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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number: 000-54372

 

 

Industrial Income Trust Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Maryland   27-0477259

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

518 Seventeenth Street, 17th Floor

Denver, CO

  80202
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code:

(303) 228-2200

 

 

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.    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).    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 definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 2, 2012, there were 101,318,275 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

INDUSTRIAL INCOME TRUST INC.

TABLE OF CONTENTS

 

         

Page

PART I.

   FINANCIAL INFORMATION   

Item 1.

  

Financial Statements:

  
  

Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011

   1
  

Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011 (unaudited)

   2
  

Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2012 and 2011 (unaudited)

   3
  

Consolidated Statement of Equity for the Three Months Ended March 31, 2012 (unaudited)

   4
  

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (unaudited)

   5
  

Notes to Consolidated Financial Statements

   6

Item 2.

  

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

   17

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

   25

Item 4.

  

Controls and Procedures

   26

PART II.

  

OTHER INFORMATION

  

Item 1A.

  

Risk Factors

   27

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

   27

Item 6.

  

Exhibits

   29

Signatures

   30


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED BALANCE SHEETS

 

      March 31,
2012
    December 31,
2011
 

(in thousands, except per share data)

   (unaudited)        

ASSETS

    

Land

   $ 238,424      $ 206,383   

Building and improvements

     732,202        615,422   

Intangible lease assets

     129,108        111,407   

Construction in progress

     590        666   
  

 

 

   

 

 

 

Total investment in properties

     1,100,324        933,878   

Less accumulated depreciation and amortization

     (37,792     (26,466
  

 

 

   

 

 

 

Net investment in properties

     1,062,532        907,412   

Investment in unconsolidated joint venture

     80,358        64,788   

Cash and cash equivalents

     36,982        12,934   

Restricted cash

     3,064        3,371   

Straight-line rent and accounts receivable, net

     6,513        5,011   

Notes receivable

     5,912        5,912   

Deferred financing costs, net

     3,884        4,129   

Other assets

     21,096        9,668   
  

 

 

   

 

 

 

Total assets

   $ 1,220,341      $ 1,013,225   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Liabilities

    

Accounts payable and other accruals

   $ 6,337      $ 6,572   

Debt

     509,228        509,846   

Tenant prepaids and security deposits

     7,421        7,512   

Due to affiliates

     6,608        6,364   

Distributions payable

     11,039        8,428   

Intangible lease liabilities, net

     3,625        1,473   

Other liabilities

     287        237   
  

 

 

   

 

 

 

Total liabilities

     544,545        540,432   

Commitments and contingencies (Note 9)

    

Equity

    

Stockholders’ equity:

    

Preferred stock, $0.01 par value - 200,000 shares authorized, none issued and outstanding

     —          —     

Common stock, $0.01 par value - 1,000,000 shares authorized, 85,195 and 60,550 shares issued and outstanding, respectively

     852        606   

Additional paid-in capital

     753,566        532,901   

Accumulated deficit

     (78,389     (60,488

Accumulated other comprehensive loss

     (234     (227
  

 

 

   

 

 

 

Total stockholders’ equity

     675,795        472,792   

Noncontrolling interests

     1        1   
  

 

 

   

 

 

 

Total equity

     675,796        472,793   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,220,341      $ 1,013,225   
  

 

 

   

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

1


Table of Contents

INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     For the Three Months
Ended March 31,
 

(in thousands, except per share data)

   2012     2011  

Revenues:

    

Rental revenues

   $ 22,272      $ 7,185   
  

 

 

   

 

 

 

Total revenues

     22,272        7,185   
  

 

 

   

 

 

 

Operating expenses:

    

Rental expenses

     5,646        1,469   

Real estate-related depreciation and amortization

     10,545        2,695   

General and administrative expenses

     1,323        705   

Asset management fees, related party

     2,105        667   

Acquisition-related expenses, related party

     1,753        3,163   

Acquisition-related expenses

     1,386        1,862   
  

 

 

   

 

 

 

Total operating expenses

     22,758        10,561   
  

 

 

   

 

 

 

Other expenses:

    

Equity in loss of unconsolidated joint venture

     (952     —     

Interest expense and other

     (5,424     (2,088
  

 

 

   

 

 

 

Total other expenses

     (6,376     (2,088

Net loss

     (6,862     (5,464

Net loss attributable to noncontrolling interests

     —          —     
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (6,862   $ (5,464
  

 

 

   

 

 

 

Weighted-average shares outstanding

     70,648        20,831   
  

 

 

   

 

 

 

Net loss per common share - basic and diluted

   $ (0.10   $ (0.26
  

 

 

   

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

2


Table of Contents

INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

     For the Three Months
Ended March 31,
 

(in thousands)

   2012     2011  

Net loss attributable to common stockholders

   $ (6,862   $ (5,464

Unrealized (loss) gain on derivative instruments

     (7     57   
  

 

 

   

 

 

 

Comprehensive loss attributable to common stockholders

   $ (6,869   $ (5,407
  

 

 

   

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

3


Table of Contents

INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

 

     Stockholders’ Equity     Noncontrolling
Interests
     Total
Equity
 
                 Additional
Paid-In
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
      
                         
     Common Stock             

(in thousands)

   Shares     Amount             

Balance as of December 31, 2011

     60,550      $ 606      $ 532,901      $ (60,488   $ (227   $ 1       $ 472,793   

Net loss

     —        $ —        $ —        $ (6,862   $ —        $ —         $ (6,862

Unrealized loss on derivative instruments, net

     —          —          —          —          (7     —           (7

Issuance of common stock

     24,799        248        245,473        —          —          —           245,721   

Offering costs

     —          —          (23,334     —          —          —           (23,334

Redemptions of common stock

     (154     (2     (1,474     —          —          —           (1,476

Distribution to stockholders

     —          —          —          (11,039     —          —           (11,039
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of March 31, 2012

     85,195      $ 852      $ 753,566      $ (78,389   $ (234   $ 1       $ 675,796   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

4


Table of Contents

INDUSTRIAL INCOME TRUST INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     For the Three Months
Ended March 31,
 

(in thousands)

   2012     2011  

Operating activities:

    

Net loss

   $ (6,862   $ (5,464

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

    

Real estate-related depreciation and amortization

     10,545        2,695   

Equity in loss of unconsolidated joint venture

     952        —     

Straight-line rent and amortization of above- and below-market leases

     (846     (231

Bad debt expense

     366        —     

Amortization of financing costs and other

     259        120   

Changes in operating assets and liabilities:

    

Restricted cash

     6        —     

Accounts receivable and other assets

     (967     (105

Accounts payable and other liabilities

     (1,632     2,817   

Due to affiliates, exclusive of offering costs for issuance of common stock

     37        (523

Accrued acquisition costs

     (4     (275
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     1,854        (966
  

 

 

   

 

 

 

Investing activities:

    

Real estate acquisitions

     (162,414     (152,241

Acquisition deposits

     (4,250     —     

Additions to real estate

     (411     (31

Investment in unconsolidated joint venture

     (17,022     —     

Distribution from unconsolidated joint venture

     500        —     

Change in restricted cash

     301        (688

Other

     33        (16
  

 

 

   

 

 

 

Net cash used in investing activities

     (183,263     (152,976
  

 

 

   

 

 

 

Financing activities:

    

Proceeds from issuance of mortgage notes

     —          42,000   

Repayments of mortgage notes

     (711     (464

Proceeds from line of credit

     120,400        36,950   

Repayments of line of credit

     (120,150     —     

Financing costs paid

     (121     (515

Proceeds from issuance of common stock

     234,901        104,064   

Offering costs for issuance of common stock

     (22,611     (10,656

Distributions paid to common stockholders

     (4,775     (942

Redemptions of common stock

     (1,476     —     
  

 

 

   

 

 

 

Net cash provided by financing activities

     205,457        170,437   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     24,048        16,495   

Cash and cash equivalents, at beginning of period

     12,934        27,634   
  

 

 

   

 

 

 

Cash and cash equivalents, at end of period

   $ 36,982      $ 44,129   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Interest paid

   $ 5,297      $ 1,696   

Supplemental disclosure of noncash items:

    

Offering proceeds due from transfer agent

   $ 12,635      $ 2,061   

Mortgage notes assumed on real estate acquisitions

     —          3,679   

(Decrease) increase in accrued offering costs

     (2,091     4,367   

Acquisition deposits applied to real estate acquisitions

     500        2,238   

Distributions reinvested in common stock

     3,653        844   

Redemptions payable

     —          93   

See accompanying Notes to Consolidated Financial Statements.

 

5


Table of Contents

INDUSTRIAL INCOME TRUST INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. BASIS OF PRESENTATION

Unless the context otherwise requires, the “Company” refers to Industrial Income Trust Inc. and its consolidated subsidiaries.

The accompanying unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain disclosures normally included in the annual audited financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been omitted. As such, the accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 9, 2012.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with GAAP.

 

2. ACQUISITIONS

The Company acquired 100% of the following acquisitions during the three months ended March 31, 2012:

 

                               Intangibles        

(in thousands)

   Acquisition
Date
     Number of
Buildings
   Land      Building      Intangible
Lease
Assets
     Above-
Market
Lease
Assets
     Below-
Market
Lease
Liabilities
    Total
Purchase
Price (2)
 

IN / PA Industrial Portfolio

     3/28/2012       11    $ 22,413       $ 102,391       $ 14,226       $ 274       $ (2,054   $ 137,250   

Other acquisitions (1)

     Various         6      9,628         13,901         3,220         231         (280     26,700   
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total properties

         $ 32,041       $ 116,292       $ 17,446       $ 505       $ (2,334   $ 163,950   
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Consists of two individually non-material acquisitions.
(2) The preliminary allocation of the purchase price was based on the Company’s estimate of the fair value based on all available information and will be finalized during 2012. Total purchase price equals the amount paid, plus any debt assumed.

Intangible lease assets and above-market lease assets are amortized over the remaining lease term. Below-market lease liabilities are amortized over the remaining lease term, including any renewal periods, as applicable. The weighted-average amortization period for the intangible assets and liabilities acquired in connection with these acquisitions, as of the date of acquisition, was as follows:

 

(years)

   Intangibles, net  

IN / PA Industrial Portfolio

     4.0   

Other acquisitions

     4.9   

 

6


Table of Contents

Pro Forma Financial Information

Presented in the table below is the following: the revenue and net loss from the IN / PA Industrial Portfolio acquisition included in the Company’s consolidated statements of operations for the three months ended March 31, 2012; the revenue and net loss of the 2011 acquisitions included in the Company’s consolidated statements of operations for the three months ended March 31, 2011; and the revenue and net loss of the IN / PA Industrial Portfolio acquisition and all of the 2011 acquisitions had the date of each acquisition been January 1, 2011. The pro forma financial information is not intended to represent or be indicative of the Company’s consolidated financial results that would have been reported had the acquisitions been completed at the beginning of the comparable prior period presented and should not be taken as indicative of its future consolidated financial results.

 

     For the Three Months
Ended March 31,
 

(in thousands, except per share data)

   2012     2011  

Actual:

    

Total revenues

   $ 180      $ 1,495   
  

 

 

   

 

 

 

Net loss

   $ (1,114   $ (1,560
  

 

 

   

 

 

 

Pro forma:

    

Total revenues (1)

   $ 26,620      $ 27,659   
  

 

 

   

 

 

 

Net loss (2)

   $ (2,481   $ (18,588
  

 

 

   

 

 

 

Net loss per common share - basic and diluted

   $ (0.03   $ (0.22
  

 

 

   

 

 

 

Weighted-average shares outstanding (3)

     85,195        85,195   
  

 

 

   

 

 

 

 

(1) The pro forma total revenues were adjusted to include the Company’s estimate of incremental rental revenue of $4.3 million and $20.4 million (which includes $4.5 million related to the IN / PA Industrial Portfolio acquisition) for the three months ended March 31, 2012 and 2011, respectively.
(2) The acquisition-related expenses of $2.3 million were excluded from the pro forma net loss for the three months ended March 31, 2012 and $15.2 million were included for the three months ended March 31, 2011, to reflect these costs as if they were incurred as of January 1, 2011.
(3) The pro forma weighted-average shares outstanding for the three months ended March 31, 2012 and 2011 was calculated as if all shares outstanding as of March 31, 2012 had been issued at the beginning of each period presented.

 

3. INVESTMENT IN PROPERTIES

As of March 31, 2012, the Company’s consolidated investment in properties consisted of 111 industrial buildings totaling approximately 19.6 million square feet in 15 markets.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities included the following:

 

     March 31, 2012     December 31, 2011  

(in thousands)

   Gross     Accumulated
Amortization
    Net     Gross     Accumulated
Amortization
    Net  

Intangible lease assets

   $ 113,407      $ (20,381   $ 93,026      $ 96,123      $ (14,105   $ 82,018   

Above-market lease assets

     15,701        (3,351     12,350        15,284        (2,407     12,877   

Below-market lease liabilities

     (4,198     573        (3,625     (1,864     391        (1,473

The following table details the estimated net amortization of such intangible lease assets and liabilities, as of March 31, 2012, for the next five years and thereafter:

 

     Estimated Net Amortization  

(in thousands)

   Intangible
Lease  Assets
     Above-Market
Leases
     Below-Market
Leases
 

Remainder of 2012

   $ 24,190       $ 3,289       $ (599

2013

     21,636         3,019         (734

2014

     14,916         1,978         (700

2015

     12,557         1,673         (573

2016

     9,783         1,290         (482

Thereafter

     9,944         1,101         (537
  

 

 

    

 

 

    

 

 

 

Total

   $ 93,026       $ 12,350       $ (3,625
  

 

 

    

 

 

    

 

 

 

 

7


Table of Contents

Future Minimum Rent

Future minimum base rental payments, which equal the cash basis of monthly contractual rent, owed to the Company from its tenants under the terms of non-cancelable operating leases in effect as of March 31, 2012, excluding rental revenues from the potential renewal or replacement of existing future leases and from tenant reimbursement revenue, were as follows:

 

(in thousands)

   Future Minimum Base
Rental Payments
 

Remainder of 2012

   $ 57,995   

2013

     70,647   

2014

     62,949   

2015

     57,773   

2016

     50,275   

Thereafter

     155,200   
  

 

 

 

Total

   $ 454,839   
  

 

 

 

Rental Revenue and Depreciation and Amortization Expense

The following table summarizes straight-line rent adjustments, amortization recognized as an increase (decrease) in rental revenues from above- and below-market lease assets and liabilities, and real-estate related depreciation and amortization expense:

 

     For the Three  Months
Ended March 31,
 

(in thousands)

   2012     2011  

Increase (Decrease) to Rental Revenue:

    

Straight-line rent adjustments

   $ 1,694      $ 438   

Above-market lease asset amortization

     (1,030     (262

Below-market lease liability amortization

     182        55   

Real Estate-Related Depreciation and Amortization:

    

Depreciation expense

   $ 4,107      $ 1,174   

Intangible lease asset amortization

     6,438        1,521   

 

4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

In August 2011, the Company, through two of its subsidiaries, entered into a joint venture agreement with a subsidiary of a highly-rated, investment grade institutional investor and formed the IIT North American Industrial Fund I Limited Partnership. The joint venture was formed for purposes of jointly investing in and acquiring industrial properties located in major U.S. distribution markets. The Company has a 51% ownership interest in the joint venture.

During the three months ended March 31, 2012, the unconsolidated joint venture acquired seven industrial buildings totaling approximately 0.8 million square feet in two markets for an aggregate total purchase price of $48.7 million. As of March 31, 2012, the unconsolidated joint venture owned and managed a portfolio of properties that consisted of 25 industrial buildings comprised of approximately 5.1 million square feet in seven markets.

 

8


Table of Contents
5. DEBT

The Company’s indebtedness is comprised of mortgage note financings and borrowings on the Company’s lines of credit, all of which are secured by deeds of trust and related assignments and security interests in the collateralized and certain cross-collateralized properties and a security interest in the Company’s gross offering proceeds from its primary public offering. A summary of the Company’s debt is as follows:

 

     Interest Rate  at
March 31, 2012
  Interest
Rate
   Initial
Maturity Date
   Balance as of  

(in thousands)

           March31,
2012
     December 31,
2011
 

Line of credit

   N/A   Variable    December 2012    $ —         $ 7,000   

Line of credit (1)

   2.75%   Variable    December 2013      110,000         102,750   

Mortgage note

   6.44%   Fixed    January 2013      9,917         10,086   

Mortgage note

   5.51%   Fixed    June 2015      3,493         3,539   

Mortgage note (2)

   4.16%   Fixed    September 2015      7,560         7,560   

Mortgage note

   6.24%   Fixed    July 2016      6,860         6,911   

Mortgage note

   5.77%   Fixed    March 2017      4,495         4,496   

Mortgage note

   5.61%   Fixed    June 2017      6,401         6,413   

Mortgage note

   4.31%   Fixed    September 2017      29,241         29,371   

Mortgage notes (3)

   4.45%   Fixed    June 2018      32,000         32,000   

Mortgage notes

   3.90%   Fixed    January 2019      61,000         61,000   

Mortgage notes (4)

   4.95%   Fixed    October 2020      26,033         26,136   

Mortgage note (5)

   4.90%   Fixed    November 2020      7,594         7,624   

Mortgage notes (5)

   4.81%   Fixed    November 2020      41,304         41,468   

Mortgage notes

   5.68%   Fixed    January 2021      53,330         53,492   

Mortgage notes

   4.70%   Fixed    July 2021      110,000         110,000   
  

 

       

 

 

    

 

 

 

Total / Weighted-Average

   4.35%         $ 509,228       $ 509,846   
  

 

       

 

 

    

 

 

 

Gross book value of properties encumbered by debt

      $ 1,096,126       $ 932,014   
          

 

 

    

 

 

 

 

(1) The interest rate is based on London Interbank Offered Rate (“LIBOR”), plus 2.50%.
(2) This mortgage note bears interest at a variable interest rate based on one-month LIBOR, plus 2.50% and had an interest rate of 2.75% and 2.76% as of March 31, 2012 and December 31, 2011, respectively. In conjunction with this mortgage note, the Company entered into an interest rate swap agreement that effectively fixed the interest rate of this mortgage note at 4.16% for the full term. Refer to “Derivative Instruments” below for further detail.
(3) These mortgage notes have a contractual maturity of June 1, 2041; however, the expected maturity date, based on the lender’s ability to call the loan, is June 1, 2018.
(4) These mortgage notes have a contractual maturity of October 1, 2040; however, the expected maturity date, based on the lender’s ability to call the loan, is October 1, 2020.
(5) These mortgage notes have a contractual maturity of November 1, 2040; however, the expected maturity date, based on the respective lender’s ability to call the loan, is November 1, 2020.

As of March 31, 2012, the principal payments due on the Company’s debt during each of the next five years and thereafter were as follows:

 

(in thousands)

   Amount  

Remainder of 2012

   $ 2,144   

2013

     122,322   

2014

     4,402   

2015

     14,791   

2016

     11,337   

Thereafter

     353,118   
  

 

 

 

Total principal payments

     508,114   

Unamortized premium on assumed debt

     1,114   
  

 

 

 

Total debt

   $ 509,228   
  

 

 

 

Lines of Credit

As amended in December 2011, the Company entered into a revolving credit agreement with an aggregate commitment of $160.0 million, up to a maximum aggregate amount of $300.0 million. The revolving credit agreement matures in December 2013 and may be extended pursuant to a one-year extension option. The interest rate is variable and calculated based on LIBOR, plus a spread ranging from 2.25% to 2.75%. The line of credit is available to finance the acquisition and operation of qualified properties as well as for working capital and general corporate purposes, within certain restrictions set forth in the loan agreement. Amounts under the line of credit become available when such qualified properties are added as collateral to the loan agreement. As of March 31, 2012, the Company had $110.0 million outstanding under the line of credit. The unused portion was approximately $50.0 million, of which approximately $12.5 million was available based on the collateral and financial covenants within the credit agreement.

 

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In June 2011, the Company entered into a revolving credit agreement with an initial aggregate commitment of $40.0 million, up to a maximum aggregate amount of $100.0 million. The revolving credit agreement matures in December 2012, and may be extended to June 2013, subject to certain conditions. The interest rate is variable and calculated based on LIBOR, plus 3.50%. The line of credit is available to finance the acquisition and operation of properties, for refinancing the Company’s other debt obligations, and for working capital purposes. The Company has pledged and granted a security interest in, and liens upon, the gross proceeds of its primary public offering of shares of its common stock as collateral for any borrowings. As of March 31, 2012, there were no borrowings under this line of credit.

Debt Covenants

The Company’s mortgage note financings and lines of credit contain various property level covenants, including customary affirmative and negative covenants. In addition, the lines of credit contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, tangible net worth, and dividend payout ratio restrictions. The Company was in compliance with all debt covenants as of March 31, 2012.

Derivative Instruments

The Company enters into derivative instruments for risk management purposes only. The Company currently has one derivative designated as a cash flow hedge, which the Company uses to manage its exposure to fluctuations in interest rates. By using such instruments, the Company exposes itself, from time to time, to credit risk and market risk. Credit risk is the failure of either party to the contract to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. The Company minimizes the credit risk by entering into transactions with high-quality counterparties whose credit ratings are evaluated on a quarterly basis. Market risk, as it relates to the Company’s interest-rate derivative, is the adverse effect on the value of a financial instrument that results from changes in interest rates. The Company minimizes market risk by establishing and monitoring parameters that limit the types and degree of market risk that the Company incurs.

On August 31, 2010, the Company entered into a five-year, LIBOR-based interest rate swap agreement to hedge the interest rate on the $7.6 million mortgage note secured by one of the Company’s properties. The interest rate swap has an effective date of August 31, 2010 and will expire on September 1, 2015. The Company entered into the interest rate swap to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time, with the objective of offsetting the variability of its interest expense that arises because of changes in the variable interest rate for the designated interest payments. Accordingly, changes in fair value of the interest rate swap were recorded as a component of accumulated other comprehensive income (“AOCI”) on the consolidated balance sheets. The Company reclassifies the effective gain or loss from AOCI on the consolidated balance sheets to interest expense on the consolidated statements of operations as the interest expense is recognized on the related debt.

The following table summarizes the location and fair value of cash flow hedges on the Company’s consolidated balance sheets:

 

                 Fair value as of  

(in thousands)

   Notional
Amount
     Balance Sheet Location    March 31,
2012
     December 31,
2011
 

Interest rate swap

   $ 7,560       Other liabilities    $ 234       $ 227   

The following table presents the effect of the Company’s derivative instruments on the Company’s consolidated statements of operations:

 

     For the Three Months
Ended March 31,
 

(in thousands)

   2012     2011  

Interest rate swap:

    

Gain recognized in AOCI (effective portion)

   $ 20      $ 83   

Loss reclassified from AOCI into income (effective portion)

     (27     (26

The interest rate swap has no hedge ineffectiveness, and as a result, no unrealized gains or losses were reclassified into net earnings as a result of hedge ineffectiveness. The Company expects no hedge ineffectiveness in the next 12 months.

 

6. FAIR VALUE

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. Fair value measurements are categorized into one of three levels of the fair value hierarchy based on the lowest level of significant input used. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. These estimates may differ from the actual amounts that the Company could realize upon settlement.

 

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The fair value hierarchy is as follows:

Level 1 – Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 – Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:

 

   

Quoted prices for similar assets/liabilities in active markets;

 

   

Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);

 

   

Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and

 

   

Inputs that are derived principally from or corroborated by other observable market data.

Level 3 – Unobservable inputs that cannot be corroborated by observable market data.

The following table presents financial instruments measured at fair value on a recurring basis:

 

(in thousands)

   Level 1      Level 2      Level 3      Total  Fair
Value
 

March 31, 2012

           

Liabilities

           

Derivative instrument

   $ —         $ 234       $ —         $ 234   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value

   $ —         $ 234       $ —         $ 234   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

           

Liabilities

           

Derivative instrument

   $ —         $ 227       $ —         $ 227   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value

   $ —         $ 227       $ —         $ 227   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2012 and December 31, 2011, the Company had no financial instruments that were transferred between Level 1 or Level 2. The Company also had no non-financial assets or liabilities that were required to be measured at fair value on a recurring basis.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Derivative Instrument. The derivative instrument is an interest rate swap. The interest rate swap is a standard cash flow hedge whose fair value is estimated using market-standard valuation models. Such models involve using market-based observable inputs, including interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Due to the interest rate swap being unique and not actively traded, the fair value is classified as Level 2. See “Note 5” above for further discussion of the Company’s derivative instrument.

The table below includes fair values for certain financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:

 

     March 31, 2012      December 31, 2011  

(in thousands)

   Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

Assets

           

Notes receivable

   $ 5,912       $ 5,897       $ 5,912       $ 5,897   

Liabilities

           

Lines of credit

     110,000         110,000         109,750         109,750   

Mortgage notes

     399,228         408,304         400,096         409,718   

Derivative instrument

     234         234         227         227   

In addition to the previously described methods and assumptions for the derivative instrument, the following are the methods and assumptions used to estimate the fair value of the other financial instruments:

Notes Receivable. The fair value is estimated by discounting the expected cash flows on the notes receivable at current rates at which the Company believes similar loans would be made. As of March 31, 2012, the Company had a note receivable of $4.6 million with a maturity date of June 1, 2013 and a note receivable of $1.3 million with a maturity date of August 1, 2013. The loans were made by the Company to the seller of two of the buildings acquired by the Company, and are secured by land and guarantees. Amounts outstanding and accrued interest on the notes receivable are due on the respective maturity dates.

Lines of Credit. The fair value of the lines of credit is estimated using discounted cash flow analysis based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments.

 

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Mortgage Notes. The fair value of the mortgage notes is estimated using discounted cash flow analysis based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments.

The fair values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and distributions payable approximate their carrying values because of the short-term nature of these instruments. As such, these assets and liabilities are not listed in the carrying value and fair value table above.

 

7. STOCKHOLDERS’ EQUITY

Initial Offering

On May 22, 2009, the Company filed a registration statement with the Securities and Exchange Commission (the “SEC”) on Form S-11 in connection with the initial public offering (the “Initial Offering”). The registration statement was subsequently declared effective on December 18, 2009. Pursuant to such registration statement, the Company offered for sale up to $2.0 billion in shares of common stock, 75% of which (150.0 million shares) were offered to investors at a price of $10.00 per share, and 25% of which (52.6 million shares) were offered to participants in the Company’s distribution reinvestment plan at a price of $9.50 per share. Dividend Capital Securities LLC (the “Dealer Manager”) provided dealer manager services in connection with the Initial Offering. The Initial Offering closed on April 16, 2012.

As of March 31, 2012, the Company had raised gross proceeds of $847.5 million from the sale of 85.5 million shares of its common stock in the Initial Offering, including $11.6 million from the sale of 1.2 million shares of its common stock through the Company’s distribution reinvestment plan.

Follow-On Offering

The Company filed a registration statement on Form S-11 (Registration No. 333-175340) with the SEC in connection with the proposed offering of up to $2.4 billion in shares of common stock (the “Follow-On Offering”). Pursuant to the registration statement for the Follow-On Offering, the Company is offering for sale up to $1.8 billion in shares of common stock at a price of $10.40 per share, and up to $600.0 million in shares under the Company’s distribution reinvestment plan at a price of $9.88 per share. The Dealer Manager provides dealer manager services in connection with the Follow-On Offering. The Follow-On Offering commenced on April 17, 2012, the date that the registration statement for the Follow-On Offering was declared effective by the SEC. The Follow-On Offering is a best efforts offering, which means that the Dealer Manager is not required to sell any specific number or dollar amount of shares of common stock in the Follow-On Offering, but will use its best efforts to sell the shares of common stock. The Follow-On Offering is also a continuous offering that is initially expected to end no later than two years after the effective date of the Follow-On Offering, or April 17, 2014, but may be extended by the Company’s board of directors for up to an additional one and a half year period.

Distributions

The Company intends to accrue and make distributions on a regular basis. The Company calculates individual payments of distributions to each stockholder based upon daily record dates during each quarter so that investors are eligible to earn distributions immediately upon purchasing shares of the Company’s common stock. The distributions are calculated based on common stockholders of record as of the close of business each day in the period.

 

          Amount  

(in thousands)

  

Payment Date

   Declared per
Common Share
     Paid in
Cash
     Reinvested  in
Shares
     Total
Distributions
 

2012

              

March 31

   April 16, 2012    $ 0.15625       $ 6,137       $ 4,902       $ 11,039   
        

 

 

    

 

 

    

 

 

 

Total

         $ 6,137       $ 4,902       $ 11,039   
        

 

 

    

 

 

    

 

 

 

2011

              

March 31

   April 15, 2011    $ 0.15625       $ 1,819       $ 1,436       $ 3,255   

June 30

   July 15, 2011    $ 0.15625         2,796         2,173         4,969   

September 30

   October 17, 2011    $ 0.15625         3,776         2,893         6,669   

December 31

   January 17, 2012    $ 0.15625         4,775         3,653         8,428   
        

 

 

    

 

 

    

 

 

 

Total

         $ 13,166       $ 10,155       $ 23,321   
        

 

 

    

 

 

    

 

 

 

 

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Redemptions

Subject to certain restrictions and limitations, at a price equal to or at a discount from the purchase price paid for the shares of common stock being redeemed, a stockholder may redeem shares of the Company’s common stock for cash. Shares of common stock must be held for a minimum of one year, subject to certain exceptions. The Company is not obligated to redeem shares of its common stock under the share redemption program. The Company presently intends to limit the number of shares to be redeemed during any consecutive 12-month period to no more than five percent of the number of shares of common stock outstanding at the beginning of such 12-month period. The Company also intends to limit redemptions in accordance with a quarterly cap. The discount from the purchase price paid for the redeemed shares will vary based upon the length of time that the shares of common stock have been held, as follows:

 

Share Purchase Anniversary

   Redemption Price as a
Percentage of Purchase Price

Less than one year

   No redemption allowed

One year

   92.5%

Two years

   95.0%

Three years

   97.5%

Four years and longer

   100.0%

In the event of the death of a stockholder, such shares will be redeemed at a price equal to 100% of the price paid by the deceased stockholder for the shares without regard to the date of purchase of the shares to be redeemed. See “Note 10” below for a description of certain amendments to the share redemption program that will take effect on June 1, 2012.

For the three months ended March 31, 2012 and 2011, the Company received eligible redemption requests related to approximately 154,000 and 9,300 shares of its common stock, respectively, which the Company redeemed for an aggregate amount of approximately $1.5 million and $93,000, respectively, using proceeds from the sale of shares pursuant to its distribution reinvestment plan.

 

8. RELATED PARTY TRANSACTIONS

The Company relies on Industrial Income Advisors LLC (the “Advisor”), a related party, to manage the Company’s day-to-day operating and acquisition activities and to implement the Company’s investment strategy pursuant to the terms of a third amended and restated advisory agreement (the “Advisory Agreement”), dated February 21, 2012, by and among the Company, the Operating Partnership, and the Advisor. The Advisor is considered to be a related party of the Company because certain indirect owners and employees of the Advisor serve as directors and/or officers of the Company. The Dealer Manager, also a related party, provides dealer manager services for the Company’s public offerings. The Advisor and Dealer Manager receive compensation in the form of fees and expense reimbursements for services relating to the Company’s public offerings and for the investment and management of the Company’s assets. The following summarizes the fees and expense reimbursements:

Sales Commissions. Sales commissions are payable to the Dealer Manager, all of which are reallowed to participating unaffiliated broker-dealers, and are equal to up to 7.0% of the gross proceeds from the Initial Offering. These sales commissions are also payable in connection with the Follow-On Offering.

Dealer Manager Fees. Dealer manager fees are payable to the Dealer Manager and are equal to up to 2.5% of the gross proceeds from the Initial Offering. These dealer manager fees are also payable in connection with the Follow-On Offering.

Acquisition Fees. For each real property acquired during the operational stage, the acquisition fee was an amount equal to 2.0% of the purchase price of the property, until such time as the Company had invested an aggregate amount of $500.0 million in properties, at which time the acquisition fee was reduced to 1.0% of the total purchase price of the properties acquired (or the Company’s proportional interest therein), including in all instances real property held in joint ventures or co-ownership arrangements. The Company reached the $500.0 million aggregate investment threshold during the second quarter of 2011. Accordingly, all acquisition fees incurred subsequent to the second quarter of 2011 were incurred at the 1.0% rate.

Asset Management Fees. Asset management fees consist of a monthly fee of one-twelfth of 0.80% of the aggregate cost (including debt, whether borrowed or assumed) (before non-cash reserves and depreciation) of each real property asset within the Company’s portfolio (or our proportional interest therein with respect to real property held in joint ventures, co-ownership arrangements or real estate-related entities in which the Company owns a majority economic interest or that the Company consolidates for financial reporting purposes).

Organization and Offering Expenses. The Company reimburses the Advisor for cumulative organization expenses and for expenses of our offerings up to 1.75% of the gross offering proceeds. The Advisor or an affiliate of the Advisor is responsible for the payment of the Company’s cumulative organization and offering expenses to the extent the total of such cumulative expenses exceeds the 1.75% organization and offering expense reimbursement from our offerings, without recourse against or reimbursement by the Company. If the Company is not successful in raising additional amounts of equity proceeds, no additional amounts will be payable by the Company to the Advisor for reimbursement of organization and offering expenses.

 

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Other Expense Reimbursements. In addition to the reimbursement of organization and offering expenses, the Company is also obligated, subject to certain limitations, to reimburse the Advisor for certain costs incurred by the Advisor or its affiliates, such as personnel and overhead expenses, in connection with the services provided to the Company under the Advisory Agreement, provided that the Advisor does not receive a specific fee for the activities which generate the expenses to be reimbursed. The Advisor may utilize its employees to provide such services and in certain instances those employees may include the Company’s executive officers.

The table below summarizes the fees and expenses incurred by the Company for services provided by the Advisor and the Dealer Manager related to the services described above, and any related amounts payable:

 

     Incurred                
     For the Three Months
Ended March 31,
     Payable as of  
        March 31,
2012 (1)
     December 31,
2011 (1)
 

(in thousands)

   2012      2011        

Expensed:

           

Acquisition fees

   $ 1,753       $ 3,163       $ 170       $ —     

Asset management fees

     2,105         667         —           —     

Other expense reimbursements

     366         230         37         59   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expensed

   $ 4,224       $ 4,060       $ 207       $ 59   
  

 

 

    

 

 

    

 

 

    

 

 

 

Additional Paid-In Capital:

           

Sales commissions

   $ 15,024       $ 6,277       $ 1,863       $ 563   

Dealer manager fees

     6,103         2,664         908         319   

Organization and offering expenses

     4,300         1,844         636         218   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjustments to additional paid-in capital

   $ 25,427       $ 10,785       $ 3,407       $ 1,100   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) In addition, the amounts accrued for organization and offering expense reimbursement that are not payable until additional gross proceeds of the offering are received were $3.2 million and $5.2 million as of March 31, 2012 and December 31, 2011, respectively. The Company reimburses the Advisor for cumulative organization expenses and for expenses of its offerings up to 1.75% of the gross offering proceeds. As such, the Company does not consider organization and offering expenses that exceed 1.75% of the gross offering proceeds raised from its offerings to be currently payable.

Joint Venture Fees. The unconsolidated joint venture described in “Note 4” has and will pay fees to the Advisor or its affiliates for providing services to the joint venture. For the three months ended March 31, 2012, the joint venture paid to the Advisor approximately $0.7 million in fees for providing a variety of services, including with respect to acquisition and asset management activities. With respect to the Company’s percentage interest in the joint venture, the Company has paid and will pay to the Advisor any additional amount necessary, after taking into account amounts paid directly by the joint venture to the Advisor, to provide that the Advisor receives the total amount of fees payable pursuant to the Advisory Agreement.

 

9. COMMITMENTS AND CONTINGENCIES

The Company and the Operating Partnership are not presently involved in any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company or its investments.

Environmental Matters

A majority of the properties the Company acquires are subject to environmental reviews either by the Company or the previous owners. In addition, the Company may incur environmental remediation costs associated with certain land parcels it may acquire in connection with the development of land. The Company has acquired certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous material. The Company may purchase various environmental insurance policies to mitigate its exposure to environmental liabilities. The Company is not aware of any environmental liabilities that it believes would have a material adverse effect on its business, financial condition, or results of operations.

 

10. SUBSEQUENT EVENTS

Status of Offering

As of May 2, 2012, the Company had raised gross proceeds of approximately $1.0 billion from the sale of 101.7 million shares of its common stock in the Company’s public offerings. As of that date, 233.6 million shares remained available for sale pursuant to the Follow-On Offering, including 60.7 million shares available for sale through the Company’s distribution reinvestment plan.

 

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Acquisitions Under Contract

The following is a description of a significant acquisition that was under contract subsequent to March 31, 2012:

Cactus Distribution Centers. On April 6, 2012, the Company, through a wholly-owned subsidiary, entered into a purchase and sale agreement to acquire a 100% fee interest in two industrial buildings aggregating approximately 1.6 million square feet on 96.4 acres. The buildings are located in Phoenix, Arizona (collectively, the “Cactus Distribution Centers”). The Cactus Distribution Centers are fully leased to two tenants with an average remaining lease term (based on square feet) of 8.1 years. The total aggregate purchase price is expected to be approximately $131.7 million, exclusive of transfer taxes, due diligence expenses, and other closing costs. The acquisition of the Cactus Distribution Centers is expected to close during the second quarter of 2012, but there can be no assurance the acquisition will be completed. If the acquisition is not completed, there are circumstanced under which the Company may forfeit the $2.5 million it has deposited in connection with the acquisition.

Amendments to the Share Repurchase Program

As described in “Note 7,” the Company’s board of directors determined that the Company will offer shares of its common stock in the Follow-On Offering at $10.40 per share. In connection with this determination of a new price for the Follow-On Offering, the board approved and adopted amendments that impact the price at which shares will be redeemed pursuant to its share redemption program. The amendments are reflected in the Third Amended and Restated Share Redemption Program (the “Amended SRP”), which will take effect on June 1, 2012.

The Amended SRP amends the Company’s current share redemption program to adjust the calculation of the redemption price per share, effective as of June 1, 2012. Therefore, any shares redeemed pursuant to eligible redemption requests received during the second quarter of 2012 and thereafter will be redeemed pursuant to the terms of the Amended SRP. The redemption price per share will be calculated as described in the following excerpt from the Amended SRP:

“After you have held shares of our common stock for a minimum of one year, our share redemption program may provide a limited opportunity for you to have your shares of common stock redeemed, subject to certain restrictions and limitations, at a price that may reflect a discount from the purchase price of the shares of our common stock being redeemed (the “Original Purchase Price”), and the amount of the discount (the “Holding Period Discount”) will vary based upon the length of time that you have held your shares of our common stock subject to redemption, as described in the table below (the “Holding Period Discount Table”), which has been posted on our website at www.industrialincome.com. Except as noted below, the redemption price (the “Redemption Price”) will be calculated by multiplying the Original Purchase Price by the applicable Holding Period Discount. Shares purchased through our distribution reinvestment plan, regardless of the offering in which they were purchased, will not be subject to the Holding Period Discount. With respect to shares of our common stock purchased pursuant to our initial public offering, including shares purchased through our distribution reinvestment plan pursuant to our initial public offering, the Redemption Price will be determined as described above, however the Original Purchase Price paid for such shares first will be increased by 4.0%, which is the amount by which the offering price increased between our initial public offering and our second public offering (the “Initial Offering Adjustment”) subject to the adjustments applicable to shares of common stock in connection with a redemption request with respect to the death of a stockholder, as described below.

 

Share Purchase Anniversary

   Redemption Price as a
Percentage of
Original Purchase Price
(as  increased, if applicable, by the
Initial Offering Adjustment)

Less than one year

   No redemption allowed

One year

   92.5%

Two years

   95.0%

Three years

   97.5%

Four years and longer

   100.0%

In the event that you seek to redeem all of your shares of our common stock, shares of our common stock purchased pursuant to our distribution reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of our board of directors. If you have made more than one purchase of our common stock (other than through our distribution reinvestment plan), the one-year holding period will be calculated separately with respect to each such purchase. In addition, for purposes of the one-year holding period, holders of OP Units who exchange their OP Units for shares of our common stock shall be deemed to have owned their shares as of the date they were issued their OP Units. Neither the one-year holding period nor the Redemption Caps (as defined in the share redemption plan) will apply in the event of the death of a stockholder; provided, however, that any such redemption request with respect to the death of a stockholder must be submitted to us within 18 months after the date of death, as further described in the share redemption plan. Shares of common stock subject to a redemption request with respect to the death of a stockholder will be redeemed at a price equal to (i) with respect to shares purchased in our second public offering, 100% of the Original Purchase Price paid by the deceased stockholder for the shares without application of the Holding Period Discount, and (ii) with respect to shares purchased in our initial public offering, the greater of (x) 100% of the Original Purchase Price paid by the deceased stockholder for the shares, without application of the Initial Offering Adjustment or the Holding Period Discount and (y) the Redemption Price determined as described in the paragraph preceding the Holding Period Discount Table, including application of the Initial Offering Adjustment and the Holding Period Discount. Our board of directors reserves the right in its sole discretion at any time and from time to time to (a) waive the one-year holding period and either of the Redemption Caps (defined in the share redemption plan) in the event of the disability (as such term is defined in Section 72(m)(7) of the Internal Revenue Code) of a stockholder, (b) reject any request for

 

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redemption for any reason, or (c) reduce the number of shares of our common stock allowed to be redeemed under the share redemption program. A stockholder’s request for redemption in reliance on any of the waivers that may be granted in the event of the disability of the stockholder must be submitted within 18 months of the initial determination of the stockholder’s disability, as further described in the share redemption plan. If our board of directors waives the one-year holding period in the event of the disability of a stockholder, such stockholder will have its shares redeemed as described in the paragraph preceding the Holding Period Discount Table as though the stockholder has held its shares for one year, including application of the Initial Offering Adjustment (if applicable) and the Holding Period Discount. In all other cases in the event of the disability of a stockholder, such stockholder will have its shares redeemed as described in the paragraph preceding the Holding Period Discount Table. Furthermore, any shares redeemed in excess of the Quarterly Redemption Cap (as defined in the share redemption plan) as a result of the death or disability of a stockholder will be included in calculating the following quarter’s redemption limitations. At any time we are engaged in an offering of shares of our common stock, the per share price for shares of our common stock redeemed under our redemption program will never be greater than the then-current offering price of our shares of our common stock sold in the primary offering.”

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to the terms “we,” “our,” or “us” refer to Industrial Income Trust Inc. and its consolidated subsidiaries. The following discussion and analysis should be read together with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” or the negative of such terms and other comparable terminology.

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 substantially more offering proceeds and effectively deploy the proceeds raised in our public offerings 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;

 

   

The availability of cash flows from operating activities for distributions and capital expenditures;

 

   

Defaults on or non-renewal of leases by tenants, lease renewals at lower than expected rent, or failure to lease properties at all or on favorable rents and terms;

 

   

Continued or worsening 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 Income 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 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.

 

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OVERVIEW

General

Industrial Income Trust Inc. is a Maryland corporation formed on May 19, 2009 that has operated and elected to be treated as a REIT for U.S. federal income tax purposes, commencing with the taxable year ended December 31, 2010. We were organized 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 tenants. We utilize an UPREIT organizational structure to hold all or substantially all of our assets through the Operating Partnership.

In August 2011, we entered into a joint venture agreement with a subsidiary of a highly-rated, investment grade institutional investor for purposes of jointly investing in and acquiring industrial properties located in major U.S. distribution markets. We have a 51% ownership interest in the unconsolidated joint venture.

As of March 31, 2012, we owned and managed a portfolio of consolidated and unconsolidated properties that included 136 industrial buildings totaling approximately 24.7 million square feet with 258 tenants in 15 major industrial markets throughout the U.S. The “consolidated properties,” which are properties we manage and are 100% owned, consisted of 111 buildings totaling approximately 19.6 million square feet in 15 markets. The “unconsolidated properties,” which are properties we manage and are 51% owned by us through the unconsolidated joint venture, consisted of 25 buildings totaling approximately 5.1 million square feet in seven markets. We currently operate as one reportable segment comprised of industrial real estate.

On December 18, 2009, we commenced the Initial Offering of up to $2.0 billion in shares of our common stock, 75% of which were offered at a price of $10.00 per share, and 25% of which were offered pursuant to our distribution reinvestment plan at a price of $9.50 per share. As of March 31, 2012, we had raised gross proceeds of $847.5 million from the sale of 85.5 million shares of our common stock in the Initial Offering, including $11.6 million from the sale of 1.2 million shares of our common stock through our distribution reinvestment plan. On April 16, 2012, we completed our Initial Offering.

Immediately following the completion of the Initial Offering, we commenced the Follow-On Offering of up to $2.4 billion in shares of our common stock, including $600.0 million in shares to be issued pursuant to our distribution reinvestment plan. The Follow-On Offering registration statement was declared effective by the SEC on April 17, 2012. Pursuant to the registration statement for the Follow-On Offering, up to $1.8 billion in shares of common stock are being offered at a price of $10.40 per share, and up to $600.0 million in shares are being offered under the Company’s distribution reinvestment plan at a price of $9.88 per share.

As of March 31, 2012, we have used, and we intend to continue to use, the net proceeds from our public offerings primarily to make investments in real estate assets. We may use the net proceeds from our public offerings to make other real estate-related investments and debt investments. 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 offerings, and other circumstances existing at the time we make our investments. We will experience a relative increase in cash balances as additional subscriptions for shares of our common stock are received in connection with our public offerings and a relative decrease in liquidity as proceeds from our public offerings are used to acquire, develop, and operate properties and to make debt and other investments.

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 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 March 31, 2012 and December 31, 2011, our consolidated debt leverage ratio (calculated as the book value of our debt to total assets) was 41.7% and 50.3%, respectively.

Industrial Real Estate Outlook

Industrial property fundamentals continue to mirror global economic conditions. The economic environment has improved over the past two years, including: (i) 11 consecutive quarters of positive gross domestic product (“GDP”) growth; (ii) positive trade growth as reflected in port volumes, truck tonnage, and rail carload data; (iii) positive net absorption in certain markets; and (iv) improved access to capital for certain companies. While the strength and sustainability of the recovery remains uncertain, especially with high unemployment levels, we expect demand in the U.S. for industrial warehouse properties to continue to improve with GDP and trade growth. The industrial warehouse sector has generally experienced a challenging leasing environment over the past several years, with increased leasing costs and lower average rental rates due to competitive market availability levels. We believe market rents will trend upward as market occupancies improve. The rentable square footage under lease for our consolidated and unconsolidated properties was 91% (96% excluding our value-add properties) and 92% (98% excluding our value-add properties) as of March 31, 2012 and December 31, 2011, respectively. Properties are considered value-add properties when they have certain occupancy levels, lease terms, and/or projected capital improvement requirements that differ from our core operating portfolio characteristics. While we actively seek to lease our vacant space, if economic uncertainty persists, we may experience significant vacancies or be required to reduce rental rates on occupied space.

 

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The domestic and international financial markets experienced significant disruptions in late 2007 that severely impacted the availability and cost of credit. Recently, the volume of mortgage lending for commercial real estate has increased and lending terms have improved; however, such lending activity is significantly less than previous peak levels. Although lending market conditions have improved, we have experienced, and may continue to experience, more stringent lending criteria, which may affect our ability to finance certain property acquisitions. Additionally, for properties for which we are able to obtain financing, the interest rates and other terms on such loans may limit our operating and investing flexibility. We have managed, and expect to continue to manage, our financing strategy under the current mortgage lending environment by considering various lending sources, including the securitization of debt, utilizing fixed interest rate loans, borrowing under our lines of credit, assuming existing mortgage loans in connection with property acquisitions, and entering into interest rate swap agreements, or any combination of the foregoing. If we are unable to obtain suitable financing for future acquisitions or if we are unable to identify suitable properties at attractive prices in the current credit environment, we may have a larger amount of uninvested cash, which could adversely affect our results of operations.

RESULTS OF OPERATIONS

As of March 31, 2012, we owned and managed a portfolio of consolidated and unconsolidated properties that consisted of 136 industrial buildings comprised of approximately 24.7 million square feet as compared to 33 industrial buildings comprised of approximately 7.0 million square feet as of March 31, 2011. During the three months ended March 31, 2012, we acquired a total of 24 industrial buildings comprised of approximately 4.6 million square feet for an aggregate purchase price of $212.6 million, exclusive of transfer taxes, due diligence expenses, and other closing costs, including seven industrial buildings comprised of approximately 0.8 million square feet for an aggregate total purchase price of $48.7 million, acquired through our 51% ownership interest in the unconsolidated joint venture. This compares to our acquisition of a total of eight industrial buildings during the three months ended March, 31 2011, comprised of approximately 3.6 million square feet for an aggregate purchase price of $158.2 million, exclusive of transfer taxes, due diligence expenses, and other closing costs. Refer to “Note 2 of Notes to Consolidated Financial Statements” for further detail regarding our acquisitions completed during the three months ended March 31, 2012. These acquisitions are consistent with our investment strategy, and were funded with net proceeds from our Initial Offering and debt financings.

We are currently in the acquisition phase of our life cycle and the results of our operations are largely influenced by the timing of acquisitions. Accordingly, our operating results for the three months ended March 31, 2012 and 2011 are not directly comparable nor are our results of operations for the three months ended March 31, 2012 indicative of those expected in future periods. We expect that revenues and operating expenses related to our investment in properties will increase in future periods as a result of our continued ownership of properties acquired during 2010, 2011, and 2012 and as a result of the additive effect of anticipated future acquisitions of industrial properties.

 

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     For the Three Months
Ended March 31,
    Change  

(in thousands, except per share data)

   2012     2011     2012 vs. 2011  

Rental revenues:

      

Same store operating properties

   $ 5,677      $ 5,689      $ (12

Non-same store operating properties

     16,595        1,496        15,099   
  

 

 

   

 

 

   

 

 

 

Total revenues

     22,272        7,185        15,087   
  

 

 

   

 

 

   

 

 

 

Rental expenses:

      

Same store operating properties

     1,418        1,240        178   

Non-same store operating properties

     4,228        229        3,999   
  

 

 

   

 

 

   

 

 

 

Total rental expenses

     5,646        1,469        4,177   
  

 

 

   

 

 

   

 

 

 

Net operating income:

      

Same store operating properties

     4,259        4,449        (190

Non-same store operating properties

     12,367        1,267        11,100   
  

 

 

   

 

 

   

 

 

 

Total net operating income

     16,626        5,716        10,910   
  

 

 

   

 

 

   

 

 

 

Other loss:

      

Equity in loss of unconsolidated joint venture

     952        —          952   

Other expenses:

      

Real estate-related depreciation and amortization

     10,545        2,695        7,850   

General and administrative expenses

     1,323        705        618   

Asset management fees, related party

     2,105        667        1,438   

Acquisition-related expenses, related party

     1,753        3,163        (1,410

Acquisition-related expenses

     1,386        1,862        (476

Interest expense and other

     5,424        2,088        3,336   
  

 

 

   

 

 

   

 

 

 

Total other expenses

     22,536        11,180        11,356   
  

 

 

   

 

 

   

 

 

 

Net loss

     (6,862     (5,464     (1,398

Net loss attributable to noncontrolling interests

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (6,862   $ (5,464   $ (1,398
  

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

     70,648        20,831        49,817   
  

 

 

   

 

 

   

 

 

 

Net loss per common share - basic and diluted

   $ (0.10   $ (0.26   $ 0.16   
  

 

 

   

 

 

   

 

 

 

HOW WE MEASURE OUR PERFORMANCE

We evaluate the performance of operating properties we own and manage using a “same store” analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of changes in the composition of the portfolio on performance measures. We have defined the same store portfolio for the three months ended March 31, 2012 to include 25 buildings as of January 1, 2011.

Rental Revenues. Rental revenues are comprised of base rent, straight-line rent, amortization of above- and below-market rent lease assets and liabilities, and tenant reimbursement revenue. Rental revenues increased for the three months ended March 31, 2012 as compared to the same period in 2011, primarily due to an increase in non-same store rental revenues from the acquisition of an additional 86 industrial buildings from January 1, 2011 to March 31, 2012. Same store rental revenues remained effectively flat for the three months ended March 31, 2012 as compared to the same period in 2011 due to one building’s tenant not renewing its lease, while rental revenue from all other same store properties grew a combined 6.0%.

Rental Expenses. Rental expenses include certain expenses typically reimbursed by our tenants, 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. Rental expenses increased for the three months ended March 31, 2012 as compared to the same period in 2011, primarily due to an increase in non-same store rental expenses due to the significant increase in the number of buildings acquired and placed into operation during 2011.

Other Loss. Other loss increased for the three months ended March 31, 2012 as compared to the same period in 2011, due to the organization and start-up of our unconsolidated joint venture. For the three months ended March 31, 2012, the unconsolidated joint venture had positive net operating income, which was offset by real estate-related depreciation and amortization expense, interest expense, and acquisition-related expenses.

 

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Other Expenses. Other expenses increased for the three months ended March 31, 2012 as compared to the same period in 2011, primarily due to:

 

   

an increase in real estate-related depreciation and amortization expense resulting from real estate acquisitions and capital additions;

 

   

an increase in interest expense primarily due to an increase in net borrowings of $301.3 million since March 31, 2011, partially offset by a lower average interest rate of 4.35% as of March 31, 2012 as compared to 4.62% as of March 31, 2011;

 

   

an increase in asset management fees as a result of the growth in our portfolio;

 

   

an increase in general and administrative expenses due to the continued expansion of our operations with the growth in our portfolio; and

 

   

a decrease in acquisition-related expenses primarily due to the related-party acquisition fees decreasing to 1.0% for the three months ended March 31, 2012 as compared to 2.0% in the same period in 2011.

ADDITIONAL MEASURES OF PERFORMANCE

Net Operating Income (“NOI”)

We define NOI as GAAP rental revenues less GAAP rental expenses. For the three months ended March 31, 2012, NOI was $16.6 million as compared to $5.7 million for the three months ended March 31, 2011. 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 depreciation and amortization, acquisition-related expenses, general and administrative expenses, equity in loss of unconsolidated joint venture, 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 “Management’s Discussion and Analysis—Results of Operations” for a reconciliation of our net loss to NOI for the three months ended March 31, 2012 and 2011.

Funds from Operations (“FFO”) and Company-Defined FFO

We believe that FFO and Company-Defined FFO, 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 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 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 one-time acquisition-related costs, including acquisition fees paid to the Advisor, that are characterized as operating expenses in determining net loss under GAAP. The purchase of operating properties is a key strategic objective of our business plan focused on generating 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

 

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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.

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. We use Company-Defined FFO to, among other things: (i) be useful in evaluating and comparing the potential performance of the portfolio after the acquisition phase is complete, and (ii) evaluate potential performance to determine exit strategies. We believe Company-Defined FFO could facilitate a comparison to other REITs that are not engaged in 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 these 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. 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.

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

 

     For the Three Months
Ended March 31,
 

(in thousands, except per share data)

   2012     2011  

Net loss

   $ (6,862   $ (5,464
  

 

 

   

 

 

 

Net loss per common share

   $ (0.10   $ (0.26
  

 

 

   

 

 

 

Reconciliation of net loss to FFO:

    

Add (deduct) NAREIT-defined adjustments:

    

Real estate-related depreciation and amortization

     10,545        2,695   

Real estate-related depreciation and amortization in unconsolidated joint venture

     1,553        —     
  

 

 

   

 

 

 

FFO

   $ 5,236      $ (2,769
  

 

 

   

 

 

 

FFO per common share

   $ 0.07      $ (0.13
  

 

 

   

 

 

 

Reconciliation of FFO to Company-Defined FFO:

    

FFO

   $ 5,236      $ (2,769

Add (deduct) Company adjustments:

    

Acquisition costs

     3,139        5,025   

Acquisition costs in unconsolidated joint venture

     307        —     
  

 

 

   

 

 

 

Company-Defined FFO

   $ 8,682      $ 2,256   
  

 

 

   

 

 

 

Company-Defined FFO per common share

   $ 0.12      $ 0.11   
  

 

 

   

 

 

 

Weighted-average shares outstanding

     70,648        20,831   
  

 

 

   

 

 

 

The SEC declared the registration statement for the Initial Offering effective on December 18, 2009. We broke escrow for the Initial Offering on March 31, 2010, and effectively commenced real estate operations on June 30, 2010 in connection with the acquisition of our first property. As such, we believe the aggregate FFO of $5.2 million, or $0.07 per share, for the three months ended March 31, 2012 as compared to the aggregate distributions declared of $11.0 million, or $0.15625 per share, for the three months ended March 31, 2012 is not indicative of future performance. See “Capital Resources and Uses of Liquidity – Distributions” below for details concerning our distributions.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our principal uses of funds during the short- and long-term are and will be for the acquisition of properties and other investments, operating expenses, distributions to our stockholders, and payments under our debt obligations. We have three primary sources of capital for meeting our cash requirements: net proceeds from our public offerings, debt financings, and cash flows generated by our real estate operations. Over time, we intend to generally fund our cash needs for items other than asset acquisitions, including the repayment of debt and capital expenditures, from cash flows from operations. Our cash needs for acquisitions and investments will be funded primarily from the sale of shares of our common stock, including those offered for sale through our distribution reinvestment plan; through debt financings; and through our joint venture partnership. There may be a delay between the sale of shares of our common stock 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.

 

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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 the public offerings 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, cash flows from operations, and anticipated financing activities will be sufficient to meet our liquidity needs for the foreseeable future.

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

 

     For the Three Months
Ended March 31,
 

(in thousands)

   2012     2011  

Total cash provided by (used in):

    

Operating activities

   $ 1,854      $ (966

Investing activities

     (183,263     (152,976

Financing activities

     205,457        170,437   
  

 

 

   

 

 

 

Net increase in cash

   $ 24,048      $ 16,495   
  

 

 

   

 

 

 

Cash provided by operating activities during the three months ended March 31, 2012 as compared to the same period in 2011, increased by $2.8 million primarily due to an increase in cash flows from our properties that we acquired during 2011 and 2012, partially offset by a higher level of working capital during the three months ended March 31, 2012.

Cash used in investing activities during the three months ended March 31, 2012 as compared to the same period in 2011, increased by $30.3 million primarily due to our increased acquisition activity.

Cash provided by financing activities during the three months ended March 31, 2012 as compared to the same period in 2011, increased by $35.0 million as a result of us raising a significant level of net proceeds from the Initial Offering, offset slightly by a lower overall level of new borrowings for the three months ended March 31, 2012.

Capital Resources and Uses of Liquidity

In addition to cash flows from operations and cash and cash equivalent balances available, our capital resources and uses of liquidity are as follows:

Lines of Credit. As amended in December 2011, we entered into a revolving credit agreement with an aggregate commitment of $160.0 million, up to a maximum aggregate amount of $300.0 million. The revolving credit agreement matures in December 2013, and may be extended pursuant to a one-year extension option. The interest rate is variable and calculated based on LIBOR, plus a spread ranging from 2.25% to 2.75%. The line of credit is available to finance the acquisition and operation of qualified properties as well as for working capital and general corporate purposes, within certain restrictions set forth in the loan agreement. Amounts under the line of credit become available when such qualified properties are added as collateral to the loan agreement. As of March 31, 2012, we had $110.0 million outstanding under the line of credit with a weighted-average interest rate of 2.75%. The unused portion was approximately $50.0 million, of which approximately $12.5 million was available based on the collateral and financial covenants within the credit agreement.

In June 2011, we entered into a revolving credit agreement with an initial aggregate commitment of $40.0 million, up to a maximum aggregate amount of $100.0 million. The revolving credit agreement matures in December 2012, and may be extended to June 2013, subject to certain conditions. The interest rate is variable and calculated based on LIBOR, plus 3.50%. The revolving credit agreement is available to finance the acquisition and operation of properties, for refinancing our other debt obligations, and for working capital purposes. We have pledged and granted a security interest in, and liens upon, the gross proceeds of our primary public offering of shares of our common stock as collateral for the borrowings. As of March 31, 2012, there were no borrowings under this line of credit.

Mortgage Note Financings. As of March 31, 2012, we had property-level borrowings of $399.2 million outstanding. These borrowings are secured by deeds of trust and related assignments and security interests in the collateralized properties, and have a weighted-average fixed interest rate of 4.78%, which reflects the effect of an interest rate swap agreement. Refer to “Note 5 of Notes to Consolidated Financial Statements” for additional detail relating to the interest rate swap. The proceeds from the mortgage note financings were used to partially finance certain of our acquisitions, and can be used to finance our capital requirements, which may include the funding of future acquisitions, capital expenditures, distributions, and general corporate purposes.

Debt Covenants. Our mortgage notes and lines of credit contain various property level covenants, including customary affirmative and negative covenants. In addition, the lines of credit contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, tangible net worth, and dividend payout ratio restrictions. These covenants may limit our ability to incur additional debt and make borrowings under our lines of credit. We were in compliance with all debt covenants as of March 31, 2012.

 

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Offering Proceeds. As of March 31, 2012, the gross proceeds raised from the Initial Offering were $847.5 million ($759.6 million net of direct selling costs).

Distributions. We intend to continue to accrue and make distributions on a quarterly basis. A portion of the cash distributions for the quarter ended March 31, 2012 and all of the cash distributions for the quarter ended December 31, 2011, were paid from cash flows from operating activities, as determined on a GAAP basis. The balance of the cash distributions for the quarter ended March 31, 2012 and cash distributions for each other quarter in 2011 have been paid from sources other than cash flows from operating activities; all such distributions were paid from cash flows from financing activities, as determined on a GAAP basis, specifically, debt financings (including borrowings secured by our assets). Some or all of our future distributions may be paid from sources such as cash flows from financing activities, which include borrowings (including borrowings secured by our assets) and sales of assets, cash resulting from a waiver or deferral of fees otherwise payable to the Advisor or its affiliates and interest income from our cash balances. We have not established a cap on the amount of our distributions that may be paid from any of these sources. Distributions will be authorized at the discretion of 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 cash distributions at a quarterly rate of $0.15625 per share of common stock for the second quarter of 2012.

There can be no assurances that the current distribution rate or amount per share will be maintained. In the near-term, we expect to continue to be dependent on cash flows from financing activities, as determined on a GAAP basis, to pay distributions, which if insufficient could negatively impact our ability to pay distributions.

The following table outlines total distributions and sources used to pay distributions for the quarterly periods indicated below:

 

(in thousands,

except

per share

data and

percentages

                                    Source of Distributions
Paid in Cash
 
   Payment
Date
   Amount     
      Declared
per
Common
Share
     Paid in
Cash
     Reinvested
in Shares
     Total
Distributions
     Provided by
Operating
Activities (1)
    Provided by
Financing
Activities (2)
 

2012

                         

March 31

   April 16, 2012    $ 0.15625       $ 6,137       $ 4,902       $ 11,039       $ 1,854         30   $ 4,283         70
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

         $ 6,137       $ 4,902       $ 11,039       $ 1,854         30   $ 4,283         70
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

2011

                         

March 31

   April 15, 2011    $ 0.15625       $ 1,819       $ 1,436       $ 3,255       $ —           —     $ 1,819         100

June 30

   July 15, 2011    $ 0.15625         2,796         2,173         4,969         —           —          2,796         100   

September 30

   October 17, 2011    $ 0.15625         3,776         2,893         6,669         —           —          3,776         100   

December 31

   January 17, 2012    $ 0.15625         4,775         3,653         8,428         4,775         100        —           —     
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

         $ 13,166       $ 10,155       $ 23,321       $ 4,775         36   $ 8,391         64
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) As determined on a GAAP basis. Cash flows from operating activities for the three months ended December 31, 2011 were $6.7 million.
(2) For the periods presented, 100% of cash distributions provided by financing activities, as determined on a GAAP basis, were funded through proceeds from our debt financings. Our debt financings, or borrowings, are a component of cash provided by financing activities as determined on a GAAP basis. See the Funds from Operations (“FFO”) and Company-Defined FFO table in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Refer to “Note 7 of Notes to Consolidated Financial Statements” for further detail on distributions.

Redemptions. For the three months ended March 31, 2012 and 2011, we received eligible redemption requests related to approximately 154,000 and 9,300 shares of our common stock, respectively, which we redeemed for an aggregate amount of approximately $1.5 million and $93,000, respectively, using proceeds from the sale of shares pursuant to our distribution reinvestment plan. The aggregate amount expended for redemptions under our share redemption program is expected to be subject to certain caps and is not expected to exceed the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan. However, to the extent that the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan are not sufficient to fund redemption requests, subject to a five percent limitation as discussed in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds – Share Redemption Program,” our board of directors may, in its sole discretion, choose to use other sources of funds to redeem shares of our common stock. Such sources of funds could include cash on hand and cash available from borrowings, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders, debt repayment, and purchases of property investments. Our board of directors may, in its sole discretion, amend, suspend, or terminate the share redemption program at any time if it determines that the funds available to fund the share redemption program are needed for other business or operational purposes or that amendment, suspension, or termination of the share redemption program is in the best interests of our stockholders.

 

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SUBSEQUENT EVENTS

Status of Offering

As of May 2, 2012, we had raised gross proceeds of approximately $1.0 billion from the sale of 101.7 million shares of our common stock in our public offerings. As of that date, 233.6 million shares remained available for sale pursuant to the Follow-On Offering, including 60.7 million shares available for sale through our distribution reinvestment plan.

Acquisitions Under Contract

The following is a description of a significant acquisition that was under contract subsequent to March 31, 2012:

Cactus Distribution Centers. On April 6, 2012, we, through a wholly-owned subsidiary, entered into a purchase and sale agreement to acquire a 100% fee interest in two industrial buildings aggregating approximately 1.6 million square feet on 96.4 acres. The buildings are located in Phoenix, Arizona (collectively, the “Cactus Distribution Centers”). The Cactus Distribution Centers are fully leased to two tenants with an average remaining lease term (based on square feet) of 8.1 years. The total aggregate purchase price is expected to be approximately $131.7 million, exclusive of transfer taxes, due diligence expenses, and other closing costs. The acquisition of the Cactus Distribution Centers is expected to close during the second quarter of 2012, but there can be no assurance the acquisition will be completed. If the acquisition is not completed, there are circumstanced under which we may forfeit the $2.5 million we have deposited in connection with the acquisition.

Amendments to the Share Repurchase Program

See “Note 10 of Notes to Consolidated Financial Statements” for more information concerning amendments to our share redemption program that will take effect on June 1, 2012.

CONTRACTUAL OBLIGATIONS

A summary of future obligations as of December 31, 2011, was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 9, 2012 (“2011 Form 10-K”). Except as otherwise disclosed in “Note 5 of Notes to Consolidated Financial Statements” relating to our principal payments due on our debt for the next five years and thereafter, there were no material changes outside the ordinary course of business.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2012, we had no off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

CRITICAL ACCOUNTING ESTIMATES

Our unaudited 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 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 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 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 2011 Form 10-K. As of March 31, 2012, our critical accounting estimates have not changed from those described in our 2011 Form 10-K.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our market risk is exposure to changes in interest rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows, and optimize overall borrowing costs. To achieve these objectives, we primarily borrow on a fixed interest rate basis for longer-term debt and utilize interest rate swap agreements on certain variable interest rate debt in order to limit the effects of changes in interest rates on our results of operations. As part of our risk management strategy, we enter into interest swap agreements with high-quality counterparties to manage the impact of variable interest rates on interest expense. As of March 31, 2012, our debt instruments were comprised of mortgage note financings and borrowings under our lines of credit.

Fixed Interest Rate Debt. As of March 31, 2012, fixed interest rate debt, either directly or through the use of interest rate swap agreements, represented 78.4% of our total debt and consisted of mortgage notes. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed interest rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes could affect the fair value of our fixed interest rate debt. As of March 31, 2012, the fair value and carrying value of our fixed rate debt was $408.3 million and $399.2 million, respectively. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated at March 31, 2012. As we expect to hold our fixed interest rate debt instruments to maturity, based on the underlying structure of the debt instrument, and that the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that market fluctuations in interest rates, and the resulting change in fair value of our fixed interest rate debt instruments, would have a significant impact on our cash flows from operations.

 

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Variable Interest Rate Debt. As of March 31, 2012, variable interest rate debt represented 21.6% of our total debt and consisted of borrowings under our lines of credit. Interest rate changes in LIBOR could impact our future earnings and cash flows, but would not significantly affect the fair value of the variable interest rate debt instruments. As of March 31, 2012, we were exposed to market risks related to fluctuations in interest rates on $110.0 million of aggregate borrowings. A hypothetical 10% change in the average interest rate on the outstanding balance of our variable interest rate debt as of March 31, 2012, would change our annual interest expense by approximately $27,000.

Derivative Instruments. We currently have one interest rate swap agreement that effectively converted one of our variable interest rate mortgage notes of $7.6 million to a fixed interest rate mortgage note for the full term. See “Note 5 of Notes to Consolidated Financial Statements” for more information concerning our derivative instrument.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the direction of our Chief Executive Officer and Chief Financial Officer and Treasurer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2012. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer and Treasurer have concluded that, as of March 31, 2012, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of our 2011 Form 10-K, which could materially affect our business, financial condition, and/or future results. The risks described in our 2011 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

There have been no material changes to the risk factors disclosed in our 2011 Form 10-K.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Use of Proceeds

As of March 31, 2012, we had raised gross proceeds of $847.5 million from the sale of 85.5 million shares of our common stock in the Initial Offering, including $11.6 million from the sale of 1.2 million shares of our common stock through our distribution reinvestment plan.

The table below summarizes the direct selling costs incurred by certain of our affiliates in connection with the issuance and distribution of our registered securities and the offering proceeds net of those direct selling costs:

 

(in thousands)

   For the Period
from Inception
(May 19, 2009) to

March 31, 2012
 

Sales commissions

   $ 52,003   

Dealer manager fees

     21,071   

Organization and offering expenses

     14,831   
  

 

 

 

Total direct selling costs

   $ 87,905   
  

 

 

 

Offering proceeds, net of direct selling costs

   $ 759,575   
  

 

 

 

The sales commissions and dealer manager fees are payable to our Dealer Manager, and a substantial portion of the commissions and fees are reallowed to participating broker dealers as commissions and marketing fees and expenses. The organization and offering expense reimbursements are payable to the Advisor. From the organization and offering expense reimbursements, the Advisor may further reimburse our Dealer Manager and participating broker dealers for certain non-accountable expense reimbursements.

As of March 31, 2012, we have acquired, through our wholly-owned subsidiaries or through our 51% ownership interest in the unconsolidated joint venture, 136 industrial buildings totaling approximately 24.7 million square feet for an aggregate total purchase price of approximately $1.4 billion, exclusive of transfer taxes, due diligence expenses, and other closing costs. Of the aggregate total purchase price amount, $306.3 million, exclusive of transfer taxes, due diligence expenses, and other closing costs, was acquired by the unconsolidated joint venture.

On July 15, 2010, cash distributions of $121,120 for the first and second quarters of 2010 were funded through offering proceeds. No subsequent cash distributions have been funded through offering proceeds.

Share Redemption Program

Our share redemption program may provide eligible stockholders with limited interim liquidity. The share redemption program will be immediately terminated if our shares of common stock are listed on a national securities exchange or if a secondary market is otherwise established.

After our stockholders have held shares of our common stock for a minimum of one year, our share redemption program may provide a limited opportunity for our stockholders to have their shares of common stock redeemed, subject to certain restrictions and limitations, at a price equal to or at a discount from the purchase price of the shares of our common stock being redeemed and the amount of the discount will vary based upon the length of time that our stockholders have held their shares of our common stock subject to redemption, as described in the following table:

 

Share Purchase Anniversary

   Redemption Price as a
Percentage of Purchase Price
 

Less than one year

     No redemption allowed   

One year

     92.5

Two years

     95.0

Three years

     97.5

Four years and longer

     100.0

 

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In the event that our stockholders seek to redeem all of their shares of our common stock, shares of our common stock purchased pursuant to our distribution reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of our board of directors. If a stockholder has made more than one purchase of our common stock (other than through our distribution reinvestment plan), the one-year holding period will be calculated separately with respect to each such purchase. In addition, for purposes of the one-year holding period, holders of Operating Partnership Units (“OP Units”) who exchange their OP Units for shares of our common stock shall be deemed to have owned their shares as of the date they were issued their OP Units. Neither the one-year holding period nor the Redemption Caps (as defined below) will apply in the event of the death of a stockholder and such shares will be redeemed at a price equal to 100% of the price paid by the deceased stockholder for the shares without regard to the date of purchase of the shares to be redeemed; provided, however, that any such redemption request with respect to the death of a stockholder must be submitted to us within 18 months after the date of death. Our board of directors reserves the right in its sole discretion at any time and from time to time to waive the one-year holding period and either of the Redemption Caps (as defined below) in the event of the disability (as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended) of a stockholder; reject any request for redemption for any reason; or reduce the number of shares of our common stock allowed to be redeemed under the share redemption program. A stockholder’s request for redemption in reliance on any of the waivers that may be granted in the event of the disability of the stockholder must be submitted within 18 months of the initial determination of the stockholder’s disability. If our board of directors waives the one-year holding period in the event of the disability of a stockholder, such stockholder will have its shares redeemed at the discounted amount listed in the above table for a stockholder who has held for one year. In all other cases in the event of the disability of a stockholder, such stockholder will have its shares redeemed as described in the above table. Furthermore, any shares redeemed in excess of the Quarterly Redemption Cap (as defined below) as a result of the death or disability of a stockholder will be included in calculating the following quarter’s redemption limitations. At any time we are engaged in an offering of shares of our common stock, the per share price for shares of our common stock redeemed under our redemption program will never be greater than the then-current offering price of our shares of our common stock sold in the primary offering.

We are not obligated to redeem shares of our common stock under the share redemption program. We presently intend to limit the number of shares to be redeemed during any calendar quarter to the “Quarterly Redemption Cap,” which will equal the lesser of: (i) one-quarter of five percent of the number of shares of common stock outstanding as of the date that is 12 months prior to the end of the current quarter and (ii) the aggregate number of shares sold pursuant to our distribution reinvestment plan in the immediately preceding quarter, which amount may be less than the Aggregate Redemption Cap described below. Our board of directors retains the right, but is not obligated to, redeem additional shares if, in its sole discretion, it determines that it is in our best interest to do so, provided that we will not redeem during any consecutive 12-month period more than five percent of the number of shares of common stock outstanding at the beginning of such 12-month period (referred to herein as the “Aggregate Redemption Cap” and together with the Quarterly Redemption Cap, the “Redemption Caps”) unless permitted to do so by applicable regulatory authorities. Although we presently intend to redeem shares pursuant to the above-referenced methodology, to the extent that the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan in any quarter are not sufficient to fund redemption requests, our board of directors may, in its sole discretion, choose to use other sources of funds to redeem shares of our common stock, up to the Aggregate Redemption Cap. Such sources of funds could include cash on hand, cash available from borrowings, cash from the sale of our shares pursuant to our distribution reinvestment plan in other quarters, and cash from liquidations of securities investments, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders, debt repayment, purchases of real property, debt related or other investments, or redemptions of OP Units. Our board of directors has no obligation to use other sources to redeem shares of our common stock under any circumstances. Our board of directors may, but is not obligated to, increase the Aggregate Redemption Cap but may only do so in reliance on an applicable no-action letter issued or other guidance provided by the SEC staff that would not object to such an increase. There can be no assurance that our board of directors will increase either of the Redemption Caps at any time, nor can there be assurance that our board of directors will be able to obtain, if necessary, a no-action letter from SEC staff. In any event, the number of shares of our common stock that we may redeem will be limited by the funds available from purchases pursuant to our distribution reinvestment plan, cash on hand, cash available from borrowings and cash from liquidations of securities or debt related investments as of the end of the applicable quarter. Our board of directors may, in its sole discretion, amend, suspend, or terminate the share redemption program at any time if it determines that the funds available to fund the share redemption program are needed for other business or operational purposes or that amendment, suspension or termination of the share redemption program is in the best interest of our stockholders. Any amendment, suspension or termination of the share redemption program will not affect the rights of holders of OP Units to cause us to redeem their OP Units for, at our sole discretion, shares of our common stock, cash, or a combination of both pursuant to the Operating Partnership Agreement. In addition, our board of directors, in its sole discretion, may determine at any time to modify the share redemption program to redeem shares at a price that is higher or lower than the price paid for the shares by the redeeming stockholder. Any such price modification may be arbitrarily determined by our board of directors, or may be determined on a different basis, including but not limited to a price equal to an estimated value per share or the then current net asset value per share (provided that any current offering will then also be conducted at such price), as calculated in accordance with policies and procedures developed by our board of directors. If our board of directors decides to materially amend, suspend or terminate the share redemption program, we will provide stockholders with no less than 30 days’ prior written notice. During a public offering, we will also include this information in a prospectus supplement or post-effective amendment to the registration statement, as then required under the federal securities laws. Therefore, stockholders may not have the opportunity to make a redemption request prior to any potential suspension, amendment or termination of our share redemption program.

 

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For the three months ended March 31, 2012 and 2011, we received eligible redemption requests related to approximately 154,000 and 9,300 shares of our common stock, respectively, which we redeemed for an aggregate amount of approximately $1.5 million and $93,000, respectively, using proceeds from the sale of shares pursuant to our distribution reinvestment plan.

The table below summarizes the redemption activity for the three months ended March 31, 2012:

 

For the Month Ended

   Total Number
of Shares
Redeemed
     Average
Price Paid
per Share
     Total Number of  Shares
Redeemed as Part of
Publicly Announced
Plans or Programs
     Maximum Number of
Shares  That May Yet Be
Redeemed Under the
Plans or Programs (1)
 

January 31, 2012

     —         $ —           —           —     

February 29, 2012

     —           —           —           —     

March 31, 2012

     153,620         9.61         153,620         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     153,620       $ 9.61         153,620         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) We limit the number of shares that may be redeemed under the program as described above.

See “Note 10” of “Notes to Consolidated Financial Statements” for more information concerning amendments to our share redemption program that will take effect on June 1, 2012.

 

ITEM 6. EXHIBITS

The exhibits required by this item are set forth on the Exhibit Index attached hereto.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    INDUSTRIAL INCOME TRUST INC.
May 9, 2012     By:  

/s/    DWIGHT L. MERRIMAN III

      Dwight L. Merriman III
      Chief Executive Officer
May 9, 2012     By:  

/s/    THOMAS G. MCGONAGLE

      Thomas G. McGonagle
      Chief Financial Officer and Treasurer

 

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EXHIBIT INDEX

 

EXHIBIT
NUMBER

 

DESCRIPTION

    3.1   Second Articles of Amendment and Restatement of Industrial Income Trust Inc. (the “Issuer”), dated February 9, 2010. Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed with the SEC on March 26, 2010.
    3.2   Bylaws of Industrial Income Trust Inc. Incorporated by reference to Exhibit 3.2 to Pre-effective Amendment No. 4 to the Issuer’s Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on December 17, 2009.
    4.1   First Amended and Restated Distribution Reinvestment Plan. Incorporated by reference to Appendix C to Post-effective Amendment No. 5 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on July 1, 2011.
    4.2   Second Amended and Restated Share Redemption Program effective July 1, 2011. Incorporated by reference to Exhibit 4.3 to Post-effective Amendment No. 5 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on July 1, 2011.
    4.3   Second Amended and Restated Distribution Reinvestment Plan. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on February 27, 2012.
    4.4   Third Amended and Restated Share Redemption Program effective as of June 1, 2012. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on February 27, 2012.
  10.1   Third Amended and Restated Advisory Agreement, dated February 21, 2012. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on February 27, 2012.
  10.2   Dealer Manager Agreement among Industrial Income Trust Inc., Industrial Income Advisors LLC and Dividend Capital Securities LLC, dated February 27, 2012. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 2, 2012.
  10.3   Purchase and Sale Agreement and Joint Escrow Instructions, dated March 26, 2012, by IIT Lehigh Valley DC LLC, IIT North Plainfeld DC LLC, IIT Indianapolis DC LLC, KPJV Ruppsville Road LP, KPJV 861 Nestle Way LP, KPJV 7566 Morris Court LP, KPJV 7520 Morris Court LP, KPJV 595 South Perry Road LP, KPJV 909 Whitaker Road LP, KPJV 849 Whitaker Road LP, KPJV 923 Whitaker Road LP, KPJV 558 Airtech Parkway LP, and KPJV 5252 Decatur Boulevard LP. Incorporated by reference to Exhibit 10.92 to Post-Effective Amendment No. 8 to the Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on April 3, 2012.
  31.1*   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2*   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1*   Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**   The following materials from Industrial Income Trust Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 9, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statement of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements

 

* Filed herewith.
** In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.