News Column

INDUSTRIAL PROPERTY TRUST INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 12, 2014

References to the terms "we," "our," or "us" refer to Industrial Property Trust Inc. and its consolidated subsidiaries. The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes certain statements that may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements relate to, without limitation, rent and occupancy growth, general conditions in the geographic area where we operate, our future debt and financial position, our future capital expenditures, future distributions and acquisitions (including the amount and nature thereof), other developments and trends of the real estate industry, business strategies and the expansion and growth of our operations. Forward-looking statements are generally identifiable by the use of the words "may," "will," "should," "expect," "could," "intend," "plan," "anticipate," "estimate," "believe," "continue," "project," or the negative of these words or other comparable terminology. These statements are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict. The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions, and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:



Our ability to raise proceeds in our initial public offering and

effectively deploy the proceeds raised in our initial public offering in

accordance with our investment strategy and objectives; The failure of acquisitions to perform as we expect;



Our failure to successfully integrate acquired properties and operations;

Unexpected delays or increased costs associated with any development

projects;



The availability of cash flows from operating activities for distributions

and capital expenditures;



Defaults on or non-renewal of leases by customers, lease renewals at lower

than expected rent, or failure to lease properties at all or on favorable

rents and terms;



Difficulties in economic conditions generally and the real estate, debt,

and securities markets specifically; Legislative or regulatory changes, including changes to the laws governing

the taxation of real estate investment trusts ("REITs");



Our failure to obtain, renew, or extend necessary financing or access the

debt or equity markets;



Conflicts of interest arising out of our relationships with Industrial

Property Advisors Group LLC (the "Sponsor"), the Advisor, and their affiliates;



Risks associated with using debt to fund our business activities,

including re-financing and interest rate risks; Increases in interest rates, operating costs, or greater than expected

capital expenditures; Changes to GAAP; and Our ability to qualify as a REIT. Any of the assumptions underlying forward-looking statements could prove to be inaccurate. Our stockholders are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report on Form 10-Q. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the risk that actual results will differ materially from the expectations expressed in this Quarterly Report on Form 10-Q will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events, changed circumstances, or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report on Form 10-Q, including, without limitation, the risks described under "Risk Factors," the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report on Form 10-Q will be achieved. 17



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Table of Contents OVERVIEW General Industrial Property Trust Inc. was formed on August 28, 2012 to make investments in income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to creditworthy corporate customers. We have operated and elected to be treated as a REIT for U.S. federal income tax purposes, commencing with the taxable year that ended on December 31, 2013, and we intend to continue to operate in accordance with the requirements for qualification as a REIT. We utilize an Umbrella Partnership Real Estate Investment Trust ("UPREIT") organizational structure to hold all or substantially all of our assets through the Operating Partnership. On July 24, 2013, we commenced an initial public offering of up to $2.0 billion in shares of our common stock, including $1.5 billion in shares of common stock offered at a price of $10.00 per share and $500.0 million in shares offered under our distribution reinvestment plan at a price of $9.50 per share. On September 6, 2013, we broke escrow for the Offering, and effectively commenced operations. As of June 30, 2014, we had raised gross proceeds of $75.2 million from the sale of 7.5 million shares of our common stock in the Offering, including shares issued under our distribution reinvestment plan, and had raised sufficient offering proceeds to satisfy the minimum offering requirements for the Offering with respect to all states. See "Note 6 to the Condensed Consolidated Financial Statements" for information concerning our initial public offering. As of June 30, 2014, we owned a portfolio that included seven industrial buildings totaling approximately 812,000 square feet with 12 customers in five major industrial markets with a weighted-average remaining lease term (based on square feet) of 6.0 years. Our portfolio was 100% occupied as of June 30, 2014. We have used, and we intend to continue to use, the net proceeds from the Offering primarily to make investments in real estate assets. We may use the net proceeds from the Offering to make other real estate-related investments and debt investments and to pay distributions. The number and type of properties we may acquire and debt and other investments we may make will depend upon real estate market conditions, the amount of proceeds we raise in our public offering, and other circumstances existing at the time we make our investments.



Our primary investment objectives include the following:

Preserving and protecting our stockholders' capital contributions;



Providing current income to our stockholders in the form of regular cash

distributions; and Realizing capital appreciation upon the potential sale of our assets or



other liquidity events.

There is no assurance that we will attain our investment objectives. Our charter places numerous limitations on us with respect to the manner in which we may invest our funds. In most cases these limitations cannot be changed unless our charter is amended, which may require the approval of our stockholders. We may acquire assets free and clear of mortgage or other indebtedness by paying the entire purchase price in cash or equity securities, or a combination thereof, and we may selectively encumber all or only certain assets with debt. The proceeds from our borrowings may be used to fund investments, make capital expenditures, pay distributions, and for general corporate purposes. As of June 30, 2014, our consolidated debt leverage ratio (calculated as the book value of our debt to total assets) was 5.6%.



Industrial Real Estate Outlook

The U.S. industrial property sector continues to show improvement supported by: (i) improving U.S. international trade volume as reflected in the increasing levels of both imported and exported goods; (ii) generally positive growth in U.S. gross domestic product ("GDP") over the past three years; (iii) increased domestic consumer spending, including significant growth in online retailing (or e-tailing); (iv) positive net absorption in our targeted markets (the net change in total occupied industrial space); and (v) strong fundamental trends in both population and employment growth. While the strength and sustainability of the recovery remain uncertain, both U.S. GDP and consumer spending indicators remain positive and we believe will continue growing over the next several quarters, which is encouraging, as there is a high correlation between these statistics and industrial demand. Further, forecasted growth in employment and population will help drive consumer spending over the longer-term, leading to increased utilization of distribution warehouses. U.S. international trade value has grown with an approximate 8% compounded annual growth rate over the past five years. This resurgence in export/import levels has generated increased demand for industrial space in key U.S. logistic markets resulting in 17 consecutive quarters of positive net absorption and providing strong prospects for rent growth over the next several years. 18



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Lending terms for direct commercial real estate loans and unsecured REIT financings have continued to improve; however, this trend may not continue, which could affect our ability to finance future operations and acquisition and development activities. We have managed, and expect to continue to manage, our financing strategy under the current mortgage lending and REIT financing environment by considering various lending sources, which may include long-term fixed rate mortgage loans; unsecured or secured lines of credit or term loans; private placement or public bond issuances; and assuming existing mortgage loans in connection with certain property acquisitions, or any combination of the foregoing. RESULTS OF OPERATIONS Summary of 2014 Activities



During the six months ended June 30, 2014, we completed the following activities:

We raised $71.2 million of gross equity capital from the Offering.



We acquired seven industrial buildings comprising approximately 812,000

square feet for an aggregate total purchase price of approximately $65.5 million, exclusive of transfer taxes, due diligence expenses, and other closing costs. We funded these acquisitions with proceeds from the Offering and borrowings under our line of credit.



We entered into a $100.0 million revolving credit agreement, as amended,

with the ability to expand the commitment up to a maximum aggregate amount

of $400.0 million, subject to certain conditions. The revolving credit

agreement matures in January 2017. As of June 30, 2014, our portfolio was 100% occupied. We are currently in the acquisition phase of our life cycle and the results of our operations are primarily impacted by the timing of our acquisitions and the equity raised through the Offering. Accordingly, our operating results for the three and six months ended June 30, 2014 and 2013 are not directly comparable, nor are our results of operations for the three and six months ended June 30, 2014 and 2013 indicative of those expected in future periods. We believe that our revenues and operating expenses will continue to increase in future periods as a result of continued growth in our current portfolio and as a result of the additive effect of anticipated future acquisitions of industrial properties. 19



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Results for the Three and Six Months Ended June 30, 2014 Compared to the Same Periods in 2013

The following table summarizes the changes in our results of operations for the three and six months ended June 30, 2014 as compared to the three and six months ended June 30, 2013. Same store information is not provided due to the fact that all buildings were acquired during 2014. For the Three Months For the Six Months Ended June 30, Ended June 30, (in thousands, except per share data) 2014 2013 Change 2014 2013 Change Total revenues $ 690 $ - $ 690$ 875 $ - $ 875 Total rental expenses 183 - 183 233 - 233 Total net operating income 507 - 507 642 - 642



Real estate-related depreciation and amortization (328 ) -

(328 ) (440 ) - (440 ) General and administrative expenses (579 ) - (579 ) (926 ) - (926 ) Organization expenses, related party - - - (17 ) - (17 ) Asset management fees, related party (78 ) - (78 ) (104 ) - (104 ) Acquisition-related expenses, related party (842 ) - (842 ) (1,309 ) - (1,309 ) Acquisition-related expenses (407 ) - (407 ) (638 ) - (638 ) Interest expense (162 ) - (162 ) (299 ) - (299 ) Expense support from Advisor 870 - 870 1,357 - 1,357 Total other (1,526 ) - (1,526 ) (2,376 ) - (2,376 ) Net loss (1,019 ) - (1,019 ) (1,734 ) - (1,734 ) Net loss attributable to noncontrolling interests - - - - - -



Net loss attributable to common stockholders $ (1,019 ) $ - $ (1,019 )$ (1,734 ) $ - $ (1,734 )

Weighted-average shares outstanding 4,946 20 4,926 2,976 20 2,956



Net loss per common share - basic and diluted $ (0.21 ) $ - $ (0.21 )$ (0.58 ) $ - $ (0.58 )

Rental revenues are comprised of base rent, straight-line rent, amortization of above- and below-market lease assets and liabilities, and tenant reimbursement revenue. Total rental revenues increased for the three and six months ended June 30, 2014, as compared to the same periods in 2013, due to our acquisition activity during the first and second quarters of 2014. Rental expenses include certain property operating expenses typically reimbursed by our customers, such as real estate taxes, property insurance, property management fees, repair and maintenance, and certain non-recoverable expenses, such as consulting services and roof repairs. Total rental expenses increased for the three and six months ended June 30, 2014, as compared to the same periods in 2013, due to our acquisition activity during the first and second quarters of 2014.



In addition, our results of operations for the three and six months ended June 30, 2014 included the following, which were all due to our acquisition activity during the first and second quarters of 2014:

acquisition-related expenses, real estate-related depreciation and amortization expense, and asset management fees;



general and administrative expenses for the three and six months ended

June 30, 2014 that primarily consisted of: (i) accounting and legal

expenses incurred; (ii) expenses related to directors' and officers'

insurance; and (iii) compensation to our independent directors;



interest expense primarily due to the net borrowings of $4.0 million under

the line of credit with an interest rate of 2.06% as of June 30, 2014, amortization of loan costs and unused line of credit fees; and



expense support from the Advisor pursuant to the Amended Expense Support

Agreement.

We had no results of operations for the three and six months ended June 30, 2013.

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ADDITIONAL MEASURES OF PERFORMANCE

Net Operating Income ("NOI")

We define NOI as GAAP rental revenues less GAAP rental expenses. For the three and six months ended June 30, 2014, NOI was $507,000 and $642,000, respectively. There was no NOI for the three and six months ended June 30, 2013. We consider NOI to be an appropriate supplemental performance measure and believe NOI provides useful information to our investors regarding our financial condition and results of operations because NOI reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of the properties, such as real estate-related depreciation and amortization, acquisition-related expenses, general and administrative expenses, and interest expense. However, NOI should not be viewed as an alternative measure of our financial performance since it excludes such expenses, which could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies as they may use different methodologies for calculating NOI. Therefore, we believe net loss, as defined by GAAP, to be the most appropriate measure to evaluate our overall performance. Refer to "Results of Operations" above for a reconciliation of our net loss to NOI for the three and six months ended June 30, 2014.



Funds from Operations ("FFO"), Company-Defined FFO and Modified Funds from Operations ("MFFO")

We believe that FFO, Company-defined FFO, and MFFO, in addition to net loss and cash flows from operating activities as defined by GAAP, are useful supplemental performance measures that our management uses to evaluate our consolidated operating performance. However, these supplemental, non-GAAP measures should not be considered as an alternative to net loss or to cash flows from operating activities as an indication of our performance and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity, and results of operations. In addition, other REITs may define FFO and similar measures differently and choose to treat acquisition-related costs and potentially other accounting line items in a manner different from us due to specific differences in investment and operating strategy or for other reasons. FFO. As defined by the National Association of Real Estate Investment Trusts ("NAREIT"), FFO is a non-GAAP measure that excludes certain items such as real estate-related depreciation and amortization. We believe FFO is a meaningful supplemental measure of our operating performance that is useful to investors because depreciation and amortization in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. We use FFO as an indication of our consolidated operating performance and as a guide to making decisions about future investments. Company-defined FFO. Similar to FFO, Company-defined FFO is a non-GAAP measure that excludes real estate-related depreciation and amortization, and also excludes non-recurring acquisition-related costs (including acquisition fees paid to the Advisor) and non-recurring organization costs, each of which are characterized as expenses in determining net loss under GAAP. Organization costs are excluded as they are paid in cash and relate to one-time costs paid in conjunction with the organization of the Company. The purchase of operating properties is a key strategic objective of our business plan focused on generating growth in operating income and cash flow in order to make distributions to investors. However, as the corresponding acquisition-related costs are paid in cash, all paid and accrued acquisition-related costs negatively impact our operating performance and cash flows from operating activities during the period in which properties are acquired. In addition, if we acquire a property after all offering proceeds from our public offerings have been invested, there will not be any offering proceeds to pay the corresponding acquisition-related costs. Accordingly, unless the Advisor determines to waive the payment or reimbursement of these acquisition-related costs, then such costs will be paid from additional debt, operational earnings or cash flow, net proceeds from the sale of properties, or ancillary cash flows. As such, Company-defined FFO may not be a complete indicator of our operating performance, especially during periods in which properties are being acquired, and may not be a useful measure of the long-term operating performance of our properties if we do not continue to operate our business plan as disclosed. MFFO. As defined by the Investment Program Association ("IPA"), MFFO is a non-GAAP supplemental financial performance measure used to evaluate our operating performance. Similar to FFO, MFFO excludes items such as real estate-related depreciation and amortization, but includes organization costs. Similar to Company-defined FFO, MFFO excludes acquisition-related costs. MFFO also excludes straight-line rent and amortization of above- and below-market leases. In addition, there are certain other MFFO adjustments as defined by the IPA that are not applicable to us and are not included in our presentation of MFFO. 21



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We are currently in the acquisition phase of our life cycle. Management does not include historical acquisition-related expenses in its evaluation of future operating performance, as such costs are not expected to be incurred once our acquisition phase is complete. In addition, management does not include one-time organization costs as those costs are also not expected to be incurred now that we have commenced operations. We use Company-defined FFO and MFFO to, among other things: (i) evaluate and compare the potential performance of the portfolio after the acquisition phase is complete, and (ii) evaluate potential performance to determine liquidity event strategies. We believe Company-defined FFO and MFFO facilitate a comparison to other REITs that are not engaged in significant acquisition activity and have similar operating characteristics as us. We believe investors are best served if the information that is made available to them allows them to align their analyses and evaluation with the same performance metrics used by management in planning and executing our business strategy. We believe that these performance metrics will assist investors in evaluating the potential performance of the portfolio after the completion of the acquisition phase. However, these supplemental, non-GAAP measures are not necessarily indicative of future performance and should not be considered as an alternative to net loss or to cash flows from operating activities and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs. Neither the SEC, NAREIT, nor any regulatory body has passed judgment on the acceptability of the adjustments used to calculate Company-defined FFO and MFFO. In the future, the SEC, NAREIT, or a regulatory body may decide to standardize the allowable adjustments across the non-traded REIT industry at which point we may adjust our calculation and characterization of Company-defined FFO and MFFO.



The following unaudited table presents a reconciliation of net loss to FFO, Company-defined FFO and MFFO:

For the Period For the Three Months For the Six Months From Inception Ended June 30, Ended June 30, (August 28, 2012) (in thousands, except per share data) 2014 2013 2014 2013 to June 30, 2014 Net loss $ (1,019 ) $ - $ (1,734 ) $ - $ (1,961 ) Net loss per common share $ (0.21 ) $ - $ (0.58 ) $ - $ (2.16 ) Reconciliation of net loss to FFO: Net loss $ (1,019 ) $ - $ (1,734 ) $ - $ (1,961 ) Add (deduct) NAREIT-defined adjustments: Real estate-related depreciation and amortization 328 - 440 - 440 FFO $ (691 ) $ - $ (1,294 ) $ - $ (1,521 ) FFO per common share $ (0.14 ) $ - $ (0.43 ) $ - $ (1.68 ) Reconciliation of FFO to Company-defined FFO: FFO $ (691 ) $ - $ (1,294 ) $ - $ (1,521 ) Add (deduct) Company-defined adjustments: Acquisition costs 1,249 - 1,947 - 2,010 Organization costs - - 17 - 93 Company-defined FFO $ 558 $ - $ 670 $ - $ 582 Company-defined FFO per common share $ 0.11 $ - $ 0.23 $ - $ 0.64 Reconciliation of Company-defined FFO to MFFO: Company-defined FFO $ 558 $ - $ 670 $ - $ 582 Add (deduct) MFFO adjustments: Straight-line rent and amortization of above/below market leases (55 ) - (97 ) - (97 ) Organization costs - - (17 ) - (93 ) MFFO $ 503 $ - $ 556 $ - $ 392 MFFO per common share $ 0.10 $ - $ 0.19 $ - $ 0.43 Weighted-average shares outstanding 4,946 20 2,976 20 906 We believe that: (i) our FFO loss of $691,000, or $0.14 per share, as compared to the cash distributions declared in the amount of $558,000 or $0.1125 per share, for the three months ended June 30, 2014; (ii) our FFO loss of $1.3 million or $0.43 per share, as compared to the cash distributions declared in the amount of $669,000, or $0.225 per share, for the six months ended June 30, 2014; and (iii) our FFO loss of $1.5 million, or $1.68 per share, as compared to the cash distributions declared of $708,000, or $0.45 per share, for the period from Inception (August 28, 2012) to June 30, 2014, are not indicative of future performance as we are in the acquisition phase of our life cycle. See "Capital Resources and Uses of Liquidity-Cash Distributions" below for details concerning our cash distributions, which are paid in cash or reinvested in shares of our common stock by participants in our distribution reinvestment plan. 22



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LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our primary sources of capital for meeting our cash requirements are, and will continue to be, net proceeds from the Offering, including proceeds from the sale of shares offered through our distribution reinvestment plan, debt financings, cash resulting from the expense support provided by the Advisor, and cash generated from operating activities. Our principal uses of funds are and will continue to be for the acquisition of properties and other investments, capital expenditures, operating expenses, distributions to our stockholders, and payments under our debt obligations. Over time, we intend to fund a majority of our cash needs for items other than asset acquisitions, including the repayment of debt and capital expenditures, from operating cash flows and refinancings. There may be a delay between the deployment of proceeds raised from our Offering and our purchase of assets, which could result in a delay in the benefits to our stockholders, if any, of returns generated from our investment operations. The Advisor, subject to the oversight of the board of directors and, under certain circumstances, the investment committee or other committees established by the board of directors, will evaluate potential acquisitions and will engage in negotiations with sellers and lenders on our behalf. Pending investment in property, debt, or other investments, we may decide to temporarily invest any unused proceeds from our Offering in certain investments that are expected to yield lower returns than those earned on real estate assets. These lower returns may affect our ability to make distributions to our stockholders. Potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of assets, and undistributed funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. We believe that our cash on-hand, anticipated Offering proceeds, proceeds from our line of credit, and other anticipated financing activities will be sufficient to meet our anticipated future acquisition, operating, distribution, and debt service requirements.



Cash Flows. The following table summarizes our cash flows, as determined on a GAAP basis, for the following periods:

For the Six Months Ended June 30, (in thousands) 2014 2013 Total cash (used in) provided by: Operating activities $ (826 ) $ - Investing activities (65,159 ) - Financing activities 65,684 - Net decrease in cash $ (301 ) $ - Cash used in operating activities during the six months ended June 30, 2014 was $0.8 million, which primarily related to acquisition-related expenses, rental expenses, and general and administrative expenses as a result of owning and managing the seven buildings acquired during the six months ended June 30, 2014. Cash used in investing activities during the six months ended June 30, 2014 was $65.2 million, which related to acquisition activity during the six months ended June 30, 2014. Cash provided by financing activities during the six months ended June 30, 2014 was $65.7 million, which related primarily to net proceeds raised from our public offering, as well as to net borrowings under the line of credit during the six months ended June 30, 2014.



Capital Resources and Uses of Liquidity

In addition to the cash and cash equivalent balance available, our capital resources and uses of liquidity are as follows:

Line of Credit. In January 2014, we entered into a revolving credit agreement, as amended, with an initial aggregate commitment of $100.0 million. We have the ability to expand the commitment up to a maximum aggregate amount of $400.0 million, subject to certain conditions and receiving bank commitments. This line of credit matures in January 2017, and may be extended pursuant to two one-year extension options, subject to certain conditions. The primary interest rate is variable and calculated based on one-month LIBOR plus a margin ranging from 1.90% to 2.75%, or an alternative base rate plus a margin of 0.90% to 1.75%. This line of credit is available for general corporate purposes, including but not limited to the acquisition and operation of industrial properties and other permitted investments. As of June 30, 2014, we had $4.0 million outstanding under the line of credit with an interest rate of 2.06%; the unused portion was $96.0 million, of which $35.1 million was available. Offering Proceeds. As of June 30, 2014, the amount of aggregate gross proceeds raised from our Offering was $75.2 million ($66.9 million net of direct selling costs). 23



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Cash Distributions. We intend to accrue and make cash distributions on a quarterly basis. Some or all of our future cash distributions may be paid from sources other than cash flows from operating activities, such as cash flows from financing activities, which include borrowings and net proceeds from primary shares sold in the Offering, proceeds from the issuance of shares pursuant to our distribution reinvestment plan, cash resulting from a waiver or deferral of fees or expense reimbursements otherwise payable to the Advisor or its affiliates, cash resulting from the Advisor or its affiliates paying certain of our expenses, proceeds from the sales of assets, and interest income from our cash balances. We have not established a cap on the amount of our cash distributions that may be paid from any of these sources. The amount of any cash distributions will be determined by our board of directors, and will depend on, among other things, current and projected cash requirements, tax considerations and other factors deemed relevant by our board. Our board of directors has authorized daily cash distributions at a quarterly rate of $0.1125 per share of common stock for the Initial Quarter and fourth quarter of 2013 and the first and second quarters of 2014. Our board of directors has authorized daily cash distributions at a quarterly rate of $0.11875 per share of common stock for the third quarter of 2014, which is an increase of $0.00625 per share, or an increase of 5.6%, compared to the prior quarterly cash distribution rate. There can be no assurances that the current cash distribution rate will be maintained. In the near-term, we expect that we may need to continue to utilize cash flows from financing activities, as determined on a GAAP basis, and cash resulting from the expense support received from the Advisor to pay cash distributions, which if insufficient could negatively impact our ability to pay cash distributions. See "Note 8 to the Condensed Consolidated Financial Statements" for further detail regarding the expense support and conditional reimbursement agreement among us, the Operating Partnership and the Advisor.



The following table outlines sources used to pay total cash distributions (which are paid in cash or reinvested in shares of our common stock through our distribution reinvestment plan) for the periods indicated below:

Source of Distributions Provided by Proceeds Proceeds from Operating from Financing Issuance of Total ($ in thousands) Activities (1) Activities (2) DRIP Shares (3) Distributions 2014 June 30 $ - - % $ 300 54% $ 258 46% $ 558 March 31 - - 73 66 38 34 111 Total $ - - % $ 373 56% $ 296 44% $ 669 2013 December 31 $ - - % $ 29 91% $ 3 9% $ 32 September 30 (4) - - 7 100 - - 7 Total $ - - % $ 36 92% $ 3 8% $ 39



(1) For the quarters ended June 30, 2014, March 31, 2014 and December 31, 2013,

the Advisor provided expense support of $870,000, $487,000 and $306,000,

respectively.

(2) For the quarters ended June 30, 2014 and March 31, 2014, all cash

distributions provided by financing activities were funded from debt

financings. For the Initial Quarter and the quarter ended December 31, 2013,

all cash distributions provided by financing activities were funded through

net proceeds from primary shares sold in the Offering.

(3) Stockholders may elect to have cash distributions reinvested in shares of our

common stock through our distribution reinvestment plan.

(4) The Initial Quarter commenced on September 6, 2013 and ended on September 30,

2013.

Refer to "Note 6 to the Condensed Consolidated Financial Statements" for further detail on cash distributions.

SUBSEQUENT EVENTS Status of Offering



As of August 1, 2014, we had raised gross proceeds of $105.6 million from the sale of 10.6 million shares of our common stock in our public offering, including shares issued under our distribution reinvestment plan.

Distribution Increase

Our board of directors has authorized daily cash distributions at a quarterly rate of $0.11875 per share of common stock for the third quarter of 2014, which is an increase of $0.00625 per share, or an increase of 5.6%, compared to the prior quarterly cash distribution rate. 24



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Acquisitions Under Contract

On August 5, 2014, we entered into a purchase agreement to acquire one industrial building totaling approximately 345,000 square feet in the Dallas market. The building will be developed and constructed by the seller and we are expected to acquire it, subject to certain terms and conditions, upon completion, which is expected in the third quarter of 2015. The total purchase price is expected to be $16.9 million, exclusive of transfer taxes, due diligence expenses, and other closing costs. We deposited $0.4 million into an escrow account upon execution of the purchase agreement and are expected to deposit up to $4.2 million, in aggregate, at certain development and construction milestones but prior to completion and closing. There can be no assurance that the construction of the building will be completed or that we will be able to purchase the building on the terms set forth herein. On July 29, 2014, we entered into a purchase agreement to acquire one industrial building totaling approximately 245,000 square feet located in the San Francisco Bay Area market. This building is 100% leased to two customers with a remaining lease term (based on square feet) of 1.1 years. The total purchase price is expected to be $18.4 million, exclusive of transfer taxes, due diligence expenses, and other closing costs. In connection with the execution of the purchase agreement, we deposited $0.5 million into an escrow account. This acquisition is expected to close during the third quarter of 2014, but there can be no assurance the acquisition will be completed. On July 25, 2014, we entered into a purchase agreement to acquire one industrial building totaling approximately 138,000 square feet located in the Atlanta market. This building is currently un-occupied, but is 100% leased to one customer with a lease term of 10.5 years, expected to commence by January 2015. The total purchase price is expected to be $7.7 million, exclusive of transfer taxes, due diligence expenses, and other closing costs. In connection with the execution of the purchase agreement, we deposited $0.2 million into an escrow account. This acquisition is expected to close during the third quarter of 2014, but there can be no assurance the acquisition will be completed. Pursuant to the terms of the Advisory Agreement, we expect to pay an acquisition fee to the Advisor equal to 2.0% of the purchase price of the acquisitions under contract in the San Francisco Bay Area and Atlanta markets described above and, with respect to the acquisition under contract in the Dallas market for which the Advisor will provide development oversight services, we expect to pay a development acquisition fee to the Advisor of approximately $0.5 million, equal to up to 3.0% of our total project cost for the transaction. We plan to fund these acquisitions using proceeds from the Offering and debt financing. The consummation of these acquisitions is subject to our completion of due diligence and various closing conditions to be met by the parties. If we do not close on these acquisitions, there are circumstances under which we may forfeit our respective deposits.



CONTRACTUAL OBLIGATIONS

See "Note 4 to the Condensed Consolidated Financial Statements" related to our borrowings under our line of credit as of June 30, 2014.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2014, we had no off-balance sheet arrangements that have or are reasonably likely to have a material effect, on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.



RECENT ACCOUNTING STANDARDS

In April 2014, the FASB issued ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which changes the criteria at which a disposal will qualify as a discontinued operation and requires new disclosure of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under the revised standard, the definition of discontinued operations has been changed so that only disposals of components that represent strategic shifts qualify for discontinued operations reporting. As permitted, we adopted ASU 2014-08 early, and it became effective for us for the quarter ended March 31, 2014. The adoption of this standard did not have an impact on our results of operations, financial position or liquidity. In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," which provides guidance for revenue recognition and supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition." The standard is based on the principle that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance specifically excludes revenue derived from lease contracts from its scope. The standard will be effective for us in the first quarter of fiscal year 2017. Early adoption is not permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. 25



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CRITICAL ACCOUNTING ESTIMATES

Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our unaudited condensed consolidated financial statements requires significant management judgments, assumptions, and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our condensed consolidated financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. For a detailed description of our critical accounting estimates, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2013 Form 10-K. As of June 30, 2014, our critical accounting estimates have not changed from those described in our 2013 Form 10-K. 26



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