of common stock in each corresponding period related to vested shares of restricted stock.

21




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 March 31, 2018, and December 31, 2017, DCT owned approximately 96.7% and 96.6%, 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 Partnership Agreement stipulates 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 three months ended March 31, 2018, approximately 31,000 OP Units were redeemed, which were all in shares of DCT common stock. During the three months ended March 31, 2017, approximately 56,000 OP Units were redeemed for approximately $0.8 million in cash and approximately 40,000 shares of DCT common stock. The OP Unit redemptions exclude LTIP Unit redemptions, see “LTIP Units” below for a summary of LTIP Unit redemptions.
As of March 31, 2018, and December 31, 2017, there were approximately 3.2 million outstanding OP Units held by entities other than DCT and redeemable, with an aggregate redemption value of approximately $182.6 million and $191.0 million based on the $56.34 and $58.78 per share closing price of DCT’s common stock on March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018 and December 31, 2017, included in OP Units were approximately 0.8 million vested LTIP Units issued under our Long-Term Incentive Plan, as amended.
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 vest. Such expense is included in “General and administrative” expense in our Consolidated Statements of Operations.
Restricted Stock
Holders of restricted stock have voting rights and rights to receive dividends equally along with common shares. 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, based on the closing price of our common stock, and amortized to compensation expense on a straight-line basis over the service period during which the stock vests. Restricted stock generally vests ratably over a period of four or five years, depending on the grant. During the three months ended March 31, 2018, we granted approximately 29,000 shares of restricted stock to certain officers and employees at the weighted average fair market value of $58.05 per share.

22




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. LTIP Units generally vest ratably over a period of four to five years, depending on the grant. In addition to vesting, the implied or actual value of DCT common stock or OP Units per share/unit must be greater than the grant date fair value of the LTIP Units to be redeemable, which is a based on a conversion ratio. As such, vested LTIP Units may be redeemed by the Company in cash or in shares of DCT common stock, at the discretion of the Company, for a maximum of a one-for-one basis with common shares based on the conversion ratio, subject to certain restrictions of the Partnership Agreement. LTIP Units receive distributions equally along with common shares. LTIP Unit equity compensation is amortized to compensation expense over the service period during which the units vest.
During the three months ended March 31, 2018, approximately 0.1 million LTIP Units were granted to certain senior executives, which vest over a four year period with fair value per LTIP Unit of $54.29 which totals approximately $7.2 million at the date of grant as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a weighted average volatility factor of 18%, a weighted average risk-free interest rate of 2.51% and an assumed holding period of 5 years. During the three months ended March 31, 2018, approximately 118,000 vested LTIP Units were converted into approximately 118,000 shares of DCT common stock and approximately 21,000 vested LTIP Units were redeemed for approximately $1.2 million in cash. As of March 31, 2018, approximately 1.2 million LTIP Units were outstanding.

Note 9 – Net Earnings per Share/Unit
We use the two-class method of computing net earnings per common share/unit which is an earnings allocation formula that determines net 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, net 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, phantom 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.

DCT
The following table presents the computation of basic and diluted weighted average common shares outstanding (in thousands):
 
 
For the Three Months Ended March 31,
 
 
2018
 
2017
Denominator
 
 

 
 

Weighted average common shares outstanding – basic
 
93,812

 
91,751

Effect of dilutive securities:
 
 
 
 
Stock options
 
25

 
133

Weighted average common shares outstanding – diluted
93,837

 
91,884


Operating Partnership
The following table presents the computation of basic and diluted weighted average OP Units outstanding (in thousands):
 
 
For the Three Months Ended March 31,
 
 
2018
 
2017
Denominator
 
 

 
 

Weighted average OP Units outstanding – basic
 
97,135

 
95,416

Effect of dilutive securities:
 
 
 
 
Stock options
 
25

 
133

Weighted average OP Units outstanding – diluted
 
97,160

 
95,549

 

23




DCT and the Operating Partnership
Potentially Dilutive Shares
For the three months ended March 31, 2018 and 2017, DCT excluded from net earnings per diluted share the weighted average common share equivalents related to 3.3 million and 3.7 million OP Units, respectively, because their effect would be anti-dilutive.

Note 10 – 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 (“NOI”) aggregated by segment to be the appropriate way to analyze our performance.
The following table presents our total assets, net of accumulated depreciation and amortization, by segment (in thousands):
 
 
As of March 31, 2018
 
As of December 31, 2017
Segments:
 
 
 
 

East assets
 
$
1,086,894

 
$
1,125,085

Central assets
 
1,195,633

 
1,187,663

West assets
 
1,597,232

 
1,582,436

Total segment net assets
 
3,879,759

 
3,895,184

Non-segment assets:
 
 

 
 

Non-segment cash and cash equivalents
 
12,371

 
10,522

Other non-segment assets(1)
 
163,711

 
104,966

Total assets
 
$
4,055,841

 
$
4,010,672

(1) 
Other non-segment assets primarily consist of investments in and advances to unconsolidated joint ventures, deferred loan costs, other receivables, restricted cash and other assets.
The following table presents the rental revenues of our segments and a reconciliation of our segment rental revenues to our reported consolidated total revenues (in thousands):
 
 
For the Three Months Ended March 31,
 
 
2018
 
2017
East
 
$
31,389

 
$
31,661

Central
 
37,186

 
34,598

West
 
40,848

 
39,165

Rental revenues
 
109,423

 
105,424

Institutional capital management and other fees
 
384

 
472

Total revenues
 
$
109,807

 
$
105,896


24




The following table presents a reconciliation of our reported “Net income attributable to common stockholders” to our property NOI and property NOI of our segments (in thousands):
 
 
For the Three Months Ended March 31,
 
 
2018
 
2017
Net income attributable to common stockholders
 
$
48,823

 
$
14,959

Net income attributable to noncontrolling interests of DCT Industrial Trust Inc.
 
1,731

 
597

Net income attributable to OP Unitholders
 
$
50,554

 
$
15,556

Net income attributable to noncontrolling interests of the Operating Partnership
 
388

 
233

Institutional capital management and other fees
 
(384
)
 
(472
)
Gain on dispositions of real estate interests
 
(32,190
)
 
(26
)
Real estate related depreciation and amortization
 
41,232

 
41,605

Casualty loss (gain)
 
5

 
(270
)
General and administrative expense
 
7,464

 
7,192

Equity in earnings of unconsolidated joint ventures, net
 
(1,077
)
 
(1,516
)
Interest expense
 
16,050

 
16,755

Interest and other (income) expense
 
(34
)
 
5

Impairment loss on land
 
371

 

Income tax expense and other taxes
 
81

 
134

Property NOI(1)
 
$
82,460

 
$
79,196

 
 
 
 
 
East
 
$
24,227

 
$
24,218

Central
 
26,367

 
24,510

West
 
31,866

 
30,468

Property NOI(1)
 
$
82,460

 
$
79,196

 
(1) 
Property NOI is defined as rental revenues, which includes expense reimbursements, less rental expenses and real estate taxes, and excludes institutional capital management fees, depreciation, amortization, casualty gains and losses, gain on dispositions of real estate interests, impairment, general and administrative expenses, equity in earnings (loss) of unconsolidated joint ventures, interest expense, interest and other income and income tax 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 properties such as amortization, depreciation, impairment, interest expense, interest and other income, income tax expense and other taxes and general and administrative expenses.  However, property NOI should not be viewed as an alternative measure of our overall 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, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. 

Note 11 – Assets Held for Sale
As of March 31, 2018, five properties in our Central operating segment were classified as held for sale and are reported at the lower of carrying value or estimated fair value less estimated cost to sell. We completed the sales of these properties in April 2018.
Note 12 – Subsequent Events

GAAP requires an entity to disclose events that occur after the balance sheet date but before financial statements are issued or are available to be issued (“subsequent events”) as well as the date through which an entity has evaluated subsequent events. There are two types of subsequent events. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, (“recognized subsequent events”). The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (“nonrecognized subsequent events”).


Proposed Merger with Prologis, Inc.

25




On April 29, 2018, the Company and the Operating Partnership entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Prologis, Inc. (“Prologis”) and Prologis, L.P. ("PLDOP"), pursuant to which the Company will be merged with and into Prologis, and the Operating Partnership will be merged into PLDOP. The merger consideration will be approximately $8.4 billion in a stock-for-stock transaction, including the assumption of debt. Under the terms of the Merger Agreement, DCT stockholders and OP Unitholders will receive 1.02 Prologis shares and limited partnership interests in PLDOP, respectively, for each DCT share or OP Unit they own.

The boards of directors of both companies have unanimously approved the transaction. The transaction, which is currently expected to close in the third quarter of 2018, is subject to the approval of DCT stockholders and other customary closing conditions.









26




ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
We make statements in this report that are considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are usually identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation:
risks associated with our ability to consummate the merger and the timing and closing of the merger;
national, international, regional and local economic conditions;
the general level of interest rates and the availability of capital;
the competitive environment in which we operate;
real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets;
decreased rental rates or increasing vacancy rates;
defaults on or non-renewal of leases by tenants;
acquisition and development risks, including failure of such acquisitions and development projects to perform in accordance with projections;
</
the timing of acquisitions, dispositions and development;