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 March 31, 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  ¨    No  x

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 no check if a smaller reporting company)    Smaller reporting company   ¨

DCT Industrial Operating Partnership LP:

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do no 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 April 25, 2014, 327,736,740 shares of common stock of DCT Industrial Trust Inc., par value $0.01 per share, were outstanding.

 

 

 


Table of Contents

EXPLANATORY NOTE

This report combines the Quarterly Reports on Form 10-Q for the three months ended March 31, 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 March 31, 2014, DCT owned approximately 94.9% 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 5.1% of the Operating Partnership were owned by executives and non-affiliated limited partners as of March 31, 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.

 

1


Table of Contents

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 March 31, 2014 (unaudited) and December 31, 2013

     3   
 

Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013 (unaudited)

     4   
 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013 (unaudited)

     5   
 

Consolidated Statement of Changes in Equity for the three months ended March 31, 2014 (unaudited)

     6   
 

Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited)

     7   
 

DCT Industrial Operating Partnership LP

  
 

Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013

     8   
 

Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013 (unaudited)

     9   
 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2014 and 2013 (unaudited)

     10   
 

Consolidated Statement of Changes in Capital for the three months ended March 31, 2014 (unaudited)

     11   
 

Consolidated Statements of Cash Flows for the three months ended March 31, 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

     34   
    Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     49   
    Item 4.  

Controls and Procedures

     50   
PART II.  

OTHER INFORMATION

  
    Item 1.  

Legal Proceedings

     51   
    Item 1A.  

Risk Factors

     51   
    Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     51   
    Item 3.  

Defaults upon Senior Securities

     51   
    Item 4.  

Mine Safety Disclosure

     51   
    Item 5.  

Other Information

     51   
    Item 6.  

Exhibits

     51   
    SIGNATURES      52   

 

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DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share information)

 

     March 31,     December 31,  
     2014     2013  
     (unaudited)        

ASSETS

    

Land

   $ 892,927      $ 883,804   

Buildings and improvements

     2,665,717        2,615,879   

Intangible lease assets

     83,704        82,758   

Construction in progress

     85,054        88,610   
  

 

 

   

 

 

 

Total investment in properties

     3,727,402        3,671,051   

Less accumulated depreciation and amortization

     (680,140     (654,097
  

 

 

   

 

 

 

Net investment in properties

     3,047,262        3,016,954   

Investments in and advances to unconsolidated joint ventures

     101,198        124,923   
  

 

 

   

 

 

 

Net investment in real estate

     3,148,460        3,141,877   

Cash and cash equivalents

     17,025        32,226   

Restricted cash

     2,489        12,621   

Deferred loan costs, net

     9,704        10,251   

Straight-line rent and other receivables, net of allowance for doubtful accounts of $2,379 and $2,178, respectively

     50,596        46,247   

Other assets, net

     15,860        14,545   

Assets held for sale

     22,869        8,196   
  

 

 

   

 

 

 

Total assets

   $ 3,267,003      $ 3,265,963   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Liabilities:

    

Accounts payable and accrued expenses

   $ 61,640      $ 63,281   

Distributions payable

     24,265        23,792   

Tenant prepaids and security deposits

     24,632        28,542   

Other liabilities

     6,257        10,122   

Intangible lease liability, net

     19,868        20,389   

Line of credit

     34,000        39,000   

Senior unsecured notes

     1,122,459        1,122,407   

Mortgage notes

     279,782        290,960   

Liabilities related to assets held for sale

     5,961        278   
  

 

 

   

 

 

 

Total liabilities

     1,578,864        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 326,919,283 and 320,265,949 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively

     3,270        3,203   

Additional paid-in capital

     2,558,730        2,512,024   

Distributions in excess of earnings

     (963,617     (941,019

Accumulated other comprehensive loss

     (29,688     (30,402
  

 

 

   

 

 

 

Total stockholders’ equity

     1,568,695        1,543,806   

Noncontrolling interests

     119,444        123,386   
  

 

 

   

 

 

 

Total equity

     1,688,139        1,667,192   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 3,267,003      $ 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
March 31,
 
     2014     2013  

REVENUES:

    

Rental revenues

   $ 82,619      $ 67,309   

Institutional capital management and other fees

     764        812   
  

 

 

   

 

 

 

Total revenues

     83,383        68,121   
  

 

 

   

 

 

 

OPERATING EXPENSES:

    

Rental expenses

     12,402        8,349   

Real estate taxes

     13,197        10,579   

Real estate related depreciation and amortization

     36,433        30,196   

General and administrative

     6,834        6,339   

Impairment losses

     4,359        —     

Casualty and involuntary conversion gain

     —          (59
  

 

 

   

 

 

 

Total operating expenses

     73,225        55,404   
  

 

 

   

 

 

 

Operating income

     10,158        12,717   

OTHER INCOME (EXPENSE):

    

Development profit, net of taxes

     728        268   

Equity in earnings of unconsolidated joint ventures, net

     3,613        391   

Gain on acquisitions and dispositions of real estate interests

     2,045        —     

Interest expense

     (16,056     (16,860

Interest and other income

     28        162   

Income tax expense and other taxes

     (57     (109
  

 

 

   

 

 

 

Income (loss) from continuing operations

     459        (3,431

Income from discontinued operations

     9        5,067   
  

 

 

   

 

 

 

Consolidated net income of DCT Industrial Trust Inc.

     468        1,636   

Net income attributable to noncontrolling interests

     (151     (357
  

 

 

   

 

 

 

Net income attributable to common stockholders

     317        1,279   
  

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

     (166     (173
  

 

 

   

 

 

 

Adjusted net income attributable to common stockholders

   $ 151      $ 1,106   
  

 

 

   

 

 

 

EARNINGS PER COMMON SHARE—BASIC

    

Income (loss) from continuing operations

   $ 0.00      $ (0.01

Income from discontinued operations

     0.00        0.01   
  

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

EARNINGS PER COMMON SHARE—DILUTED

    

Income (loss) from continuing operations

   $ 0.00      $ (0.01

Income from discontinued operations

     0.00        0.01   
  

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

    

Basic

     323,942        281,063   

Diluted

     324,994        281,063   
  

 

 

   

 

 

 

Distributions declared per common share

   $ 0.07      $ 0.07   

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
March 31,
 
     2014     2013  

Consolidated net income of DCT Industrial Trust Inc.

   $ 468      $ 1,636   

Other comprehensive income:

    

Net derivative gain (loss) on cash flow hedging instruments

     (328     6   

Net reclassification adjustment on cash flow hedging instruments

     1,156        1,093   
  

 

 

   

 

 

 

Other comprehensive income

     828        1,099   
  

 

 

   

 

 

 

Comprehensive income

     1,296        2,735   

Comprehensive income attributable to noncontrolling interests

     (265     (456
  

 

 

   

 

 

 

Comprehensive income attributable to common stockholders

   $ 1,031      $ 2,279   
  

 

 

   

 

 

 

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)

 

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

Balance at December 31, 2013

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

Net income

     468        —           —           —          317        —          151   

Other comprehensive income

     828        —           —           —          —          714        114   

Issuance of common stock, net of offering costs

     43,692        5,899         59         43,633        —          —          —     

Issuance of common stock, stock-based compensation plans

     (271     260         3         (274     —          —          —     

Amortization of stock-based compensation

     1,294        —           —           419        —          —          875   

Distributions to common stockholders and noncontrolling interests

     (24,357     —           —           —          (22,915     —          (1,442

Purchases and redemptions of noncontrolling interests

     (707     494         5         2,928        —          —          (3,640
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2014

   $ 1,688,139        326,919       $ 3,270       $ 2,558,730      $ (963,617   $ (29,688   $ 119,444   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Three Months Ended
March 31,
 
     2014     2013  

OPERATING ACTIVITIES:

    

Consolidated net income of DCT Industrial Trust Inc.

   $ 468      $ 1,636   

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

    

Real estate related depreciation and amortization

     36,433        32,690   

Gain on acquisitions and dispositions of real estate interests

     (2,045     (2,877

Distributions of earnings from unconsolidated joint ventures

     1,351        1,563   

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

     (3,613     111   

Casualty and involuntary conversion gain

     —          (59

Impairment losses

     4,359        —     

Stock-based compensation

     1,038        794   

Straight-line rent

     (2,097     (1,516

Other

     1,692        2,379   

Changes in operating assets and liabilities:

    

Other receivables and other assets

     4,282        (4,539

Accounts payable, accrued expenses and other liabilities

     (9,179     (9,037
  

 

 

   

 

 

 

Net cash provided by operating activities

     32,689        21,145   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Real estate acquisitions

     (43,229     (35,010

Capital expenditures and development activities

     (38,693     (30,717

Proceeds from dispositions of real estate investments

     2,861        49,793   

Investments in unconsolidated joint ventures

     (771     (579

Proceeds from casualties and involuntary conversion

     205        4,761   

Distributions of investments in unconsolidated joint ventures

     16,487        640   

Other investing activities

     6,715        11   
  

 

 

   

 

 

 

Net cash used in investing activities

     (56,425     (11,101
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Proceeds from senior unsecured revolving line of credit

     12,000        56,000   

Repayments of senior unsecured revolving line of credit

     (17,000     (116,000

Proceeds from senior unsecured notes

     —          225,000   

Repayments of senior unsecured notes

     —          (175,000

Proceeds from mortgage notes

     —          9,303   

Principal payments on mortgage notes

     (5,282     (8,332

Proceeds from issuance of common stock

     43,980        27,942   

Offering costs for issuance of common stock and OP Units

     (559     (443

Redemption of noncontrolling interests

     (707     (615

Dividends to common stockholders

     (22,440     (19,656

Distributions to noncontrolling interests

     (1,444     (1,687

Other financing activity

     (13     246   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     8,535        (3,242
  

 

 

   

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

     (15,201     6,802   

CASH AND CASH EQUIVALENTS, beginning of period

     32,226        12,696   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, end of period

   $ 17,025      $ 19,498   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information

    

Cash paid for interest, net of capitalized interest

   $ 12,445      $ 16,609   

Supplemental Disclosures of Non-Cash Activities

    

Retirement of fully depreciated and amortized assets, net

   $ 5,202      $ 4,599   

Redemptions of OP Units settled in shares of common stock

   $ 2,933      $ 2,413   

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)

 

     March 31,     December 31,  
     2014     2013  
     (unaudited)        

ASSETS

    

Land

   $ 892,927      $ 883,804   

Buildings and improvements

     2,665,717        2,615,879   

Intangible lease assets

     83,704        82,758   

Construction in progress

     85,054        88,610   
  

 

 

   

 

 

 

Total investment in properties

     3,727,402        3,671,051   

Less accumulated depreciation and amortization

     (680,140     (654,097
  

 

 

   

 

 

 

Net investment in properties

     3,047,262        3,016,954   

Investments in and advances to unconsolidated joint ventures

     101,198        124,923   
  

 

 

   

 

 

 

Net investment in real estate

     3,148,460        3,141,877   

Cash and cash equivalents

     17,025        32,226   

Restricted cash

     2,489        12,621   

Deferred loan costs, net

     9,704        10,251   

Straight-line rent and other receivables, net of allowance for doubtful accounts of $2,379 and $2,178, respectively

     50,596        46,247   

Other assets, net

     15,860        14,545   

Assets held for sale

     22,869        8,196   
  

 

 

   

 

 

 

Total assets

   $ 3,267,003      $ 3,265,963   
  

 

 

   

 

 

 

LIABILITIES AND CAPITAL

    

Liabilities:

    

Accounts payable and accrued expenses

   $ 61,640      $ 63,281   

Distributions payable

     24,265        23,792   

Tenant prepaids and security deposits

     24,632        28,542   

Other liabilities

     6,257        10,122   

Intangible lease liability, net

     19,868        20,389   

Line of credit

     34,000        39,000   

Senior unsecured notes

     1,122,459        1,122,407   

Mortgage notes

     279,782        290,960   

Liabilities related to assets held for sale

     5,961        278   
  

 

 

   

 

 

 

Total liabilities

     1,578,864        1,598,771   
  

 

 

   

 

 

 

Partners’ Capital:

    

General Partner:

    

OP Units, 3,445,096 and 3,379,271 issued and outstanding as of March 31, 2014 and December 31, 2013, respectively

     17,073        16,872   

Limited Partners:

    

OP Units, 341,064,454 and 334,547,822 issued and outstanding as of March 31, 2014 and December 31, 2013, respectively

     1,690,231        1,670,362   

Accumulated other comprehensive loss

     (31,284     (32,077
  

 

 

   

 

 

 

Total partners’ capital

     1,676,020        1,655,157   

Noncontrolling interests

     12,119        12,035   
  

 

 

   

 

 

 

Total capital

     1,688,139        1,667,192   
  

 

 

   

 

 

 

Total liabilities and capital

   $ 3,267,003      $ 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
March 31,
 
     2014     2013  

REVENUES:

    

Rental revenues

   $ 82,619      $ 67,309   

Institutional capital management and other fees

     764        812   
  

 

 

   

 

 

 

Total revenues

     83,383        68,121   
  

 

 

   

 

 

 

OPERATING EXPENSES:

    

Rental expenses

     12,402        8,349   

Real estate taxes

     13,197        10,579   

Real estate related depreciation and amortization

     36,433        30,196   

General and administrative

     6,834        6,339   

Impairment losses

     4,359        —     

Casualty and involuntary conversion gain

     —          (59
  

 

 

   

 

 

 

Total operating expenses

     73,225        55,404   
  

 

 

   

 

 

 

Operating income

     10,158        12,717   

OTHER INCOME (EXPENSE):

    

Development profit, net of taxes

     728        268   

Equity in earnings of unconsolidated joint ventures, net

     3,613        391   

Gain on acquisitions and dispositions of real estate interests

     2,045        —     

Interest expense

     (16,056     (16,860

Interest and other income

     28        162   

Income tax expense and other taxes

     (57     (109
  

 

 

   

 

 

 

Income (loss) from continuing operations

     459        (3,431

Income from discontinued operations

     9        5,067   
  

 

 

   

 

 

 

Consolidated net income of DCT Industrial Operating Partnership LP

     468        1,636   

Net income attributable to noncontrolling interests

     (133     (265
  

 

 

   

 

 

 

Net income attributable to OP Unitholders

     335        1,371   
  

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

     (166     (173
  

 

 

   

 

 

 

Adjusted net income attributable to OP Unitholders

   $ 169      $ 1,198   
  

 

 

   

 

 

 

EARNINGS PER OP UNIT—BASIC

    

Income (loss) from continuing operations

   $ 0.00      $ (0.01

Income from discontinued operations

     0.00        0.01   
  

 

 

   

 

 

 

Net income attributable to OP Unitholders

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

EARNINGS PER OP UNIT—DILUTED

    

Income (loss) from continuing operations

   $ 0.00      $ (0.01

Income from discontinued operations

     0.00        0.01   
  

 

 

   

 

 

 

Net income attributable to OP Unitholders

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

WEIGHTED AVERAGE OP UNITS OUTSTANDING:

    

Basic

     341,770        301,346   

Diluted

     342,822        301,346   
  

 

 

   

 

 

 

Distributions declared per OP Unit

   $ 0.07      $ 0.07   

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
March 31,
 
     2014     2013  

Consolidated net income of DCT Industrial Operating Partnership LP

   $ 468      $ 1,636   

Other comprehensive income:

    

Net derivative gain (loss) on cash flow hedging instruments

     (328     6   

Net reclassification adjustment on cash flow hedging instruments

     1,156        1,093   
  

 

 

   

 

 

 

Other comprehensive income

     828        1,099   
  

 

 

   

 

 

 

Comprehensive income

     1,296        2,735   

Comprehensive income attributable to noncontrolling interests

     (168     (265
  

 

 

   

 

 

 

Comprehensive income attributable to OP Unitholders

   $ 1,128      $ 2,470   
  

 

 

   

 

 

 

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)

 

                 Accumulated        
           General Partner     Limited Partners     Other     Non-  
           OP Units     OP Units     Comprehensive     controlling  
     Total Capital     Units      Amount     Units     Amount     Loss     Interests  

Balance at December 31, 2013

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

Net income

     468        —           3        —          332        —          133   

Other comprehensive income

     828        —           —          —          —          793        35   

Issuance of OP Units, net of selling costs

     43,692        —           —          5,899        43,692        —          —     

Issuance of OP Units, share-based compensation plans

     (271     —           —          778        (271     —          —     

Amortization of share-based compensation

     1,294        —           —          —          1,294        —          —     

Distributions to OP Unitholders and noncontrolling interests

     (24,357     —           (243     —          (24,030     —          (84

Conversion and redemption of limited partner OP Units

     (707     —           —          (94     (707     —          —     

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

     —          66         441        (66     (441     —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2014

   $ 1,688,139        3,445       $ 17,073        341,065      $ 1,690,231      $ (31,284   $ 12,119   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Three Months Ended
March 31,
 
     2014     2013  

OPERATING ACTIVITIES:

    

Consolidated net income of DCT Industrial Operating Partnership LP

   $ 468      $ 1,636   

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

     36,433        32,690   

Gain on acquisitions and dispositions of real estate interests

     (2,045     (2,877

Distributions of earnings from unconsolidated joint ventures

     1,351        1,563   

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

     (3,613     111   

Casualty and involuntary conversion gain

     —          (59

Impairment losses

     4,359        —     

Share-based compensation

     1,038        794   

Straight-line rent

     (2,097     (1,516

Other

     1,692        2,379   

Changes in operating assets and liabilities:

    

Other receivables and other assets

     4,282        (4,539

Accounts payable, accrued expenses and other liabilities

     (9,179     (9,037
  

 

 

   

 

 

 

Net cash provided by operating activities

     32,689        21,145   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

    

Real estate acquisitions

     (43,229     (35,010

Capital expenditures and development activities

     (38,693     (30,717

Proceeds from dispositions of real estate investments

     2,861        49,793   

Investments in unconsolidated joint ventures

     (771     (579

Proceeds from casualties and involuntary conversion

     205        4,761   

Distributions of investments in unconsolidated joint ventures

     16,487        640   

Other investing activities

     6,715        11   
  

 

 

   

 

 

 

Net cash used in investing activities

     (56,425     (11,101
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

    

Proceeds from senior unsecured revolving line of credit

     12,000        56,000   

Repayments of senior unsecured revolving line of credit

     (17,000     (116,000

Proceeds from senior unsecured notes

     —          225,000   

Repayments of senior unsecured notes

     —          (175,000

Proceeds from mortgage notes

     —          9,303   

Principal payments on mortgage notes

     (5,282     (8,332

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

     43,421        27,499   

OP Unit redemptions

     (707     (615

Distributions paid on OP Units

     (23,800     (21,163

Distributions paid to noncontrolling interests

     (84     (180

Other financing activity

     (13     246   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     8,535        (3,242
  

 

 

   

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

     (15,201     6,802   

CASH AND CASH EQUIVALENTS, beginning of period

     32,226        12,696   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, end of period

   $ 17,025      $ 19,498   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information

    

Cash paid for interest, net of capitalized interest

   $ 12,445      $ 16,609   

Supplemental Disclosures of Non-Cash Activities

    

Retirement of fully depreciated and amortized assets

   $ 5,202      $ 4,599   

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 March 31, 2014, DCT owned approximately 94.9% of the outstanding equity interests in the Operating Partnership.

As of March 31, 2014, the Company owned interests in approximately 73.1 million square feet of properties leased to approximately 900 customers, including:

 

    63.8 million square feet comprising 405 consolidated operating properties, including 0.6 million square feet comprising four consolidated buildings classified as held for sale, which were 92.8% 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

 

    0.7 million square feet comprising four consolidated buildings in development.

The Company also has five 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.

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

 

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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.

Reclassifications

Certain items in our Consolidated Financial Statements for 2013 have been reclassified to conform to the 2014 presentation.

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 $2.1 million and $1.4 million, for the three months ended March 31, 2014 and 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 $20.0 million and $15.2 million, respectively, for the three months ended March 31, 2014 and 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 $0.4 million and $0.4 million for the three months ended March 31, 2014 and 2013, respectively.

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. During the three months ended March 31, 2014 and 2013 early lease termination fees were approximately $0.9 million and $0.1 million, respectively.

 

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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.

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):

 

     March 31,     December 31,  
     2014     2013  

Operating properties

   $ 3,544,095      $ 3,442,442   

Properties under development

     132,829        142,903   

Properties under redevelopment

     —          12,194   

Properties in pre-development including land held

     50,478        73,512   
  

 

 

   

 

 

 

Total Investment in Properties

     3,727,402        3,671,051   

Less accumulated depreciation and amortization

     (680,140     (654,097
  

 

 

   

 

 

 

Net Investment in Properties

   $ 3,047,262      $ 3,016,954   
  

 

 

   

 

 

 

Acquisition Activity

During the three months ended March 31, 2014, we acquired six buildings comprising 0.9 million square feet. These properties located in the Dallas, Chicago and Seattle markets were acquired for a total purchase price of approximately $40.7 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 $0.7 million during the three months ended March 31, 2014, included in “General and administrative” in our Consolidated Statements of Operations.

In addition, during the three months ended March 31, 2014, we acquired 15.0 acres of land in the Dallas and Seattle markets for approximately $2.9 million that is held for future development.

Development Activity

As of March 31, 2014, our properties under development include the following:

 

    Three buildings totaling 0.6 million square feet that are currently in lease-up as shell construction activities have been completed. One of these buildings, totaling 0.3 million square feet, is 100% leased.

 

    Five projects under construction totaling 2.4 million square feet, of which 0.7 million square feet is 100% leased.

 

    One development project for sale totaling 0.1 million square feet that is under contract.

 

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During the three months ended March 31, 2014, we recognized development profit, net of taxes of approximately $0.7 million related to the 8th & Vineyard A build-to-suit project, for which construction and sale was completed during the first quarter.

Disposition Activity

During the three months ended March 31, 2014, we recognized an impairment loss of approximately $4.4 million on two properties classified as held for sale. See Note 12—Discontinued Operations and Assets Held for Sale for additional information. The impairment loss is reflected in “Impairment losses” in the Consolidated Statements of Operations.

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 $3.5 million and $2.5 million for the three months ended March 31, 2014 and 2013, respectively. Our intangible lease assets include the following as of March 31, 2014 and December 31, 2013 (in thousands):

 

     March 31, 2014     December 31, 2013  
     Gross     Accumulated
Amortization
    Net     Gross     Accumulated
Amortization
    Net  

Other intangible lease assets

   $ 78,509      $ (30,341   $ 48,168      $ 77,383      $ (27,668   $ 49,715   

Above market rent

   $ 5,195      $ (1,796   $ 3,399      $ 5,375      $ (1,761   $ 3,614   

Below market rent

   $ (26,373   $ 6,505      $ (19,868   $ (26,562   $ 6,173      $ (20,389

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 property purchased was consolidated as of March 31, 2014.

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

 

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                  Investments in and  
     As of March 31, 2014      Advances to as of  
     Ownership     Number of      March 31,      December 31,  

Unconsolidated Joint Ventures

   Percentage     Buildings      2014      2013  

Institutional Joint Ventures:

          

DCT/SPF Industrial Operating LLC

     20.0     13      $ 40,978      $ 41,253  

TRT-DCT Venture I

     0.0     —           —           823  

TRT-DCT Venture II

     0.0     —           —           1,847  

TRT-DCT Venture III

     10.0     4        1,201        1,197  
    

 

 

    

 

 

    

 

 

 

Total Institutional Joint Ventures

       17        42,179        45,120  
       

 

 

    

 

 

 

Other:

          

Stirling Capital Investments (SCLA)(1)

     50.0     6        46,725        47,978  

IDI/DCT, LLC

     50.0     2        8,187        27,735  

IDI/DCT Buford, LLC (land only)

     75.0     —           4,107        4,090  
    

 

 

    

 

 

    

 

 

 

Total Other

       8        59,019        79,803  
    

 

 

    

 

 

    

 

 

 

Total

       25      $ 101,198      $ 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.

Note 5—Financial Instruments and Hedging Activities

Fair Value of Financial Instruments

As of March 31, 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
March 31, 2014
     Balances as of
December 31, 2013
 
     Carrying      Estimated      Carrying      Estimated  
     Amounts      Fair Value      Amounts      Fair Value  

Borrowings(1):

           

Senior unsecured revolving credit facility

   $ 34,000       $ 34,000       $ 39,000       $ 39,000   

Fixed rate debt(2)

   $ 1,182,638       $ 1,266,617       $ 1,188,367       $ 1,263,722   

Variable rate debt

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

Interest rate contracts:

           

Interest rate swap(3)

   $ 73       $ 73       $ 212       $ 212   

 

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(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 swap 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 interest rate swap is included in “Other assets” 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 three months ended March 31, 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 months ended March 31, 2014 and 2013.

 

     During the
Three Months Ended
March 31,
 
     2014     2013  

Level 3 Assets:

    

Interest Rate Swaps:

    

Beginning balance at January 1

   $ 212      $ —     

Net unrealized loss included in accumulated other comprehensive loss

     (177     —     

Realized loss recognized in interest expense

     38        —     
  

 

 

   

 

 

 

Ending balance at March 31

   $ 73      $ —     
  

 

 

   

 

 

 

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.

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 March 31, 2014 and December 31, 2013, we had borrowings payable subject to pay-fixed, receive-floating interest rate swaps with aggregate principal balances of approximately $7.1 million.

 

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The following table presents the effect of our derivative financial instruments on our accompanying consolidated financial statements for the three months ended March 31, 2014 and 2013 (in thousands):

 

     Three Months Ended
March 31,
 
     2014     2013  

Derivatives in Cash Flow Hedging Relationships

    

Interest Rate Swaps:

    

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

   $ (328   $ 6   
  

 

 

   

 

 

 

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

   $ (1,156   $ (1,093
  

 

 

   

 

 

 

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 March 31, 2014, our outstanding indebtedness of approximately $1.4 billion consisted of mortgage notes, senior unsecured notes and a senior unsecured revolving credit facility, excluding approximately $48.6 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 March 31, 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 March 31, 2014 and December 31, 2013.

Line of Credit

As of March 31, 2014, we had $34.0 million outstanding and $266.0 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.

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.

 

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The following table illustrates the noncontrolling interests’ share of consolidated net income during the three months ended March 31, 2014 and 2013 (in thousands):

 

     Three Months Ended
March 31,
 
     2014     2013  

Noncontrolling interests’ share of income from continuing operations

   $ (151   $ (129

Noncontrolling interests’ share of income from discontinued operations

     —          (228
  

 

 

   

 

 

 

Net income attributable to noncontrolling interests

   $ (151   $ (357
  

 

 

   

 

 

 

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 of the income from discontinued operations for all periods presented in the Operating Partnership’s Consolidated Statements of Operations is attributable to the OP Unitholders.

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

DCT

Common Stock

As of March 31, 2014, approximately 326.9 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 three months ended March 31, 2014 approximately 5.9 million shares were issued through the third continuous equity offering program, at an average price of $7.50 per share for proceeds of $43.7 million, net of offering expenses. As of March 31, 2014, 10.7 million shares remain available to be issued under the current offering.

During the three months ended March 31, 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 three months ended March 31, 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 March 31, 2014 and December 31, 2013, DCT owned approximately 94.9% 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.

 

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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, 2014 and 2013, approximately 0.6 million and 0.5 million OP Units were redeemed for approximately $0.7 million and $0.6 million in cash and approximately 0.5 million and 0.4 million shares of DCT common stock, respectively.

As of March 31, 2014 and December 31, 2013, there were approximately 17.6 million and 17.7 million outstanding OP Units held by entities other than DCT and redeemable, with an aggregate redemption value of approximately $138.6 million and $125.9 million based on the $7.88 and $7.13 per share closing price of DCT’s common stock on March 31, 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 three months ended March 31, 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 three months ended March 31, 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.

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 three months ended March 31, 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 three months ended March 31, 2014, approximately 0.1 million vested LTIP Units were converted into approximately 0.1 million common shares. As of March 31, 2014, approximately 3.6 million LTIP Units were outstanding of which approximately 1.7 million were vested.

During the three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 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.

 

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Table of Contents

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.

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 months ended March 31, 2014 and 2013 (in thousands, except per share amounts):

 

     Three Months Ended
March 31,
 
     2014     2013  

Earnings per Common share—Basic and Diluted

    

Numerator

    

Income (loss) from continuing operations

   $ 459      $ (3,431

Income from continuing operations attributable to noncontrolling interests

     (151     (129
  

 

 

   

 

 

 

Income (loss) from continuing operations attributable to common stockholders

     308        (3,560

Less: Distributed and undistributed earnings allocated to participating securities

     (166     (173
  

 

 

   

 

 

 

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

     142        (3,733
  

 

 

   

 

 

 

Income from discontinued operations

     9        5,067   

Noncontrolling interests’ share of income from discontinued operations

     —          (228
  

 

 

   

 

 

 

Numerator for income from discontinued operations attributable to common stockholders

     9        4,839   
  

 

 

   

 

 

 

Adjusted net income attributable to common stockholders

   $ 151      $ 1,106   
  

 

 

   

 

 

 

Denominator

    

Weighted average common shares outstanding—basic

     323,942        281,063   

Effect of dilutive securities:

    

Stock options and phantom stock

     1,052        —     
  

 

 

   

 

 

 

Weighted average common shares outstanding—basic and dilutive

     324,994        281,063   
  

 

 

   

 

 

 

Earnings per Common Share—Basic

    

Income (loss) from continuing operations

   $ 0.00      $ (0.01

Income from discontinued operations

     0.00        0.01   
  

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

Earnings per Common Share—Diluted

    

Income (loss) from continuing operations

   $ 0.00      $ (0.01

Income from discontinued operations

     0.00        0.01   
  

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

 

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Table of Contents

Operating Partnership

The following table sets forth the computation of basic and diluted earnings per common unit for the three months ended March 31, 2014 and 2013 (in thousands, except per unit amounts):

 

     Three Months Ended March 31,  
     2014     2013  

Earnings per OP Unit—Basic and Diluted

    

Numerator

    

Income (loss) from continuing operations

   $ 459      $ (3,431

Income from continuing operations attributable to noncontrolling interests

     (133     (265
  

 

 

   

 

 

 

Income (loss) from continuing operations attributable to OP Unitholders

     326        (3,696

Less: Distributed and undistributed earnings allocated to participating securities

     (166     (173
  

 

 

   

 

 

 

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

     160        (3,869
  

 

 

   

 

 

 

Income from discontinued operations

     9        5,067   

Noncontrolling interests’ share of income from discontinued operations

     —          —     
  

 

 

   

 

 

 

Numerator for income from discontinued operations attributable to OP Unitholders

     9        5,067   
  

 

 

   

 

 

 

Adjusted net income attributable to OP Unitholders

   $ 169      $ 1,198   
  

 

 

   

 

 

 

Denominator

    

Weighted average OP Units outstanding—basic

     341,770        301,346   

Effect of dilutive securities:

    

Stock options and phantom stock

     1,052        —     
  

 

 

   

 

 

 

Weighted average OP Units outstanding—basic and dilutive

     342,822        301,346   
  

 

 

   

 

 

 

Earnings per OP Unit—Basic

    

Income (loss) from continuing operations

   $ 0.00      $ (0.01

Income from discontinued operations

     0.00        0.01   
  

 

 

   

 

 

 

Net income attributable to OP Unitholders

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

Earnings per OP Units—Diluted

    

Income (loss) from continuing operations

   $ 0.00      $ (0.01

Income from discontinued operations

     0.00        0.01   
  

 

 

   

 

 

 

Net income attributable to OP Unitholders

   $ 0.00      $ 0.00   
  

 

 

   

 

 

 

DCT and the Operating Partnership

Potentially Dilutive Shares

For the three months ended March 31, 2013, we excluded from diluted earnings per share the weighted average common share equivalents or common unit equivalents related to 5.7 million stock options and phantom stock because their effect would be anti-dilutive.

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).

 

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

 

     March 31,      December 31,  
     2014      2013  

Segments:

     

East assets

   $ 1,020,621       $ 1,026,416   

Central assets

     1,065,217         1,034,814   

West assets

     1,046,288         1,018,246   
  

 

 

    

 

 

 

Total segment net assets

     3,132,126         3,079,476   

Non-segment assets:

     

Non-segment cash and cash equivalents

     6,476         25,671   

Other non-segment assets (1)

     120,157         152,620   

Assets held for sale (2)

     8,244         8,196   
  

 

 

    

 

 

 

Total assets

   $ 3,267,003       $ 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 months ended March 31, 2014 and 2013 (in thousands):

 

     Three Months Ended
March 31,
 
     2014      2013  

East

   $ 28,972       $ 21,880   

Central

     31,612         26,020   

West

     22,035         19,409   
  

 

 

    

 

 

 

Rental revenues

     82,619         67,309   

Institutional capital management and other fees

     764         812   
  

 

 

    

 

 

 

Total revenues

   $ 83,383       $ 68,121   
  

 

 

    

 

 

 

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 months ended March 31, 2014 and 2013 (in thousands):

 

     Three Months Ended
March 31,
 
     2014     2013  

East

   $ 20,139      $ 15,869   

Central

     20,220        17,643   

West

     16,661        14,869   
  

 

 

   

 

 

 

Property NOI (1)

     57,020        48,381   

Institutional capital management and other fees

     764        812   

Gain on acquisitions and dispositions of real estate interests

     2,045        —     

Real estate related depreciation and amortization

     (36,433     (30,196

Casualty and involuntary conversion gain

     —          59   

Development profit, net of taxes

     728        268   

General and administrative

     (6,834     (6,339

Impairment losses

     (4,359     —     

Equity in earnings of unconsolidated joint ventures, net

     3,613        391   

Interest expense

     (16,056     (16,860

Interest and other income

     28        162   

Income tax expense and other taxes

     (57     (109
  

 

 

   

 

 

 

Income (loss) from continuing operations

   $ 459      $ (3,431
  

 

 

   

 

 

 

 

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Table of Contents
(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

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 March 31, 2014, we classified two properties in our East operating segment and two properties in our Central operating segment as held for sale. In April 2014, we completed the sale of two of the properties. The remaining two properties are expected to be sold during 2014.

During the three months ended March 31, 2014, we recorded an impairment charge of $4.4 million on two of the properties as the assets’ carrying value exceeded their estimated fair value less costs to sell. The estimated fair value of these properties was based upon the contractual sales price, a Level 2 fair value measurement.

The following table summarizes the components of income from discontinued operations for the three months ended March 31, 2014 and 2013 (in thousands):

 

     Three Months Ended
March 31,
 
     2014     2013  

Rental revenues

   $ 304      $ 5,989   

Rental expenses and real estate taxes

     (85     (1,207

Real estate related depreciation and amortization

     —          (2,494

General and administrative

     (27     (80
  

 

 

   

 

 

 

Operating income

     192        2,208   

Interest and other expense

     (19     (18

Income tax expense

     (32     —     
  

 

 

   

 

 

 

Operating income and other income

     141        2,190   

Gain on acquisitions and dispositions of real estate interests

     —          2,877   

Adjustment to previously impaired properties

     (132     —     
  

 

 

   

 

 

 

Income from discontinued operations

   $ 9      $ 5,067   
  

 

 

   

 

 

 

 

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Table of Contents

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. Subsequently, these private placement notes are subject to an exchange offer 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 March 31, 2014 and December 31, 2013, and for the three months ended March 31, 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 March 31, 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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Condensed Consolidated Balance Sheets

March 31, 2014

(in thousands)

(unaudited)

 

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

ASSETS

           

Land

  $ —        $ —        $ 744,254      $ 148,673      $ —        $ 892,927  

Buildings and improvements

    —          —          2,255,813        409,904        —          2,665,717  

Intangible lease assets

    —          —          58,250        25,454        —          83,704  

Construction in progress

    —          —          80,756       4,298       —          85,054  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment in properties

    —          —          3,139,073        588,329        —          3,727,402  

Less accumulated depreciation and amortization

    —          —          (568,952     (111,188     —          (680,140
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in properties

    —          —          2,570,121        477,141        —          3,047,262  

Investments in and advances to unconsolidated joint ventures

    —          100,589       609       —          —          101,198  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment in real estate

    —          100,589       2,570,730        477,141        —          3,148,460  

Cash and cash equivalents

    —          11,095       —          5,930       —          17,025  

Restricted cash

    —          —          338       2,151       —          2,489  

Deferred loan costs, net

    —          9,207       —          497       —          9,704  

Straight-line rent and other receivables, net

    —          63       42,050        8,483        —          50,596  

Other assets, net

    —          4,625       6,611        4,624        —          15,860  

Intercompany receivables, net

    22,947       156,743       —          —          (179,690     —     

Investment in subsidiaries

    1,568,695       2,587,842       14,913       —          (4,171,450     —     

Assets held for sale

    —          —          12,213       10,656       —          22,869  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,591,642     $ 2,870,164     $ 2,646,855      $ 509,482      $ (4,351,140   $ 3,267,003  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

           

Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 13,301     $ 38,960      $ 9,379      $ —        $ 61,640  

Intercompany payables, net

    —          22,947       42,898        113,845        (179,690     —     

Distributions payable

    22,947       1,318       —          —          —          24,265  

Tenant prepaids and security deposits

    —          —          20,936        3,696        —          24,632  

Other liabilities

    —          119       3,300       2,838       —          6,257  

Intangible lease liability, net

    —          —          17,341       2,527       —          19,868  

Line of credit

    —          34,000       —          —          —          34,000  

Senior unsecured notes

    —          1,122,459       —          —          —          1,122,459  

Mortgage notes

    —          —          34,299       245,483       —          279,782  

Liabilities related to assets held for sale

    —          —          365       5,596       —          5,961  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    22,947       1,194,144       158,099        383,364        (179,690     1,578,864  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity:

           

Stockholders’ equity

    1,568,695       1,676,020       2,488,756        126,118        (4,290,894     1,568,695  

Noncontrolling interests

    —          —          —          —          119,444       119,444  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,568,695       1,676,020       2,488,756        126,118        (4,171,450     1,688,139  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 1,591,642     $ 2,870,164     $ 2,646,855      $ 509,482      $ (4,351,140   $ 3,267,003  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Three Months Ended March 31, 2014

(in thousands)

(unaudited)

 

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

REVENUES:

             

Rental revenues

   $ —         $ —        $ 69,341      $ 13,278      $ —        $ 82,619  

Institutional capital management and other fees

     —           380       —          468       (84     764  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —           380       69,341        13,746        (84     83,383  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

             

Rental expenses

     —           —          10,974        1,428        —          12,402  

Real estate taxes

     —           —          10,942        2,255        —          13,197  

Real estate related depreciation and amortization

     —           —          30,316        6,117        —          36,433  

General and administrative

     —           6,381       93       360       —          6,834  

Impairment losses

     —           —          587       3,772       —          4,359  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —           6,381       52,912        13,932        —          73,225  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —           (6,001     16,429        (186     (84     10,158  

OTHER INCOME (EXPENSE):

             

Development profit, net of taxes

     —           —          —          728       —          728  

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

     —           3,557       (28     —          84       3,613  

Gain on acquisitions and dispositions of real estate interests

     —           1,947       —          98       —          2,045  

Interest expense

     —           (12,529     (882     (3,195     550       (16,056

Interest and other income (expense)

     —           552       (22     55       (557     28  

Income tax benefit (expense) and other taxes

     —           (68     83       (72     —          (57
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     —           (12,542     15,580        (2,572     (7     459  

Income (loss) from discontinued operations

     —           —          255       (253     7       9  

Equity in earnings of consolidated subsidiaries

     317        12,877       728       —          (13,922     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income (loss)

     317        335       16,563        (2,825     (13,922     468  

Net income attributable to noncontrolling interests

     —           —          —          —          (151     (151
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

     317        335       16,563        (2,825     (14,073     317  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

     —           (166     —          —          —          (166
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income (loss) attributable to common stockholders

   $ 317      $ 169     $ 16,563      $ (2,825   $ (14,073   $ 151  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 317      $ 335     $ 16,563      $ (2,825   $ (13,922   $ 468  

Other comprehensive income (loss):

             

Net derivative loss on cash flow hedging instruments

     —           (152     —          (176     —          (328

Net reclassification adjustment on cash flow hedging instruments

     —           1,118       —          38        —          1,156  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     —           966       —          (138     —          828  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     317        1,301       16,563        (2,963     (13,922     1,296  

Comprehensive income attributable to noncontrolling interests

     —           —          —          —          (265     (265
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ 317      $ 1,301     $ 16,563      $ (2,963   $ (14,187   $ 1,031  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 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

   $ —        $ (9,967   $ 35,675      $ 6,981      $ —        $ 32,689   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES:

            

Real estate acquisitions

     —          —          (43,229     —          —          (43,229

Capital expenditures and development activities

     —          —          (35,669     (3,024     —          (38,693

Proceeds from dispositions of real estate investments

     —          1,760        —          1,101        —          2,861   

Investments in unconsolidated joint ventures

     —          (771     —          —          —          (771

Proceeds from casualties and involuntary conversion

     —          —          201       4       —          205  

Distributions of investments in unconsolidated joint ventures

     —          16,487        —          —          —          16,487   

Other investing activities

     —          6,864        2       (151     —          6,715   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     —          24,340        (78,695     (2,070     —          (56,425
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES:

            

Proceeds from senior unsecured revolving line of credit

     —          12,000       —          —          —          12,000  

Repayments of senior unsecured revolving line of credit

     —          (17,000     —          —          —          (17,000

Principal payments on mortgage notes

     —          —          (181     (5,101     —          (5,282

Proceeds from issuance of common stock and OP Units

     43,980       43,980       —          —          (43,980     43,980  

Offering costs for issuance of common stock and OP Units

     (559     (559     —          —          559       (559

Net payments relating to intercompany financing

     (20,981     (45,277     43,201        2,076        20,981       —     

Redemption of noncontrolling interests

     —          (707     —          —          —          (707

Dividends to common stockholders

     (22,440     (22,440     —          —          22,440       (22,440

Distributions to noncontrolling interests

     —          (1,360     —          (84     —          (1,444

Other financing activity

     —          (13     —          —          —          (13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     —          (31,376     43,020        (3,109     —          8,535  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     —          (17,003     —          1,802       —          (15,201

Cash and cash equivalents, beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ —        $ 11,095     $ —        $ 5,930     $ —        $ 17,025  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three Months Ended March 31, 2013

(in thousands)

(unaudited)

 

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

REVENUES:

             

Rental revenues

   $ —         $ —        $ 53,875     $ 13,434     $ —        $ 67,309  

Institutional capital management and other fees

     —           337       —          555       (80     812  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —           337       53,875       13,989       (80     68,121  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

             

Rental expenses

     —           —          7,039       1,310       —          8,349  

Real estate taxes

     —           —          8,283       2,296       —          10,579  

Real estate related depreciation and amortization

     —           —          23,816       6,380       —          30,196  

General and administrative

     —           5,372       45       922       —          6,339  

Casualty and involuntary conversion gain

     —           —          (59     —          —          (59
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —           5,372       39,124       10,908       —          55,404  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     —           (5,035     14,751       3,081       (80     12,717  

OTHER INCOME (EXPENSE):

             

Development profit, net of taxes

     —           —          —          268       —          268  

Equity in earnings of unconsolidated joint ventures, net

     —           306       5       —          80       391  

Interest expense

     —           (12,896     (1,302     (3,414     752       (16,860

Interest and other income (expense)

     —           741       —          1,852       (2,431     162  

Income tax benefit (expense) and other taxes

     —           (54     97       (152     —          (109
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     —           (16,938     13,551       1,635       (1,679     (3,431

Income from discontinued operations

     —           —          163       3,225       1,679       5,067  

Equity in earnings of consolidated subsidiaries

     1,279        18,309       185       —          (19,773     —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net income

     1,279        1,371       13,899       4,860       (19,773     1,636  

Net income attributable to noncontrolling interests

     —           —          —          —          (357     (357
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

     1,279        1,371       13,899       4,860       (20,130     1,279  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributed and undistributed earnings allocated to participating securities

     —           (173     —          —          —          (173
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income attributable to common stockholders

   $ 1,279      $ 1,198     $ 13,899     $ 4,860     $ (20,130   $ 1,106  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 1,279      $ 1,371     $ 13,899     $ 4,860     $ (19,773   $ 1,636  

Other comprehensive income

             

Net derivative gain on cash flow hedging instruments

     —           6       —          —          —          6  

Net reclassification adjustment on cash flow hedging instruments

     —           1,093       —          —          —          1,093  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     —           1,099       —          —          —          1,099  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     1,279        2,470       13,899       4,860       (19,773     2,735  

Comprehensive income attributable to noncontrolling interests

     —           —          —          —          (456     (456
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to common stockholders

   $ 1,279      $ 2,470     $ 13,899     $ 4,860     $ (20,229   $ 2,279  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2013

(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

   $ —        $ (17,299   $ 35,980     $ 2,464      $ —        $ 21,145   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES:

            

Real estate acquisitions

     —          —          (35,010     —          —          (35,010

Capital expenditures and development activities

     —          —          (27,459     (3,258     —          (30,717

Proceeds from dispositions of real estate investments

     —          —          —          49,793       —          49,793  

Investments in unconsolidated joint ventures

     —          (579     —          —          —          (579

Proceeds from casualties and involuntary conversion

     —          —          3,389       1,372       —          4,761  

Distributions of investments in unconsolidated joint ventures

     —          640       —          —          —          640  

Other investing activities

     —          —          2       9       —          11  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     —          61        (59,078     47,916        —          (11,101
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES:

            

Proceeds from senior unsecured revolving line of credit

     —          56,000       —          —          —          56,000  

Repayments of senior unsecured revolving line of credit

     —          (116,000     —          —          —          (116,000

Proceeds from senior unsecured notes

     —          225,000       —          —          —          225,000  

Repayments of senior unsecured notes

     —          (175,000     —          —          —          (175,000

Proceeds from mortgage notes

     —          —          9,303       —          —          9,303  

Principal payments on mortgage notes

     —          —          (5,351     (2,981     —          (8,332

Proceeds from issuance of common stock and OP Units

     27,942       27,942       —          —          (27,942     27,942  

Offering costs for issuance of common stock and OP Units

     (443     (443     —          —          443       (443

Net payments relating to intercompany financing

     (7,843     32,112        19,049        (51,161     7,843       —     

Redemption of noncontrolling interests

     —          (615     —          —          —          (615

Dividends to common stockholders

     (19,656     (19,656     —          —          19,656       (19,656

Distributions to noncontrolling interests

     —          (1,507     —          (180     —          (1,687

Other financing activity

     —          (1,427     —          1,673       —          246  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     —          26,406        23,001        (52,649     —          (3,242
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

     —          9,168       (97     (2,269     —          6,802  

Cash and cash equivalents, beginning of period

     —          11,162       97       1,437       —          12,696  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ —        $ 20,330     $ —        $ (832   $ —        $ 19,498  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note 14—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”). No significant recognized subsequent events were noted.

 

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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:

 

    national, international, regional and local economic conditions, including, in particular, the strength of the United States economic recovery and global economic recovery;

 

    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;

 

    natural disasters such as fires, floods, tornadoes, hurricanes and earthquakes;

 

    energy costs;

 

    the terms of governmental regulations that affect us and interpretations of those regulations, including the costs of compliance with those regulations, changes in real estate and zoning laws and increases in real property tax rates;

 

    financing risks, including the risk that our cash flows from operations may be insufficient to meet required payments of principal, interest and other commitments;

 

    lack of or insufficient amounts of insurance;

 

    litigation, including costs associated with prosecuting or defending claims and any adverse outcomes;

 

    the consequences of future terrorist attacks or civil unrest;

 

    environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us; and

 

    other risks and uncertainties detailed in the section entitled “Risk Factors.”

In addition, our current and continuing qualification as a real estate investment trust, or REIT, involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, or the Code, and depends on our ability to meet the various requirements imposed by the Code through actual operating results, distribution levels and diversity of stock ownership.

We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The reader should carefully review our financial statements and the notes thereto, as well as the section entitled “Risk Factors” in this Report.

 

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Table of Contents

Overview

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 March 31, 2014, DCT owned approximately 94.9% of the outstanding equity interests in the Operating Partnership.

As of March 31, 2014, the Company owned interests in approximately 73.1 million square feet of properties leased to approximately 900 customers, including:

 

    63.8 million square feet comprising 405 consolidated operating properties, including 0.6 million square feet comprising four consolidated buildings classified as held for sale, which were 92.8% 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

 

    0.7 million square feet comprising four consolidated buildings in development.

The Company also has five buildings under construction and several projects in predevelopment. See “Notes to Consolidated Financial Statements Note 3—Investment in Properties” for further detail related to our development activity.

Our primary business objectives are to maximize long-term growth in Funds from Operations, or FFO, as defined on page 48, net asset value of our portfolio and total shareholder returns. In our pursuit of these long-term objectives, we seek to:

 

    maximize cash flows from existing properties;

 

    deploy capital into quality acquisitions and development opportunities which meet our asset, location and financial criteria; and

 

    recycle capital by selling assets that no longer fit our investment criteria and reinvesting the proceeds into higher growth opportunities.

Outlook

We seek to maximize long-term earnings growth and value within the context of overall economic conditions, primarily through increasing occupancy, rents and operating income at existing properties and acquiring and developing high-quality properties with attractive operating income and value growth prospects. Fundamentals for industrial real estate continue to improve in response to general improvement in the economy as well as trends that particularly favor industrial assets, including the growth of e-commerce and United States based manufacturing. We expect moderate economic growth to continue throughout 2014, which should result in continued positive demand for warehouse space as companies expand and upgrade their distribution and production platforms.

In response to positive net absorption and lower market vacancy levels, rental rates are increasing in most of our markets, although they generally remain below peak levels. Rental concessions, such as free rent, have also declined in all markets. Consistent with recent experience and based on current market conditions, we expect average net effective rental rates on new leases signed in 2014 to be higher than the rates on expiring leases. As positive net absorption of warehouse space continues, we expect the rental rate environment to continue to improve.

New development has begun to increase in certain markets where fundamentals have improved, however construction is below current levels of net absorption in most markets and well below peak levels. We expect that the operating environment will continue to be favorable for landlords with a meaningful improvement of rental and occupancy rates.

 

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Table of Contents

We expect same store net operating income to be higher in 2014 than it was in 2013, primarily as a result of higher occupancy in 2014 and the impact of increasing rental rates on leases signed in 2014 compared to expiring leases.

In terms of capital investment, we will continue to pursue the acquisition of well-located distribution facilities at prices where we can apply our leasing experience and market knowledge to generate attractive returns. Going forward, we will pursue the acquisition of buildings and land and consider selective development of new buildings in markets where we perceive demand and market rental rates will provide attractive financial returns.

We anticipate having sufficient liquidity to fund our operating expenses, including costs to maintain our properties and distributions, though we may finance investments, including acquisitions and developments, with the issuance of new common shares, proceeds from asset sales or through additional borrowings. Please see “Liquidity and Capital Resources” for additional discussion.

Inflation

Although the U.S. economy has recently experienced a slight decrease in inflation rates, and a wide variety of industries and sectors are affected differently by changing commodity prices, inflation has not had a significant impact on us in our markets. Most of our leases require the customers to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. In addition, most of our leases expire within five years which enables us to replace existing leases with new leases at then-existing market rates.

Significant Transactions During 2014 

Summary of the three months ended March 31, 2014 

 

    Acquisitions

 

    During the three months ended March 31, 2014, we acquired six buildings comprising 0.9 million square feet in the Chicago, Dallas and Seattle markets for a total purchase price of approximately $40.7 million.

 

    In addition, during the three months ended March 31, 2014, we acquired 15.0 acres of land in the Dallas and Seattle markets for approximately $2.9 million that is held for future development.

 

    Development Activities

 

    During the three months ended March 31, 2014, construction was shell complete on three projects totaling 0.4 million square feet in Houston, Seattle and Southern California. Additionally, we recognized development profit, net of taxes, of approximately $0.7 million related to the 8th & Vineyard A build-to-suit project, for which construction was completed during the first quarter. The table below reflects a summary of development activities at March 31, 2014:

 

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Table of Contents

Project

  Market     Acres     Number of
Buildings
    Square Feet     Percent
Owned
    Cumulative
Costs at
3/31/2014
    Projected
Investment
    Completion
Date(1)
     Percent
Leased
 
                      (in thousands)           (in thousands)     (in thousands)               

Development Activities:

                  

Development Projects in Lease Up

                  

DCT Beltway Tanner Business Park

    Houston        11        1        133        100   $ 10,626      $ 15,424        Q1-2014         79 %(4) 

DCT Airtex Industrial Center

    Houston        13        1        267        100     12,815        14,657        Q4-2013         100

DCT Summer South Distribution Center

    Seattle        9        1        188        100     10,385        12,536        Q1-2014         0
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 
    Total        33        3        588        100   $ 33,826      $ 42,617           63
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Under Construction

                  

DCT Airtex Industrial Center II

    Houston        7        1        125        100   $ 1,929      $ 9,882        Q4-2014         0

DCT White River Corporate Center Phase I

    Seattle        30        1        649        100     30,712        42,747        Q3-2014         0

DCT Auburn 44

    Seattle        3        1        49        100     4,724        4,724        Q2-2014         100

Slover Logistics Center II

    So. California        28        1        610        100     32,813        37,121        Q2-2014         100

DCT Rialto Logistics Center

    So. California        42        1        928        100     22,970        59,560        Q4-2014         0
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 
    Total        110        5        2,361        100   $ 93,148      $ 154,034           28
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Development Projects for Sale

                  

8th & Vineyard A(2)

    So. California        6        1        130        91   $ 8,165      $ 8,165        Q1-2014         N/A   

8th & Vineyard B

    So. California        4        1        99        91     5,855        6,117        Q1-2014         N/A   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      
    Total        10        2        229        91   $ 14,020      $ 14,282        
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

Development Projects Moved to Operating

                  

DCT 55(3)

    Chicago        33        1        604        100   $ 26,904      $ 28,810        Q4-2012         66
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 
      186        11        3,782        99   $ 167,898      $ 239,743           40
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

 

(1)  The completion date represents the date of building shell completion or estimated dates of shell completion.
(2)  During January 2014, we completed the build-to-suit and sold 8th & Vineyard A.
(3)  The property has been completed for accounting purposes and ready for its intended use, however, is not stabilized as of March 31, 2014.
(4)  Percent leased includes leases signed in April 2014.

 

    Dispositions

 

    During the three months ended March 31, 2014, we did not dispose of any operating properties, however, we recognized an impairment loss of approximately $4.4 million on two properties classified as held for sale.

 

    Significant Activity with Joint Ventures

 

    In January 2014, the TRT-DCT Ventures I and II disposed of all their properties. The Company received approximately $6.6 million in net proceeds 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 and we recognized our share of the TRT-DCT Venture II’s gain on sale of properties of approximately $2.4 million.

 

    During March 2014, we obtained 100.0% controlling interest through the purchase of our partner’s 50.0% interest in one building from the IDI-DCT, LLC joint venture for approximately $10.3 million and recognized a gain on acquisition of approximately $1.0 million.

 

    Debt Activity

 

    As of March 31, 2014, we had $34.0 million outstanding and $266.0 million available under the unsecured revolving credit facility.

 

    Equity activity

 

    During the three months ended March 31, 2014, approximately 5.9 million shares were issued through our continuous equity offering program at an average price of $7.50 per share, for proceeds of approximately $43.7 million, net of offering expenses. The proceeds from the sale of shares were contributed to the Operating Partnership in exchange for an equal number of OP Units in the Operating Partnership and were used for general corporate purposes, including funding of acquisitions and repaying debt.

 

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Table of Contents
    Leasing Activity

The following table provides a summary of our leasing activity for the March 31, 2014:

 

     Number of
Leases
Signed
     Square Feet
Signed(1)
     Net
Effective
Rent Per
Square
Foot(2)
     GAAP
Basis Rent
Growth(3)
    Weighted
Average
Lease
Term(4)
     Turnover
Costs Per
Square Foot(5)
     Weighted
Average
Retention(6)
 
            (in thousands)                   (in months)                

First quarter 2014

     68         4,351       $ 4.34        15.1     67       $ 2.75        80.8

 

(1)  Excludes month to month leases.
(2)  Net effective rent is the average base rent calculated in accordance with GAAP, over the term of the lease.
(3)  GAAP basis rent growth is an annual ratio of the change in net effective rent (including straight-line rent adjustments as required by GAAP) compared to the net effective rent of the comparable lease. Leases where there were no prior comparable leases due to materially different lease structures are excluded.
(4)  The lease term is in months. Assumes no exercise of lease renewal options, if any.
(5)  Turnover costs are comprised of the costs incurred or capitalized for improvements of vacant and renewal spaces, as well as the commissions paid and costs capitalized for leasing transactions. Turnover costs per square foot represent the total turnover costs expected to be incurred on the leases signed during the period and do not reflect actual expenditures for the period.
(6)  Represents the percentage of customers renewing their respective leases weighted by average square feet.

During the three months ended March 31, 2014, we signed 32 leases with free rent concessions, comprising 2.6 million square feet representing total concessions of $2.4 million primarily related to free rent periods.

Customer Diversification

As of March 31, 2014, there were no customers that occupied more than 2.3% of our consolidated properties based on annualized base rent. The following table reflects our 10 largest customers, based on annualized base rent as of March 31, 2014, who occupy a combined 6.2 million square feet of our consolidated properties.

 

Customer

   Percentage of
Annualized
Base Rent
 

Schenker, Inc.

     2.3

Deutsche Post World Net (DHL & Excel)

     1.5

The Clorox Company

     1.2

United Stationers Supply Company

     1.1

YRC, LLC

     1.1

The Glidden Company

     1.0

Bridgestone Corporation

     1.0

One Kings Lane, Inc.

     0.9

Genco I, Inc.

     0.9

Iron Mountain

     0.9
  

 

 

 

Total

     11.9
  

 

 

 

Although base rent is supported by long-term lease contracts, customers who file bankruptcy generally have the legal right to reject any or all of their leases. In the event that a customer with a significant number of leases in our properties files bankruptcy and cancels its leases, we could experience a reduction in our revenues and an increase in allowance for doubtful accounts receivable.

We continuously monitor the financial condition of our customers. We communicate often with those customers who have been late on payments or filed bankruptcy. We are not currently aware of any significant financial difficulties of any tenants that would individually cause a material reduction in our revenues, and no customer represents more than 5.0% of our annual base rent.

 

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Results of Operations

Summary of the three months ended March 31, 2014 compared to the same periods ended March 31, 2013

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 U.S. As of March 31, 2014, the Company owned interests in or had under development approximately 73.1 million square feet of properties leased to approximately 900 customers, including 8.6 million square feet managed on behalf of four institutional capital management joint venture partners. Also as of March 31, 2014, we consolidated 401 operating properties, four development properties and four consolidated properties classified as held for sale.

Comparison of the three months ended March 31, 2014 compared to the same period ended March 31, 2013

The following table illustrates the changes in rental revenues, rental expenses and real estate taxes, property net operating income, other revenue and other income, and other expenses for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods for which the operations had been stabilized. We generally consider buildings stabilized when occupancy reaches 90%. Non-same store operating properties include properties not meeting the same store criteria and by definition exclude development and redevelopment properties. The same store portfolio for the periods presented totaled 349 operating properties and was comprised of 53.2 million square feet. A discussion of these changes follows in the table below (in thousands):

 

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     Three Months Ended              
     March 31,              
     2014     2013     Change     Percent Change  

Rental Revenues

        

Same store

   $ 69,645      $ 66,533      $ 3,112        4.7

Non-same store operating properties

     12,520        776        11,744        1513.4

Development and redevelopment

     454        —          454        100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Total rental revenues

     82,619        67,309        15,310        22.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Rental Expenses and Real Estate Taxes

        

Same store

     21,436        18,717        2,719        14.5

Non-same store operating properties

     4,108        185        3,923        2120.5

Development and redevelopment

     55        26        29        111.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Total rental expenses and real estate taxes

     25,599        18,928        6,671        35.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Property Net Operating Income (1)

        

Same store

     48,209        47,816        393        0.8

Non-same store operating properties

     8,412        591        7,821        1323.4

Development and redevelopment

     399        (26     425        1634.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total property net operating income

     57,020        48,381        8,639        17.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Revenue and Other Income

        

Institutional capital management and other fees

     764        812        (48     -5.9

Development profit, net of taxes

     728        268        460        171.6

Equity in earnings of unconsolidated joint ventures, net

     3,613        391        3,222        824.0

Gain on acquisitions and dispositions of real estate interests

     2,045        —          2,045        100.0

Casualty and involuntary conversion gain

     —          59        (59     -100.0

Interest and other income

     28        162        (134     -82.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other revenue and other income

     7,178        1,692        5,486        324.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Expenses

        

Real estate related depreciation and amortization

     36,433        30,196        6,237        20.7

Interest expense

     16,056        16,860        (804     -4.8

General and administrative

     6,834        6,339        495        7.8

Impairment losses

     4,359        —          4,359        100.0

Income tax expense and other taxes

     57        109        (52     -47.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     63,739        53,504        10,235        19.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from discontinued operations

     9        5,067        (5,058     -99.8

Net income attributable to noncontrolling interests of the Operating Partnership

     (133     (265     132        49.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to OP Unitholders

     335        1,371        (1,036     -75.6
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (18     (92     74        80.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 317      $ 1,279      $ (962     -75.2
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Property net operating income, or 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 (losses), impairment, general and administrative expenses, equity in earnings (loss) of unconsolidated joint ventures, interest expense, interest and other income (expenses) 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. We believe net income attributable to DCT common stockholders, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. For a reconciliation of our property net operating income to our reported “Income (loss) from continuing operations,” see “Notes to Consolidated Financial Statements, Note 11—Segment Information.”

 

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Rental Revenues

Rental revenues, which are comprised of base rent, straight-line rent, amortization of above and below market rent intangibles, tenant recovery income, other rental income and early lease termination fees, increased by $15.3 million for the three months ended March 31, 2014 compared to the same period in 2013, primarily due to the following:

 

    $12.2 million increase in our non-same store rental revenues, including development and redevelopment properties, primarily as a result of an increase in the number of properties. Since January 1, 2013, we have acquired 44 operating properties, nine properties for development and completed development of seven properties.

 

    $3.1 million increase in total revenue in our same store portfolio primarily due to the following:

 

    $0.6 million increase in base rent primarily resulting from increased rental rates and a 40 basis point increase in average occupancy period over period;

 

    $1.9 million increase in operating expense recoveries related to a higher property operating expense and higher average occupancy;

 

    $0.8 million increase in revenues from early lease terminations; and

 

    $0.4 million increase in other revenues primarily related to increases in amortization of below market rent and other rents; which was partially offset by

 

    $0.6 million decrease in straight-line rental revenue as a result of fewer rent concessions.

The following table illustrates the various components of our consolidated rental revenues for the three months ended March 31, 2014 and 2013 (in thousands):

 

     Three Months Ended  
     March 31,  
     2014      2013      $ Change  

Base rent

   $ 58,301       $ 49,920       $ 8,381   

Straight-line rent

     2,114         1,356         758   

Amortization of above and below market rent intangibles

     427         399         28   

Tenant recovery income

     20,023         15,165         4,858   

Other

     829         354         475   

Revenues related to early lease terminations

     925         115         810   
  

 

 

    

 

 

    

 

 

 

Total rental revenues

   $ 82,619       $ 67,309       $ 15,310   
  

 

 

    

 

 

    

 

 

 

Rental Expenses and Real Estate Taxes

Rental expenses and real estate taxes increased by $6.7 million for the three months ended March 31, 2014 compared to the same period in 2013, primarily due to the following:

 

    $4.0 million increase in rental expenses and real estate taxes related to properties acquired and development and redevelopment properties placed into operation during the period; and

 

    $2.7 million increase in rental expenses and real estate taxes period over period in our same store portfolio, which was primarily due to increases in property taxes and snow removal resulting from heavy winter storms.

Other Revenue and Other Income

Total other revenue and other income increased $5.5 million for the three months ended March 31, 2014 as compared to the same period in 2013, primarily due the following:

 

    $3.2 million increase in equity in earnings of unconsolidated joint ventures primarily related to a gain from the sale of all properties in the TRT-DCT Venture I;

 

    $2.0 million gain on acquisitions and dispositions of real estate interests primarily related to a $0.9 million gain on the sale of our interest in the TRT-DCT Venture I and a gain of $1.0 million related to the purchase of our partner’s 50.0% interest in one property from the IDI-DCT, LLC joint venture; and

 

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    $0.7 million in development profit, net of taxes related to the completed build-to-suit and sale of 8th & Vineyard A which was offset by a $0.3 million development profit, net of taxes recognized during 2013.

Other Expenses

Other expenses increased $10.2 million for the three months ended March 31, 2014 as compared to the same period in 2013, primarily due to the following:

 

    $6.2 million increase in depreciation and amortization expense resulting from real estate acquisitions and capital additions; and

 

    $4.4 million impairment expense recognized on two of our properties held for sale; partially offset by

 

    $0.8 million decrease in interest expense as a result of the $175.0 million senior unsecured note paid down in March 2013 and lower borrowings on our senior unsecured revolving credit facility.

Income from Discontinued Operations

Income from discontinued operations decreased by $5.1 million for the three months ended March 31, 2014 as compared to the same period in 2013. This decrease is primarily related to the classification of three properties disposed as discontinued operations for the three month period ended March 31, 2013. See the “Notes to the Consolidated Financial Statements, Note 2 – Summary of Significant Accounting Policies” for additional information related to the early adoption of the discontinued operations accounting standard update.

Segment Summary for the three months ended March 31, 2014 compared to the same period ended March 31, 2013

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. These regions are comprised of the markets by which management and their operating teams conduct and monitor business (see further detail on our Segments in “Notes to the Consolidated Financial Statements, Note 11—Segment Information”). Management considers rental revenues and property net operating income aggregated by segment to be the appropriate way to analyze performance.

The following table illustrates the changes in our consolidated operating properties in continuing operations by segment as of, and for the three months ended March 31, 2014 compared to March 31, 2013, respectively (dollar amounts and square feet in thousands):

 

     As of March 31,     Three Months Ended
March 31,
 
     Number of
buildings
     Square
feet
     Occupancy at
period end
    Segment
assets(1)
    Rental
revenues(2)
     Property net
operating
income (3)
 

EAST:

               

2014

     132         23,164         90.4   $ 1,020,621      $ 28,972       $ 20,139   

2013

     120         19,977         86.7     879,284      $ 21,880       $ 15,869   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Change

     12         3,187         3.7   $ 141,337      $ 7,092       $ 4,270   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

CENTRAL:

               

2014

     171         27,638         93.6   $ 1,065,217      $ 31,612       $ 20,220   

2013

     151         23,663