Edgar Filing: DCT Industrial Trust Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2014

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

For the transition period from to

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

DCT INDUSTRIAL TRUST INC.

DCT INDUSTRIAL OPERATING PARTNERSHIP LP

(Exact name of registrant as specified in its charter)

Maryland (DCT Industrial Trust Inc.)

Delaware (DCT Industrial Operating Partnership LP)

82-0538520

82-0538522

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


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

(303) 597-2400

(Registrant’s telephone number, including area code)

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


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

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


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

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

DCT Industrial Trust Inc.:

DCT Industrial Operating Partnership LP:

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


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

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

EXPLANATORY NOTE

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

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

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

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

•

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

•

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

•

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

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

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

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

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

DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Index to Form 10-Q


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements:
	DCT Industrial Trust Inc.
	Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013		3
	Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)		4
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013 (unaudited)		5
	Consolidated Statement of Changes in Equity for the six months ended June 30, 2014 (unaudited)		6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)		7
	DCT Industrial Operating Partnership LP
	Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013		8
	Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)		9
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013 (unaudited)		10
	Consolidated Statement of Changes in Capital for the six months ended June 30, 2014 (unaudited)		11
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)		12
	DCT Industrial Trust Inc. and DCT Industrial Operating Partnership LP
	Notes to Consolidated Financial Statements (unaudited)		13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		57
Item 4.	Controls and Procedures		58

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		59
Item 1A.	Risk Factors		59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		59
Item 3.	Defaults upon Senior Securities		59
Item 4.	Mine Safety Disclosure		59
Item 5.	Other Information		59
Item 6.	Exhibits		59

SIGNATURES			60

DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share information)


	June 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Land	$	905,871		$	883,804
Buildings and improvements		2,712,597			2,615,879
Intangible lease assets		85,699			82,758
Construction in progress		86,831			88,610

Total investment in properties		3,790,998			3,671,051
Less accumulated depreciation and amortization		(699,087	)		(654,097	)

Net investment in properties		3,091,911			3,016,954
Investments in and advances to unconsolidated joint ventures		100,301			124,923

Net investment in real estate		3,192,212			3,141,877
Cash and cash equivalents		20,335			32,226
Restricted cash		9,850			12,621
Deferred loan costs, net		9,144			10,251
Straight-line rent and other receivables, net of allowance for doubtful accounts of $672 and $2,178, respectively		53,043			46,247
Other assets, net		13,667			14,545
Assets held for sale		43,725			8,196

Total assets	$	3,341,976		$	3,265,963

LIABILITIES AND EQUITY
Liabilities:
Accounts payable and accrued expenses	$	61,623		$	63,281
Distributions payable		24,648			23,792
Tenant prepaids and security deposits		24,007			28,542
Other liabilities		10,877			10,122
Intangible lease liabilities, net		20,731			20,389
Line of credit		73,000			39,000
Senior unsecured notes		1,122,512			1,122,407
Mortgage notes		284,728			290,960
Liabilities related to assets held for sale		5,137			278

Total liabilities		1,627,263			1,598,771

Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none outstanding		—			—
Shares-in-trust, $0.01 par value, 100,000,000 shares authorized, none outstanding		—			—
Common stock, $0.01 par value, 500,000,000 shares authorized, 332,774,216 and 320,265,949 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively		3,328			3,203
Additional paid-in capital		2,604,412			2,512,024
Distributions in excess of earnings		(980,153	)		(941,019	)
Accumulated other comprehensive loss		(29,078	)		(30,402	)

Total stockholders’ equity		1,598,509			1,543,806
Noncontrolling interests		116,204			123,386

Total equity		1,714,713			1,667,192

Total liabilities and equity	$	3,341,976		$	3,265,963

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

DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited, in thousands, except per share information)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
REVENUES:
Rental revenues	$	83,302		$	69,324		$	165,921		$	136,633
Institutional capital management and other fees		308			707			1,072			1,520

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

OPERATING EXPENSES:
Rental expenses		9,433			8,945			21,835			17,294
Real estate taxes		13,711			11,607			26,908			22,186
Real estate related depreciation and amortization		37,270			31,594			73,703			61,790
General and administrative		7,498			7,362			14,332			13,703
Impairment losses		376			—			4,735			—
Casualty and involuntary conversion (gain) loss		(340	)		58			(340	)		(2	)

Total operating expenses		67,948			59,566			141,173			114,971

Operating income		15,662			10,465			25,820			23,182
OTHER INCOME (EXPENSE):
Development profit, net of taxes		1,288			—			2,016			268
Equity in earnings of unconsolidated joint ventures, net		697			571			4,310			962
Gain on acquisitions and dispositions of real estate interests		—			—			2,045			—
Interest expense		(16,182	)		(15,327	)		(32,238	)		(32,187	)
Interest and other income (expense)		(23	)		63			5			227
Income tax benefit (expense) and other taxes		241			(323	)		184			(432	)

Income (loss) from continuing operations		1,683			(4,551	)		2,142			(7,980	)
Income from discontinued operations		5,215			16,218			5,224			21,283

Income before gain on sale of real estate		6,898			11,667			7,366			13,303
Gain on sale of real estate		372			—			372			—

Consolidated net income of DCT Industrial Trust Inc.		7,270			11,667			7,738			13,303
Net income attributable to noncontrolling interests		(469	)		(858	)		(620	)		(1,215	)

Net income attributable to common stockholders		6,801			10,809			7,118			12,088

Distributed and undistributed earnings allocated to participating securities		(170	)		(174	)		(336	)		(346	)

Adjusted net income attributable to common stockholders	$	6,631		$	10,635		$	6,782		$	11,742

EARNINGS PER COMMON SHARE—BASIC
Income (loss) from continuing operations	$	0.01		$	(0.02	)	$	0.01		$	(0.03	)
Income from discontinued operations		0.01			0.06			0.01			0.07

Net income attributable to common stockholders	$	0.02		$	0.04		$	0.02		$	0.04

EARNINGS PER COMMON SHARE—DILUTED
Income (loss) from continuing operations	$	0.01		$	(0.02	)	$	0.01		$	(0.03	)
Income from discontinued operations		0.01			0.06			0.01			0.07

Net income attributable to common stockholders	$	0.02		$	0.04		$	0.02		$	0.04

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		329,119			290,977			326,543			286,047
Diluted		330,252			290,977			327,635			286,047

Distributions declared per common share	$	0.07		$	0.07		$	0.14		$	0.14

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

DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited, in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Consolidated net income of DCT Industrial Trust Inc.	$	7,270		$	11,667		$	7,738		$	13,303
Other comprehensive income:
Net derivative gain (loss) on cash flow hedging instruments		(518	)		918			(846	)		924
Net reclassification adjustment on cash flow hedging instruments		1,172			1,094			2,328			2,186

Other comprehensive income		654			2,012			1,482			3,110

Comprehensive income		7,924			13,679			9,220			16,413
Comprehensive income attributable to noncontrolling interests		(513	)		(1,144	)		(778	)		(1,600	)

Comprehensive income attributable to common stockholders	$	7,411		$	12,535		$	8,442		$	14,813

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

DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Equity

(unaudited, in thousands)


	Total Equity			Common Stock				Additional Paid-in Capital			Distributions in Excess of Earnings			Accumulated Other Comprehensive Loss			Non- controlling Interests
	Total Equity			Shares		Amount		Additional Paid-in Capital			Distributions in Excess of Earnings			Accumulated Other Comprehensive Loss			Non- controlling Interests
Balance at December 31, 2013	$	1,667,192			320,266	$	3,203	$	2,512,024		$	(941,019	)	$	(30,402	)	$	123,386
Net income		7,738			—		—		—			7,118			—			620
Other comprehensive income		1,482			—		—		—			—			1,324			158
Issuance of common stock, net of offering costs		85,818			11,307		113		85,705			—			—			—
Issuance of common stock, stock-based compensation plans		(274	)		281		3		(277	)		—			—			—
Amortization of stock-based compensation		2,752			—		—		885			—			—			1,867
Distributions to common stockholders and noncontrolling interests		(49,300	)		—		—		—			(46,252	)		—			(3,048	)
Capital contribution from noncontrolling interests		101			—		—		—			—			—			101
Purchases and redemptions of noncontrolling interests		(796	)		920		9		6,075			—			—			(6,880	)

Balance at June 30, 2014	$	1,714,713			332,774	$	3,328	$	2,604,412		$	(980,153	)	$	(29,078	)	$	116,204

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

DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited, in thousands)


	Six Months Ended June 30,
	2014			2013
OPERATING ACTIVITIES:
Consolidated net income of DCT Industrial Trust Inc.	$	7,738		$	13,303
Adjustments to reconcile consolidated net income of DCT Industrial Trust Inc. to net cash provided by operating activities:
Real estate related depreciation and amortization		73,703			66,861
Gain on acquisitions and dispositions of real estate interests		(7,534	)		(17,508	)
Distributions of earnings from unconsolidated joint ventures		2,284			2,962
Equity in earnings of unconsolidated joint ventures, net		(4,310	)		(962	)
Casualty and involuntary conversion gain		(340	)		(2	)
Impairment losses		4,735			—
Stock-based compensation		2,211			1,875
Straight-line rent		(5,303	)		(2,719	)
Other		2,669			2,789
Changes in operating assets and liabilities:
Other receivables and other assets		11,871			3,359
Accounts payable, accrued expenses and other liabilities		(7,228	)		(8,976	)

Net cash provided by operating activities		80,496			60,982

INVESTING ACTIVITIES:
Real estate acquisitions		(116,074	)		(200,523	)
Capital expenditures and development activities		(84,120	)		(70,856	)
Proceeds from dispositions of real estate investments		31,932			112,468
Investments in unconsolidated joint ventures		(940	)		(1,046	)
Proceeds from casualties and involuntary conversion		491			5,553
Distributions of investments in unconsolidated joint ventures		16,757			1,155
Other investing activities		(2,792	)		(245	)

Net cash used in investing activities		(154,746	)		(153,494	)

FINANCING ACTIVITIES:
Proceeds from senior unsecured revolving line of credit		76,000			199,000
Repayments of senior unsecured revolving line of credit		(42,000	)		(192,000	)
Proceeds from senior unsecured notes		—			225,000
Repayments of senior unsecured notes		—			(175,000	)
Proceeds from mortgage notes		—			16,498
Principal payments on mortgage notes		(8,033	)		(15,320	)
Proceeds from issuance of common stock		86,654			75,920
Offering costs for issuance of common stock and OP Units		(1,110	)		(975	)
Redemption of noncontrolling interests		(796	)		(752	)
Dividends to common stockholders		(45,367	)		(39,781	)
Distributions to noncontrolling interests		(3,077	)		(3,958	)
Contributions from noncontrolling interests		101			723
Other financing activity		(13	)		84

Net cash provided by financing activities		62,359			89,439

NET CHANGE IN CASH AND CASH EQUIVALENTS		(11,891	)		(3,073	)
CASH AND CASH EQUIVALENTS, beginning of period		32,226			12,696

CASH AND CASH EQUIVALENTS, end of period	$	20,335		$	9,623

Supplemental Disclosures of Cash Flow Information
Cash paid for interest, net of capitalized interest	$	30,378		$	30,568
Supplemental Disclosures of Non-Cash Activities
Retirement of fully depreciated and amortized assets, net	$	14,420		$	17,950
Redemptions of OP Units settled in shares of common stock	$	6,084		$	9,230
Assumption of mortgage note in connection with real estate acquired	$	7,459		$	—

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

DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except unit information)


	June 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Land	$	905,871		$	883,804
Buildings and improvements		2,712,597			2,615,879
Intangible lease assets		85,699			82,758
Construction in progress		86,831			88,610

Total investment in properties		3,790,998			3,671,051
Less accumulated depreciation and amortization		(699,087	)		(654,097	)

Net investment in properties		3,091,911			3,016,954
Investments in and advances to unconsolidated joint ventures		100,301			124,923

Net investment in real estate		3,192,212			3,141,877
Cash and cash equivalents		20,335			32,226
Restricted cash		9,850			12,621
Deferred loan costs, net		9,144			10,251
Straight-line rent and other receivables, net of allowance for doubtful accounts of $672 and $2,178, respectively		53,043			46,247
Other assets, net		13,667			14,545
Assets held for sale		43,725			8,196

Total assets	$	3,341,976		$	3,265,963

LIABILITIES AND CAPITAL
Liabilities:
Accounts payable and accrued expenses	$	61,623		$	63,281
Distributions payable		24,648			23,792
Tenant prepaids and security deposits		24,007			28,542
Other liabilities		10,877			10,122
Intangible lease liabilities, net		20,731			20,389
Line of credit		73,000			39,000
Senior unsecured notes		1,122,512			1,122,407
Mortgage notes		284,728			290,960
Liabilities related to assets held for sale		5,137			278

Total liabilities		1,627,263			1,598,771

Partners’ Capital:
General Partner:
OP Units, 3,499,420 and 3,379,271 issued and outstanding as of June 30, 2014 and December 31, 2013, respectively		17,333			16,872
Limited Partners:
OP Units, 346,442,628 and 334,547,822 issued and outstanding as of June 30, 2014 and December 31, 2013, respectively		1,715,962			1,670,362
Accumulated other comprehensive loss		(30,577	)		(32,077	)

Total partners’ capital		1,702,718			1,655,157
Noncontrolling interests		11,995			12,035

Total capital		1,714,713			1,667,192

Total liabilities and capital	$	3,341,976		$	3,265,963

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

DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited, in thousands, except per unit information)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
REVENUES:
Rental revenues	$	83,302		$	69,324		$	165,921		$	136,633
Institutional capital management and other fees		308			707			1,072			1,520

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

OPERATING EXPENSES:
Rental expenses		9,433			8,945			21,835			17,294
Real estate taxes		13,711			11,607			26,908			22,186
Real estate related depreciation and amortization		37,270			31,594			73,703			61,790
General and administrative		7,498			7,362			14,332			13,703
Impairment losses		376			—			4,735			—
Casualty and involuntary conversion (gain) loss		(340	)		58			(340	)		(2	)

Total operating expenses		67,948			59,566			141,173			114,971

Operating income		15,662			10,465			25,820			23,182
OTHER INCOME (EXPENSE):
Development profit, net of taxes		1,288			—			2,016			268
Equity in earnings of unconsolidated joint ventures, net		697			571			4,310			962
Gain on acquisitions and dispositions of real estate interests		—			—			2,045			—
Interest expense		(16,182	)		(15,327	)		(32,238	)		(32,187	)
Interest and other income (expense)		(23	)		63			5			227
Income tax benefit (expense) and other taxes		241			(323	)		184			(432	)

Income (loss) from continuing operations		1,683			(4,551	)		2,142			(7,980	)
Income from discontinued operations		5,215			16,218			5,224			21,283

Income before gain on sale of real estate		6,898			11,667			7,366			13,303
Gain on sale of real estate		372			—			372			—

Consolidated net income of DCT Industrial Operating Partnership LP		7,270			11,667			7,738			13,303
Net income attributable to noncontrolling interests		(103	)		(108	)		(236	)		(373	)

Net income attributable to OP Unitholders		7,167			11,559			7,502			12,930

Distributed and undistributed earnings allocated to participating securities		(170	)		(174	)		(336	)		(346	)

Adjusted net income attributable to OP Unitholders	$	6,997		$	11,385		$	7,166		$	12,584

EARNINGS PER OP UNIT—BASIC
Income (loss) from continuing operations	$	0.01		$	(0.02	)	$	0.01		$	(0.03	)
Income from discontinued operations		0.01			0.06			0.01			0.07

Net income attributable to OP Unitholders	$	0.02		$	0.04		$	0.02		$	0.04

EARNINGS PER OP UNIT—DILUTED
Income (loss) from continuing operations	$	0.01		$	(0.02	)	$	0.01		$	(0.03	)
Income from discontinued operations		0.01			0.06			0.01			0.07

Net income attributable to OP Unitholders	$	0.02		$	0.04		$	0.02		$	0.04

WEIGHTED AVERAGE OP UNITS OUTSTANDING:
Basic		346,477			310,623			344,133			306,010
Diluted		347,610			310,623			345,225			306,010

Distributions declared per OP Unit	$	0.07		$	0.07		$	0.14		$	0.14

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

DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited, in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Consolidated net income of DCT Industrial Operating Partnership LP	$	7,270		$	11,667		$	7,738		$	13,303
Other comprehensive income:
Net derivative gain (loss) on cash flow hedging instruments		(518	)		918			(846	)		924
Net reclassification adjustment on cash flow hedging instruments		1,172			1,094			2,328			2,186

Other comprehensive income		654			2,012			1,482			3,110

Comprehensive income		7,924			13,679			9,220			16,413
Comprehensive income attributable to noncontrolling interests		(50	)		(108	)		(218	)		(373	)

Comprehensive income attributable to OP Unitholders	$	7,874		$	13,571		$	9,002		$	16,040

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

DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Statement of Changes in Capital

(unaudited, in thousands)


	Total Capital			General Partner					Limited Partners						Accumulated Other Comprehensive Loss			Non- controlling Interests
				OP Units					OP Units
				Units		Amount			Units			Amount
Balance at December 31, 2013	$	1,667,192			3,379	$	16,872			334,548		$	1,670,362		$	(32,077	)	$	12,035
Net income		7,738			—		75			—			7,427			—			236
Other comprehensive income (loss)		1,482			—		—			—			—			1,500			(18	)
Issuance of OP Units, net of selling costs		85,818			—		—			11,307			85,818			—			—
Issuance of OP Units, share-based compensation plans		(274	)		—		—			814			(274	)		—			—
Amortization of share-based compensation		2,752			—		—			—			2,752			—			—
Distributions to OP Unitholders and noncontrolling interests		(49,300	)		—		(489	)		—			(48,452	)		—			(359	)
Capital contribution from noncontrolling interests		101			—		—			—			—			—			101
Redemption of limited partner OP Units		(796	)		—		—			(106	)		(796	)		—			—
Conversion of limited partner OP Units to OP Units of general partner		—			120		875			(120	)		(875	)		—			—

Balance at June 30, 2014	$	1,714,713			3,499	$	17,333			346,443		$	1,715,962		$	(30,577	)	$	11,995

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

DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited, in thousands)


	Six Months Ended June 30,
	2014			2013
OPERATING ACTIVITIES:
Consolidated net income of DCT Industrial Operating Partnership LP	$	7,738		$	13,303
Adjustments to reconcile consolidated net income of DCT Industrial Operating Partnership LP to net cash provided by operating activities:
Real estate related depreciation and amortization		73,703			66,861
Gain on acquisitions and dispositions of real estate interests		(7,534	)		(17,508	)
Distributions of earnings from unconsolidated joint ventures		2,284			2,962
Equity in earnings of unconsolidated joint ventures, net		(4,310	)		(962	)
Casualty and involuntary conversion gain		(340	)		(2	)
Impairment losses		4,735			—
Share-based compensation		2,211			1,875
Straight-line rent		(5,303	)		(2,719	)
Other		2,669			2,789
Changes in operating assets and liabilities:
Other receivables and other assets		11,871			3,359
Accounts payable, accrued expenses and other liabilities		(7,228	)		(8,976	)

Net cash provided by operating activities		80,496			60,982

INVESTING ACTIVITIES:
Real estate acquisitions		(116,074	)		(200,523	)
Capital expenditures and development activities		(84,120	)		(70,856	)
Proceeds from dispositions of real estate investments		31,932			112,468
Investments in unconsolidated joint ventures		(940	)		(1,046	)
Proceeds from casualties and involuntary conversion		491			5,553
Distributions of investments in unconsolidated joint ventures		16,757			1,155
Other investing activities		(2,792	)		(245	)

Net cash used in investing activities		(154,746	)		(153,494	)

FINANCING ACTIVITIES:
Proceeds from senior unsecured revolving line of credit		76,000			199,000
Repayments of senior unsecured revolving line of credit		(42,000	)		(192,000	)
Proceeds from senior unsecured notes		—			225,000
Repayments of senior unsecured notes		—			(175,000	)
Proceeds from mortgage notes		—			16,498
Principal payments on mortgage notes		(8,033	)		(15,320	)
Proceeds from the issuance of OP Units in exchange for contributions from the REIT, net		85,544			74,945
OP Unit redemptions		(796	)		(752	)
Distributions paid on OP Units		(48,085	)		(42,830	)
Distributions paid to noncontrolling interests		(359	)		(909	)
Contributions from noncontrolling interests		101			723
Other financing activity		(13	)		84

Net cash provided by financing activities		62,359			89,439

NET CHANGE IN CASH AND CASH EQUIVALENTS		(11,891	)		(3,073	)
CASH AND CASH EQUIVALENTS, beginning of period		32,226			12,696

CASH AND CASH EQUIVALENTS, end of period	$	20,335		$	9,623

Supplemental Disclosures of Cash Flow Information
Cash paid for interest, net of capitalized interest	$	30,378		$	30,568
Supplemental Disclosures of Non-Cash Activities
Retirement of fully depreciated and amortized assets	$	14,420		$	17,950
Assumption of mortgage note in connection with real estate acquired	$	7,459		$	—

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

DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES

DCT INDUSTRIAL OPERATING PARTERNSHIP LP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization

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

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

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

•

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

•

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

•

0.3 million square feet comprising two consolidated buildings in development.

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

Note 2 – Summary of Significant Accounting Policies

Interim Financial Information

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

Basis of Presentation and Principles of Consolidation

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

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

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

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

Use of Estimates

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

Revenue Recognition

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

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

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

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

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

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

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

New Accounting Standards

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

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

Note 3 – Investment in Properties

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


	June 30, 2014			December 31, 2013
Operating properties	$	3,631,377		$	3,442,442
Properties under development		109,602			142,903
Properties under redevelopment		—			12,194
Properties in pre-development including land held		50,019			73,512

Total Investment in Properties		3,790,998			3,671,051
Less accumulated depreciation and amortization		(699,087	)		(654,097	)

Net Investment in Properties	$	3,091,911		$	3,016,954

Acquisition Activity

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

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

Development Activity

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

•

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

•

Eight projects under construction totaling 2.4 million square feet.

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

Disposition Activity

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

Intangible Lease Assets and Liabilities

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


	June 30, 2014									December 31, 2013
	Gross			Accumulated Amortization			Net			Gross			Accumulated Amortization			Net
Other intangible lease assets	$	80,729		$	(32,559	)	$	48,170		$	77,383		$	(27,668	)	$	49,715
Above market rent	$	4,970		$	(1,702	)	$	3,268		$	5,375		$	(1,761	)	$	3,614
Below market rent	$	(27,829	)	$	7,098		$	(20,731	)	$	(26,562	)	$	6,173		$	(20,389	)

Note 4 – Investments in and Advances to Unconsolidated Joint Ventures

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

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

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

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


	As of June 30, 2014					Investments in and Advances to as of
Unconsolidated Joint Ventures	Ownership Percentage			Number of Buildings		June 30, 2014		December 31, 2013
Institutional Joint Ventures:
DCT/SPF Industrial Operating LLC		20.0	%		13	$	40,817	$	41,253
TRT-DCT Venture I		0.0	%		—		—		823
TRT-DCT Venture II		0.0	%		—		—		1,847
TRT-DCT Venture III		10.0	%		4		1,184		1,197

Total Institutional Joint Ventures					17		42,001		45,120

Other:
Stirling Capital Investments (SCLA)⁽¹⁾		50.0	%		6		46,042		47,978
IDI/DCT, LLC		50.0	%		2		8,160		27,735
IDI/DCT Buford, LLC (land only)		75.0	%		—		4,098		4,090

Total Other					8		58,300		79,803

Total					25	$	100,301	$	124,923

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

Guarantees

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

Note 5 – Financial Instruments and Hedging Activities

Fair Value of Financial Instruments

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


	Balances as of June 30, 2014						Balances as of December 31, 2013
	Carrying Amounts			Estimated Fair Value			Carrying Amounts		Estimated Fair Value
Borrowings⁽¹⁾:
Senior unsecured revolving credit facility	$	73,000		$	73,000		$	39,000	$	39,000
Fixed rate debt⁽²⁾	$	1,186,928		$	1,296,530		$	1,188,367	$	1,263,722
Variable rate debt	$	225,000		$	225,821		$	225,000	$	226,153
Interest rate contracts:
Interest rate swap asset (liability)⁽³⁾	$	(38	)	$	(38	)	$	212	$	212

⁽¹⁾

The fair values of our borrowings were estimated using a discounted cash flow methodology. Credit spreads and market interest rates used to determine the fair value of these instruments are based on unobservable Level 3 inputs which management has determined to be its best estimate of current market values.

⁽²⁾	The carrying amount of our fixed rate debt includes premiums and discounts.

⁽³⁾

The fair value of our interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash flows and the discounted expected variable cash flows based on an expectation of future interest rates derived from Level 2 observable market interest rate curves. We also incorporate a credit valuation adjustment, which is derived using unobservable Level 3 inputs, to appropriately reflect both our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement. The asset or liability is included in “Other assets” or “Other liabilities,” respectively, in our Consolidated Balance Sheets.

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


	During the Six Months Ended June 30,
	2014			2013
Level 3 Assets (Liabilities):
Interest Rate Swaps:
Beginning balance at January 1	$	212		$	—
Net unrealized gain (loss) included in accumulated other comprehensive loss		(327	)		53
Realized loss recognized in interest expense		77			—

Ending balance at June 30	$	(38	)	$	53

Hedging Activities

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

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

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

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

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Derivatives in Cash Flow Hedging Relationships
Interest Rate Swaps:
Amount of gain (loss) recognized in OCI for effective portion of derivatives	$	(518	)	$	918		$	(846	)	$	924

Amount of loss reclassified from accumulated OCI for effective portion of derivatives into interest expense and equity in earnings of unconsolidated joint ventures	$	(1,172	)	$	(1,094	)	$	(2,328	)	$	(2,186	)

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

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

Note 6 – Outstanding Indebtedness

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

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

Line of Credit

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

Debt Assumptions

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

Guarantee of Debt

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

Note 7 – Noncontrolling Interests

DCT

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

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Noncontrolling interests’ share of (income) loss from continuing operations	$	(202	)	$	188		$	(353	)	$	172
Noncontrolling interests’ share of income from discontinued operations		(267	)		(1,046	)		(267	)		(1,387	)

Net income attributable to noncontrolling interests	$	(469	)	$	(858	)	$	(620	)	$	(1,215	)

Operating Partnership

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

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

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

DCT

Common Stock

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

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

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

Operating Partnership

OP Units

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

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

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

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

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

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

Equity-Based Compensation

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

Restricted Stock

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

LTIP Units

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

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

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

Note 9 – Related Party Transactions

8^th & Vineyard Consolidated Joint Venture

In 2010, we entered into the 8^th & 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 8^th & Vineyard was purchased from an entity in which the same executive had a minority ownership. The total acquisition price of $4.7 million was determined to be at fair value.

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

Southern California Consolidated Ventures

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

Note 10 – Earnings per Share/Unit

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

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

DCT

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Earnings per Common share – Basic and Diluted
Numerator
Income (loss) from continuing operations	$	1,683		$	(4,551	)	$	2,142		$	(7,980	)
Gain on sale of real estate		372			—			372			—
(Income) loss attributable to noncontrolling interests		(202	)		188			(353	)		172

Income (loss) from continuing operations attributable to common stockholders		1,853			(4,363	)		2,161			(7,808	)
Less: Distributed and undistributed earnings allocated to participating securities		(170	)		(174	)		(336	)		(346	)

Numerator for adjusted income (loss) from continuing operations attributable to common stockholders		1,683			(4,537	)		1,825			(8,154	)

Income from discontinued operations		5,215			16,218			5,224			21,283
Noncontrolling interests’ share of income from discontinued operations		(267	)		(1,046	)		(267	)		(1,387	)

Numerator for income from discontinued operations attributable to common stockholders		4,948			15,172			4,957			19,896

Adjusted net income attributable to common stockholders	$	6,631		$	10,635		$	6,782		$	11,742

Denominator
Weighted average common shares outstanding – basic		329,119			290,977			326,543			286,047
Effect of dilutive securities:
Stock options and phantom stock		1,133			—			1,092			—

Weighted average common shares outstanding – diluted		330,252			290,977			327,635			286,047

Earnings per Common Share – Basic
Income (loss) from continuing operations	$	0.01		$	(0.02	)	$	0.01		$	(0.03	)
Income from discontinued operations		0.01			0.06			0.01			0.07

Net income attributable to common stockholders	$	0.02		$	0.04		$	0.02		$	0.04

Earnings per Common Share – Diluted
Income (loss) from continuing operations	$	0.01		$	(0.02	)	$	0.01		$	(0.03	)
Income from discontinued operations		0.01			0.06			0.01			0.07

Net income attributable to common stockholders	$	0.02		$	0.04		$	0.02		$	0.04

Operating Partnership

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Earnings per OP Unit – Basic and Diluted
Numerator
Income (loss) from continuing operations	$	1,683		$	(4,551	)	$	2,142		$	(7,980	)
Gain on sale of real estate		372			—			372			—
Income attributable to noncontrolling interests		(103	)		(108	)		(236	)		(373	)

Income (loss) from continuing operations attributable to OP Unitholders		1,952			(4,659	)		2,278			(8,353	)
Less: Distributed and undistributed earnings allocated to participating securities		(170	)		(174	)		(336	)		(346	)

Numerator for adjusted income (loss) from continuing operations attributable to OP Unitholders		1,782			(4,833	)		1,942			(8,699	)

Income from discontinued operations		5,215			16,218			5,224			21,283
Noncontrolling interests’ share of income from discontinued operations		—			—			—			—

Numerator for income from discontinued operations attributable to OP Unitholders		5,215			16,218			5,224			21,283

Adjusted net income attributable to OP Unitholders	$	6,997		$	11,385		$	7,166		$	12,584

Denominator
Weighted average OP Units outstanding – basic		346,477			310,623			344,133			306,010
Effect of dilutive securities:
Stock options and phantom stock		1,133			—			1,092			—

Weighted average OP Units outstanding – diluted		347,610			310,623			345,225			306,010

Earnings per OP Unit – Basic
Income (loss) from continuing operations	$	0.01		$	(0.02	)	$	0.01		$	(0.03	)
Income from discontinued operations		0.01			0.06			0.01			0.07

Net income attributable to OP Unitholders	$	0.02		$	0.04		$	0.02		$	0.04

Earnings per OP Units – Diluted
Income (loss) from continuing operations	$	0.01		$	(0.02	)	$	0.01		$	(0.03	)
Income from discontinued operations		0.01			0.06			0.01			0.07

Net income attributable to OP Unitholders	$	0.02		$	0.04		$	0.02		$	0.04

DCT and the Operating Partnership

Potentially Dilutive Shares

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

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

Note 11 – Segment Information

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

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


	June 30, 2014		December 31, 2013
Segments:
East assets	$	1,013,242	$	1,026,416
Central assets		1,099,516		1,034,814
West assets		1,084,545		1,018,246

Total segment net assets		3,197,303		3,079,476
Non-segment assets:
Non-segment cash and cash equivalents		8,687		25,671
Other non-segment assets⁽¹⁾		135,986		152,620
Assets held for sale⁽²⁾		—		8,196

Total assets	$	3,341,976	$	3,265,963

⁽¹⁾	Other non-segment assets primarily consists of investments in and advances to unconsolidated joint ventures, deferred loan costs, other receivables and other assets.

⁽²⁾	Represents assets held for sale that meet the definition of a discontinued operation.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
East	$	27,822	$	22,637	$	56,793	$	44,517
Central		33,136		27,477		64,749		53,497
West		22,344		19,210		44,379		38,619

Rental revenues		83,302		69,324		165,921		136,633
Institutional capital management and other fees		308		707		1,072		1,520

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

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
East	$	20,691		$	16,116		$	40,831		$	31,985
Central		22,576			18,011			42,794			35,660
West		16,891			14,645			33,553			29,508

Property NOI⁽¹⁾		60,158			48,772			117,178			97,153
Institutional capital management and other fees		308			707			1,072			1,520
Gain on acquisitions and dispositions of real estate interests		—			—			2,045			—
Real estate related depreciation and amortization		(37,270	)		(31,594	)		(73,703	)		(61,790	)
Casualty and involuntary conversion gain (loss)		340			(58	)		340			2
Development profit, net of taxes		1,288			—			2,016			268
General and administrative		(7,498	)		(7,362	)		(14,332	)		(13,703	)
Impairment losses		(376	)		—			(4,735	)		—
Equity in earnings of unconsolidated joint ventures, net		697			571			4,310			962
Interest expense		(16,182	)		(15,327	)		(32,238	)		(32,187	)
Interest and other income (expense)		(23	)		63			5			227
Income tax benefit (expense) and other taxes		241			(323	)		184			(432	)

Income (loss) from continuing operations	$	1,683		$	(4,551	)	$	2,142		$	(7,980	)

⁽¹⁾

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

Note 12 – Discontinued Operations and Assets Held for Sale

Assets Held for Sale

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

Discontinued Operations

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

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

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Rental revenues	$	88		$	5,502		$	392		$	11,490
Rental expenses and real estate taxes		18			(1,188	)		(67	)		(2,394	)
Real estate related depreciation and amortization		—			(2,577	)		—			(5,071	)
General and administrative		(10	)		(87	)		(37	)		(167	)

Operating income		96			1,650			288			3,858
Interest and other income (expense)		2			(63	)		(17	)		(83	)
Income tax expense		—			—			(32	)		—

Operating income and other income		98			1,587			239			3,775
Gain on acquisitions and dispositions of real estate interests		5,117			14,631			5,117			17,508
Adjustment to previously impaired properties		—			—			(132	)		—

Income from discontinued operations	$	5,215		$	16,218		$	5,224		$	21,283

Note 13 – Condensed Consolidating Financial Information

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

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

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

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

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

Condensed Consolidated Balance Sheets

June 30, 2014

(in thousands)

(unaudited)


	Parent		Subsidiary Issuer		Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total Consolidated
ASSETS
Land	$	—	$	—	$	754,473		$	151,398		$	—		$	905,871
Buildings and improvements		—		—		2,291,332			421,265			—			2,712,597
Intangible lease assets		—		—		60,062			25,637			—			85,699
Construction in progress		—		—		81,347			5,484			—			86,831

Total investment in properties		—		—		3,187,214			603,784			—			3,790,998
Less accumulated depreciation and amortization		—		—		(582,687	)		(116,400	)		—			(699,087	)

Net investment in properties		—		—		2,604,527			487,384			—			3,091,911
Investments in and advances to unconsolidated joint ventures		—		99,692		609			—			—			100,301

Net investment in real estate		—		99,692		2,605,136			487,384			—			3,192,212
Cash and cash equivalents		—		10,539		9,528			268			—			20,335
Restricted cash		—		6,720		341			2,789			—			9,850
Deferred loan costs, net		—		8,664		—			480			—			9,144
Straight-line rent and other receivables, net		—		142		44,171			8,730			—			53,043
Other assets, net		—		6,276		3,571			3,820			—			13,667
Intercompany receivables, net		23,357		147,649		11,963			—			(182,969	)		—
Investment in subsidiaries		1,598,509		2,653,483		2,030			—			(4,254,022	)		—
Assets held for sale		—		—		34,317			9,408			—			43,725

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

LIABILITIES AND EQUITY
Liabilities:
Accounts payable and accrued expenses	$	—	$	10,179	$	41,145		$	10,299		$	—		$	61,623
Intercompany payables, net		—		23,357		35,579			124,033			(182,969	)		—
Distributions payable		23,357		1,291		—			—			—			24,648
Tenant prepaids and security deposits		—		—		20,240			3,767			—			24,007
Other liabilities		—		108		6,469			4,300			—			10,877
Intangible lease liabilities, net		—		—		17,671			3,060			—			20,731
Line of credit		—		73,000		—			—			—			73,000
Senior unsecured notes		—		1,122,512		—			—			—			1,122,512
Mortgage notes		—		—		34,110			250,618			—			284,728
Liabilities related to assets held for sale		—		—		447			4,690			—			5,137

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

Equity:
Stockholders’ equity		1,598,509		1,702,718		2,555,396			112,112			(4,370,226	)		1,598,509
Noncontrolling interests		—		—		—			—			116,204			116,204

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

Total liabilities and equity	$	1,621,866	$	2,933,165	$	2,711,057		$	512,879		$	(4,436,991	)	$	3,341,976

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Three Months Ended June 30, 2014

(in thousands)

(unaudited)


	Parent		Subsidiary Issuer			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total Consolidated
REVENUES:
Rental revenues	$	—	$	—		$	69,889		$	13,413		$	—		$	83,302
Institutional capital management and other fees		—		74			—			350			(116	)		308

Total revenues		—		74			69,889			13,763			(116	)		83,610

OPERATING EXPENSES:
Rental expenses		—		—			8,083			1,350			—			9,433
Real estate taxes		—		—			11,432			2,279			—			13,711
Real estate related depreciation and amortization		—		—			31,382			5,888			—			37,270
General and administrative		—		7,401			87			10			—			7,498
Impairment losses		—		—			405			(29	)		—			376
Casualty and involuntary conversion (gain) loss		—		—			(340	)		—			—			(340	)

Total operating expenses		—		7,401			51,049			9,498			—			67,948

Operating income (loss)		—		(7,327	)		18,840			4,265			(116	)		15,662

OTHER INCOME (EXPENSE):
Development profit, net of taxes		—		—			—			1,238			50			1,288
Equity in earnings (loss) of unconsolidated joint ventures, net		—		633			(2	)		—			66			697
Interest expense		—		(12,604	)		(1,155	)		(3,159	)		736			(16,182	)
Interest and other income (expense)		—		772			(13	)		(15	)		(767	)		(23	)
Income tax benefit (expense) and other taxes		—		(68	)		381			(72	)		—			241

Income (loss) from continuing operations		—		(18,594	)		18,051			2,257			(31	)		1,683
Income (loss) from discontinued operations		—		—			—			5,184			31			5,215
Equity in earnings of consolidated subsidiaries		6,801		25,533			1,251			—			(33,585	)		—

Income (loss) before gain on sale of real estate		6,801		6,939			19,302			7,441			(33,585	)		6,898
Gain on sale of real estate		—		228			—			144			—			372

Consolidated net income (loss)		6,801		7,167			19,302			7,585			(33,585	)		7,270
Net income attributable to noncontrolling interests		—		—			—			—			(469	)		(469	)

Net income (loss) attributable to common stockholders		6,801		7,167			19,302			7,585			(34,054	)		6,801

Distributed and undistributed earnings allocated to participating securities		—		(170	)		—			—			—			(170	)

Adjusted net income (loss) attributable to common stockholders	$	6,801	$	6,997		$	19,302		$	7,585		$	(34,054	)	$	6,631

Net income (loss)	$	6,801	$	7,167		$	19,302		$	7,585		$	(33,585	)	$	7,270
Other comprehensive income (loss):
Net derivative loss on cash flow hedging instruments		—		(367	)		—			(151	)		—			(518	)
Net reclassification adjustment on cash flow hedging instruments		—		1,133			—			39			—			1,172

Other comprehensive income (loss)		—		766			—			(112	)		—			654

Comprehensive income (loss)		6,801		7,933			19,302			7,473			(33,585	)		7,924
Comprehensive income attributable to noncontrolling interests		—		—			—			—			(513	)		(513	)

Comprehensive income (loss) attributable to common stockholders	$	6,801	$	7,933		$	19,302		$	7,473		$	(34,098	)	$	7,411

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Six Months Ended June 30, 2014

(in thousands)

(unaudited)


	Parent		Subsidiary Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total Consolidated
REVENUES:
Rental revenues	$	—	$	—		$	138,964		$	26,957		$	—		$	165,921
Institutional capital management and other fees		—		454			—			818			(200	)		1,072

Total revenues		—		454			138,964			27,775			(200	)		166,993

OPERATING EXPENSES:
Rental expenses		—		—			19,048			2,787			—			21,835
Real estate taxes		—		—			22,349			4,559			—			26,908
Real estate related depreciation and amortization		—		—			61,607			12,096			—			73,703
General and administrative		—		13,782			180			370			—			14,332
Impairment losses		—		—			992			3,743			—			4,735
Casualty and involuntary conversion gain		—		—			(340	)		—			—			(340	)

Total operating expenses		—		13,782			103,836			23,555			—			141,173

Operating income (loss)		—		(13,328	)		35,128			4,220			(200	)		25,820

OTHER INCOME (EXPENSE):
Development profit, net of taxes		—		—			—			1,966			50			2,016
Equity in earnings (loss) of unconsolidated joint ventures, net		—		4,190			(30	)		—			150			4,310
Gain on acquisitions and dispositions of real estate interests		—		1,947			—			98			—			2,045
Interest expense		—		(25,133	)		(2,037	)		(6,354	)		1,286			(32,238	)
Interest and other income (expense)		—		1,324			(35	)		40			(1,324	)		5
Income tax benefit (expense) and other taxes		—		(136	)		464			(144	)		—			184

Income (loss) from continuing operations		—		(31,136	)		33,490			(174	)		(38	)		2,142
Income from discontinued operations		—		—			—			5,186			38			5,224
Equity in earnings of consolidated subsidiaries		7,118		38,410			1,979			—			(47,507	)		—

Income (loss) before gain on sale of real estate		7,118		7,274			35,469			5,012			(47,507	)		7,366
Gain on sale of real estate		—		228			—			144			—			372

Consolidated net income (loss)		7,118		7,502			35,469			5,156			(47,507	)		7,738
Net income attributable to noncontrolling interests		—		—			—			—			(620	)		(620	)

Net income (loss) attributable to common stockholders		7,118		7,502			35,469			5,156			(48,127	)		7,118

Distributed and undistributed earnings allocated to participating securities		—		(336	)		—			—			—			(336	)

Adjusted net income (loss) attributable to common stockholders	$	7,118	$	7,166		$	35,469		$	5,156		$	(48,127	)	$	6,782

Net income (loss)	$	7,118	$	7,502		$	35,469		$	5,156		$	(47,507	)	$	7,738
Other comprehensive income (loss):
Net derivative loss on cash flow hedging instruments		—		(519	)		—			(327	)		—			(846	)
Net reclassification adjustment on cash flow hedging instruments		—		2,251			—			77			—			2,328

Other comprehensive income (loss)		—		1,732			—			(250	)		—			1,482

Comprehensive income (loss)		7,118		9,234			35,469			4,906			(47,507	)		9,220
Comprehensive income attributable to noncontrolling interests		—		—			—			—			(778	)		(778	)

Comprehensive income (loss) attributable to common stockholders	$	7,118	$	9,234		$	35,469		$	4,906		$	(48,285	)	$	8,442

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2014

(in thousands)

(unaudited)


	Parent			Subsidiary Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total Consolidated
OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities	$	—		$	(27,557	)	$	86,860		$	21,193		$	—		$	80,496

INVESTING ACTIVITIES:
Real estate acquisitions		—			—			(105,923	)		(10,151	)		—			(116,074	)
Capital expenditures and development activities		—			—			(80,406	)		(3,714	)		—			(84,120	)
Proceeds from dispositions of real estate investments		—			1,988			4,812			25,132			—			31,932
Investments in unconsolidated joint ventures		—			(940	)		—			—			—			(940	)
Proceeds from casualties and involuntary conversion		—			—			449			42			—			491
Distributions of investments in unconsolidated joint ventures		—			16,757			—			—			—			16,757
Other investing activities		—			(2,555	)		4			(241	)		—			(2,792	)

Net cash provided by (used in) investing activities		—			15,250			(181,064	)		11,068			—			(154,746	)

FINANCING ACTIVITIES:
Proceeds from senior unsecured revolving line of credit		—			76,000			—			—			—			76,000
Repayments of senior unsecured revolving line of credit		—			(42,000	)		—			—			—			(42,000	)
Principal payments on mortgage notes		—			—			(334	)		(7,699	)		—			(8,033	)
Proceeds from issuance of common stock		86,654			86,654			—			—			(86,654	)		86,654
Offering costs for issuance of common stock and OP Units		(1,110	)		(1,110	)		—			—			1,110			(1,110	)
Net payments relating to intercompany financing		(40,177	)		(75,953	)		104,106			(28,153	)		40,177			—
Redemption of noncontrolling interests		—			(796	)		—			—			—			(796	)
Dividends to common stockholders		(45,367	)		(45,367	)		—			—			45,367			(45,367	)
Distributions to noncontrolling interests		—			(2,718	)		—			(359	)		—			(3,077	)
Contributions from noncontrolling interests		—			—			—			101			—			101
Other financing activity		—			38			(40	)		(11	)		—			(13	)

Net cash provided by (used in) financing activities		—			(5,252	)		103,732			(36,121	)		—			62,359

Net change in cash and cash equivalents		—			(17,559	)		9,528			(3,860	)		—			(11,891	)
Cash and cash equivalents, beginning of period		—			28,098			—			4,128			—			32,226

Cash and cash equivalents, end of period	$	—		$	10,539		$	9,528		$	268		$	—		$	20,335

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

Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three Months Ended June 30, 2013

(in thousands)

(unaudited)


	Parent		Subsidiary Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total Consolidated
REVENUES:
Rental revenues	$	—	$	—		$	56,141		$	13,183		$	—		$	69,324
Institutional capital management and other fees		—		226			—			576			(95	)		707

Total revenues		—		226			56,141			13,759			(95	)		70,031

OPERATING EXPENSES:
Rental expenses		—		—			7,700			1,245			—			8,945
Real estate taxes		—		—			9,278			2,329			—			11,607
Real estate related depreciation and amortization		—		—			25,244			6,350			—			31,594
General and administrative		—		8,952			136			(1,726	)		—			7,362
Casualty and involuntary conversion loss		—		—			—			58			—			58

Total operating expenses		—		8,952			42,358			8,256			—			59,566

Operating income (loss)		—		(8,726	)		13,783			5,503			(95	)		10,465
OTHER INCOME (EXPENSE):
Equity in earnings of unconsolidated joint ventures, net		—		475			1			—			95			571
Interest expense		—		(11,325	)		(1,317	)		(3,357	)		672			(15,327	)
Interest and other income (expense)		—		686			10			1,744			(2,377	)		63
Income tax expense and other taxes		—		(248	)		(15	)		(60	)		—			(323	)

Income (loss) from continuing operations		—		(19,138	)		12,462			3,830			(1,705	)		(4,551	)
Income from discontinued operations		—		—			195			14,318			1,705			16,218
Equity in earnings of consolidated subsidiaries		10,809		30,697			7			—			(41,513	)		—

Consolidated net income		10,809		11,559			12,664			18,148			(41,513	)		11,667
Net income attributable to noncontrolling interests		—		—			—			—			(858	)		(858	)

Net income attributable to common stockholders		10,809		11,559			12,664			18,148			(42,371	)		10,809

Distributed and undistributed earnings allocated to participating securities		—		(174	)		—			—			—			(174	)

Adjusted net income attributable to common stockholders	$	10,809	$	11,385		$	12,664		$	18,148		$	(42,371	)	$	10,635

Net income	$	10,809	$	11,559		$	12,664		$	18,148		$	(41,513	)	$	11,667
Other comprehensive income
Net derivative gain on cash flow hedging instruments		—		865			—			53			—			918
Net reclassification adjustment on cash flow hedging instruments		—		1,094			—			—			—			1,094

Other comprehensive income		—		1,959			—			53			—			2,012

Comprehensive income		10,809		13,518			12,664			18,201			(41,513	)		13,679
Comprehensive income attributable to noncontrolling interests		—		—			—			—			(1,144	)		(1,144	)

Comprehensive income attributable to common stockholders	$	10,809	$	13,518		$	12,664		$	18,201		$	(42,657	)	$	12,535

Condensed Consolidated Statements of Operations and Comprehensive Income

For the Six Months Ended June 30, 2013

(in thousands)

(unaudited)


		Parent		Subsidiary Issuer			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Consolidating Adjustments			Total Consolidated
REVENUES:
Rental revenues		$	—	$	—		$	110,016		$	26,617		$	—		$	136,633
Institutional capital management and other fees			—		563			—			1,132			(175	)		1,520

Total revenues			—		563			110,016			27,749			(175	)		138,153

OPERATING EXPENSES:
Rental expenses			—		—			14,739			2,555			—			17,294
Real estate taxes			—		—			17,561			4,625			—			22,186
Real estate related depreciation and amortization			—		—			49,060			12,730			—			61,790
General and administrative			—		14,326			181			(804	)		—			13,703
Casualty and involuntary conversion (gain) loss			—		—			(59	)		57			—			(2	)

Total operating expenses			—		14,326			81,482			19,163			—			114,971

Operating income (loss)			—		(13,763	)		28,534			8,586			(175	)		23,182
OTHER INCOME (EXPENSE):
Development profit, net of taxes			—		—			—			268			—			268
Equity in earnings of unconsolidated joint ventures, net			—		781			6			—			175			962
Interest expense			—		(24,221	)		(2,619	)		(6,771	)		1,424			(32,187	)
Interest and other income (expense)			—		1,429			10			3,596			(4,808	)		227
Income tax benefit (expense) and other taxes			—		(302	)		82			(212	)		—			(432	)

Income (loss) from continuing operations			—		(36,076	)		26,013			5,467			(3,384	)		(7,980	)
Income from discontinued operations			—		—			358			17,541			3,384			21,283
Equity in earnings of consolidated subsidiaries			12,088		49,006			192			—			(61,286	)		—

Consolidated net income			12,088		12,930			26,563			23,008			(61,286	)		13,303
Net income attributable to noncontrolling interests			—		—			—			—			(1,215	)		(1,215	)

Net income attributable to common stockholders			12,088		12,930			26,563			23,008			(62,501	)		12,088
	&

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company