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______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_________________________________
FORM 10-Q
_________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                     
Commission file number: 000-51948
_________________________________
Jones Lang LaSalle Income Property Trust, Inc.
(Exact name of registrant as specified in its charter)
_________________________________
Maryland
 
20-1432284
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
200 East Randolph Drive, Chicago IL, 60601
(Address of principal executive offices, including Zip Code)
(312) 782-5800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
_________________________________
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, or a non-accelerated filer.
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
The number of shares of the registrant’s Common Stock, $.01 par value, outstanding on November 6, 2014 were 14,930,420 shares of Class A Common Stock, 23,681,827 shares of Class M Common Stock, 4,580,309 of Class A-I Common Stock, 545,013 of Class M-I Common Stock and 3,320,683 shares of Class D Common Stock.
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________




Jones Lang LaSalle Income Property Trust, Inc.
INDEX

 
PAGE
NUMBER
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


Item 1. Financial Statements.
Jones Lang LaSalle Income Property Trust, Inc.
CONSOLIDATED BALANCE SHEETS
$ in thousands, except per share amounts  
 
 
September 30, 2014
 
December 31, 2013
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Investments in real estate:
 
 
 
 
Land (including from VIEs of $29,660 and $29,660, respectively)
 
$
156,231

 
$
134,407

Buildings and equipment (including from VIEs of $205,657 and $203,513, respectively)
 
693,952

 
593,078

Less accumulated depreciation (including from VIEs of $(27,177) and $(23,466), respectively)
 
(67,383
)
 
(54,686
)
Net property and equipment
 
782,800

 
672,799

Cash and cash equivalents (including from VIEs of $4,957 and $3,257, respectively)
 
40,521

 
35,124

Restricted cash (including from VIEs of $3,341 and $819, respectively)
 
4,236

 
14,781

Tenant accounts receivable, net (including from VIEs of $1,000 and $1,064, respectively)
 
3,493

 
2,112

Deferred expenses, net (including from VIEs of $1,104 and $1,356, respectively)
 
8,867

 
7,449

Acquired intangible assets, net (including from VIEs of $3,656 and $4,038, respectively)
 
47,614

 
35,488

Deferred rent receivable, net (including from VIEs of $831 and $874, respectively)
 
7,937

 
6,012

Prepaid expenses and other assets (including from VIEs of $447 and $647, respectively)
 
1,440

 
1,174

TOTAL ASSETS
 
$
896,908

 
$
774,939

LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes and other debt payable, net (including from VIEs of $162,331 and $163,151, respectively)
 
$
422,716

 
$
357,806

Accounts payable and other accrued expenses (including from VIEs of $2,909 and $2,834, respectively)
 
16,213

 
14,636

Distributions payable
 
4,952

 
3,852

Accrued interest (including from VIEs of $550 and $368, respectively)
 
1,472

 
820

Accrued real estate taxes (including from VIEs of $2,854 and $117, respectively)
 
5,706

 
1,012

Advisor fees payable
 
514

 
450

Acquired intangible liabilities, net
 
11,333

 
5,015

TOTAL LIABILITIES
 
462,906

 
383,591

Commitments and contingencies
 

 

Equity:
 
 
 
 
Class A common stock: $0.01 par value; 200,000,000 shares authorized; 18,259,345 and 13,043,452 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
 
183

 
130

Class M common stock: $0.01 par value; 200,000,000 shares authorized; 25,570,007 and 28,634,822 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
 
256

 
286

Class M-I common stock: $0.01 par value; 200,000,000 shares authorized; 96,525 and 0 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
 
1

 

Class D common stock: $0.01 par value; 200,000,000 shares authorized; 3,320,683 and 0 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively
 
33

 

Additional paid-in capital (net of offering costs of $13,369 and $8,611 as of September 30, 2014 and December 31, 2013, respectively)
 
677,800

 
624,589

Accumulated other comprehensive loss
 
(569
)
 
(95
)
Distributions to stockholders
 
(118,200
)
 
(104,919
)
Accumulated deficit
 
(137,671
)
 
(140,798
)
Total Jones Lang LaSalle Income Property Trust, Inc. stockholders’ equity
 
421,833

 
379,193

Noncontrolling interests
 
12,169

 
12,155

Total equity
 
434,002

 
391,348

TOTAL LIABILITIES AND EQUITY
 
$
896,908

 
$
774,939

The abbreviation “VIEs” above means Variable Interest Entities.
See notes to consolidated financial statements.

3


Jones Lang LaSalle Income Property Trust, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
$ in thousands, except share and per share amounts
(Unaudited)
 
 
Three months ended September 30, 2014
 
Three months ended September 30, 2013
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
Revenues:
 
 
 
 
 
 
 
 
Minimum rents
 
$
20,515

 
$
16,946

 
$
60,370

 
$
49,556

Tenant recoveries and other rental income
 
4,165

 
2,211

 
11,865

 
6,283

Total revenues
 
24,680

 
19,157

 
72,235

 
55,839

Operating expenses:
 
 
 
 
 
 
 
 
Real estate taxes
 
3,195

 
1,893

 
9,036

 
5,993

Property operating
 
7,403

 
6,439

 
18,952

 
16,366

Provision for doubtful accounts
 
168

 
104

 
317

 
232

Advisor fees
 
1,554

 
1,248

 
4,356

 
3,355

Company level expenses
 
724

 
605

 
1,901

 
1,604

General and administrative
 
212

 
145

 
640

 
465

Acquisition related expenses
 
5

 
220

 
520

 
311

Depreciation and amortization
 
7,353

 
5,694

 
20,685

 
16,184

Total operating expenses
 
20,614

 
16,348

 
56,407

 
44,510

Operating income
 
4,066

 
2,809

 
15,828

 
11,329

Other income and (expenses):
 
 
 
 
 
 
 
 
Interest expense
 
(4,687
)
 
(4,892
)
 
(13,736
)
 
(15,068
)
Debt modification expense
 

 

 

 
(182
)
Equity in income (loss) of unconsolidated affiliate
 

 
35

 

 
(57
)
Gain on disposition of property and extinguishment of debt
 
589

 
1,149

 
589

 
1,149

Total other income and (expenses)
 
(4,098
)
 
(3,708
)
 
(13,147
)
 
(14,158
)
(Loss) income from continuing operations
 
(32
)
 
(899
)
 
2,681

 
(2,829
)
Discontinued operations:
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations
 
813

 
(10,521
)
 
813

 
(10,772
)
Total income (loss) from discontinued operations
 
813

 
(10,521
)
 
813

 
(10,772
)
Net income (loss)
 
781

 
(11,420
)
 
3,494

 
(13,601
)
Less: Net loss (income) attributable to the noncontrolling interests
 
188

 
361

 
(367
)
 
295

Net income (loss) attributable to Jones Lang LaSalle Income Property Trust, Inc.
 
$
969

 
$
(11,059
)
 
$
3,127

 
$
(13,306
)
Net income (loss) from continuing operations attributable to Jones Lang LaSalle Income Property Trust, Inc. per share-basic and diluted
 
$

 
$
(0.01
)
 
$
0.05

 
$
(0.07
)
Total income (loss) from discontinued operations per share-basic and diluted
 
$
0.02

 
$
(0.27
)
 
$
0.02

 
$
(0.31
)
Net income (loss) attributable to Jones Lang LaSalle Income Property Trust, Inc. per share-basic and diluted
 
$
0.02

 
$
(0.28
)
 
$
0.07

 
$
(0.38
)
Weighted average common stock outstanding-basic and diluted
 
47,271,566

 
38,860,238

 
45,043,996

 
35,270,437

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
(448
)
 
207

 
(474
)
 
(322
)
Total other comprehensive (loss) income
 
(448
)
 
207

 
(474
)
 
(322
)
Net comprehensive income (loss)
 
$
521

 
$
(10,852
)
 
$
2,653

 
$
(13,628
)
See notes to consolidated financial statements.

4


Jones Lang LaSalle Income Property Trust, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
$ in thousands, except share and per share amounts
(Unaudited)
 
 
Common Stock
Class A
 
Common Stock
Class M
 
Common Stock
Class M-I
 
Common Stock
Class D
 
Additional
Paid In
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Distributions
to 
Stockholders
 
Accumulated
Deficit
 
Non-controlling
Interests
 
Total
Equity
 
Shares
 
Amount
 
Shares
 
Amount
Shares
 
Amount
Shares
 
Amount
Balance, January 1, 2014
 
13,043,452

 
$
130

 
28,634,822

 
$
286

 

 

 

 

 
$
624,589

 
$
(95
)
 
$
(104,919
)
 
$
(140,798
)
 
$
12,155

 
$
391,348

Issuance of common stock
 
5,453,256

 
55

 
1,663,622

 
17

 
96,525

 
$
1

 
3,320,683

 
$
33

 
109,867

 

 

 

 

 
109,973

Repurchase of shares
 
(237,363
)
 
(2
)
 
(4,732,437
)
 
(47
)
 

 

 

 

 
(51,939
)
 

 

 

 

 
(51,988
)
Offering costs
 

 

 

 

 

 

 

 

 
(4,758
)
 

 

 

 

 
(4,758
)
Stock based compensation
 

 

 
4,000

 

 

 

 

 

 
41

 

 

 

 

 
41

Net income
 

 

 

 

 

 

 

 

 

 

 

 
3,127

 
367

 
3,494

Other comprehensive loss
 

 

 

 

 

 

 

 

 

 
(474
)
 

 

 

 
(474
)
Contribution from noncontrolling interests
 

 

 

 

 

 

 

 

 

 

 

 

 
243

 
243

Cash distributed to noncontrolling interests
 

 

 

 

 

 

 

 

 

 

 

 

 
(596
)
 
(596
)
Distributions declared per share ($0.34)
 

 

 

 

 

 

 

 

 

 

 
(13,281
)
 

 

 
(13,281
)
Balance, September 30, 2014
 
18,259,345

 
$
183

 
25,570,007

 
$
256

 
96,525

 
$
1

 
3,320,683

 
$
33

 
$
677,800

 
$
(569
)
 
$
(118,200
)
 
$
(137,671
)
 
$
12,169

 
$
434,002

See notes to consolidated financial statements.

5


Jones Lang LaSalle Income Property Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
$ in thousands
(Unaudited) 

 
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
3,494

 
$
(13,601
)
Adjustments to reconcile income (loss) to net cash provided by operating activities:
 
 
 

Depreciation and amortization (including discontinued operations)
 
19,664

 
21,127

Gain on disposition of property and extinguishment of debt (including discontinued operations)
 
(908
)
 
(1,149
)
Net provision for (recovery of) doubtful accounts (including discontinued operations)
 
317

 
(54
)
Straight line rent (including discontinued operations)
 
(1,973
)
 
(2,915
)
Impairment of real estate (including discontinued operations)
 

 
10,182

Equity in loss of unconsolidated affiliate
 

 
35

Net changes in assets, liabilities and other
 
2,855

 
2,457

Net cash provided by operating activities
 
23,449

 
16,082

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchase of real estate investment
 
(136,865
)
 
(103,295
)
Proceeds from sale of real estate investments, net
 
14,301

 

Capital improvements and lease commissions
 
(7,680
)
 
(15,953
)
Loan escrows
 
632

 
3,556

Net cash used in investing activities
 
(129,612
)
 
(115,692
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Issuance of common stock
 
106,337

 
101,261

Repurchase of shares
 
(51,988
)
 
(2,598
)
Offering costs
 
(5,719
)
 
(2,781
)
Distributions to stockholders
 
(8,650
)
 
(8,465
)
Distributions paid to noncontrolling interests
 
(596
)
 
(423
)
Contributions received from noncontrolling interests
 
243

 
602

Draws on credit facility, net
 

 
10,000

Proceeds from mortgage notes and other debt payable
 
91,770

 
55,000

Debt issuance costs
 
(574
)
 
(1,016
)
Principal payments on mortgage notes and other debt payable
 
(19,180
)
 
(74,927
)
Net cash provided by financing activities
 
111,643

 
76,653

Net increase (decrease) in cash and cash equivalents
 
5,480

 
(22,957
)
Effect of exchange rates
 
(83
)
 
(25
)
Cash and cash equivalents at the beginning of the period
 
35,124

 
36,986

Cash and cash equivalents at the end of the period
 
$
40,521

 
$
14,004

Supplemental disclosure of cash flow information:
 
 
 
 
Interest paid
 
$
12,920

 
$
19,425

Non-cash activities:
 
 
 
 
Write-offs of receivables
 
$
341

 
$
391

Write-offs of retired assets
 
1,340

 
11,092

Change in liability for capital expenditures
 
(2,686
)
 
762

Net liabilities assumed at acquisition
 
748

 
1,090

Transfer of property in extinguishment of debt settlement
 
5,442

 

Change in issuance of common stock receivable
 
146

 
155

Change in accrued offering costs
 
(961
)
 
1,358

See notes to consolidated financial statements.

6



Jones Lang LaSalle Income Property Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$ in thousands, except per share amounts
NOTE 1—ORGANIZATION
General
Except where the context suggests otherwise, the terms “we,” “us,” “our” and the “Company” refer to Jones Lang LaSalle Income Property Trust, Inc. The terms “Advisor” and “LaSalle” refer to LaSalle Investment Management, Inc.

Jones Lang LaSalle Income Property Trust, Inc. is an externally managed, non-listed, daily valued perpetual-life real estate investment trust ("REIT") that owns and manages a diversified portfolio of apartment, industrial, office, retail and other properties located primarily in the United States. We expect over time that our real estate portfolio will be further diversified on a global basis through the acquisition of additional properties outside of the United States and will be complemented by investments in real estate-related debt and equity securities. We were incorporated on May 28, 2004 under the laws of the State of Maryland. We believe that we have operated in such a manner to qualify to be taxed as a REIT for federal income tax purposes commencing with the taxable year ended December 31, 2004, when we first elected REIT status. As of September 30, 2014, we owned interests in 27 properties, located in ten states and Canada.
From our inception to October 1, 2012, we raised equity proceeds through private offerings of shares of our undesignated common stock. On October 1, 2012, the Securities and Exchange Commission (the "SEC") initially declared effective our Registration Statement on Form S-11 (Commission File No. 333-177963) (the "Registration Statement") with respect to our continuous public offering of up to $3,000,000 in any combination of Class A and Class M shares of common stock (the "Public Offering"). On September 27, 2012, we designated our previously undesignated common stock as Class E common stock. On October 1, 2012, we effected a stock dividend for all Class E shares at a ratio of 4.786-to-1 in order to achieve an NAV per share for each of the Class A, Class M and Class E shares of $10.00 as of the date we commenced the Public Offering. Affiliates of our sponsor, Jones Lang LaSalle Incorporated ("Jones Lang LaSalle" or our "Sponsor"), invested an aggregate of $60,200 through purchases of shares of our Class E common stock. On October 1, 2013, all of our Class E stock converted to Class M stock. Holders of Class E stock received approximately 1.001 shares of Class M stock for each share of Class E stock owned. As of September 30, 2014, 18,259,345 shares of Class A common stock and 25,570,007 shares of Class M common stock were outstanding and held by a total of 3,949 stockholders. As of September 30, 2014, we have raised aggregate gross proceeds from the sale of shares of our Class A and Class M common stock in our public offering of $186,364 and $40,799, respectively.
On June 18, 2014, we filed a registration statement on Form S-11 (Commission File No. 333-196886) with the SEC to register a public offering of up to $2,700,000 in any combination of shares of our Class A, Class M, Class A-I and Class M-I common stock, consisting of up to $2,400,000 of shares offered in our primary offering and up to $300,000 in shares offered pursuant to our distribution reinvestment plan (the “Follow-on Offering”). As of November 6, 2014 the Follow-On Offering has not been declared effective.
We are currently engaged in a private offering of up to $400,000 in any combination of our Class A-I, Class M-I and Class D shares of common stock (the "Private Offering"). Upon the SEC declaring the registration statement for our Follow-on Offering effective, we will terminate the Private Offering for Class A-I and M-I shares and commence the Follow-on Offering. We will reserve the right to terminate the Follow-On Offering at any time and to extend the Follow-on Offering term to the extent permissible under applicable law. As of September 30, 2014, 96,525 shares of Class M-I common stock and 3,320,683 shares of Class D common stock were outstanding and held by two stockholders, and no shares of Class A-I common stock were outstanding. As of September 30, 2014, we have raised aggregate gross proceeds from the sale of shares of our Class M-I and Class D common stock of $1,000 and $35,000, respectively.
LaSalle acts as our advisor pursuant to the amended and restated advisory agreement between the Company and LaSalle, which became effective on October 1, 2012 (the “Advisory Agreement”). Our Advisor, a registered investment adviser with the SEC, has broad discretion with respect to our investment decisions and is responsible for selecting our investments and for managing our investment portfolio pursuant to the terms of the Advisory Agreement. LaSalle is a wholly-owned, but operationally independent subsidiary of Jones Lang LaSalle, a New York Stock Exchange-listed global real estate services firm that specializes in commercial property management, leasing and investment management. We have no employees, as all operations are managed by our Advisor. Our executive officers are employees of and compensated by our Advisor.

7


NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and include the accounts of our wholly-owned subsidiaries, consolidated variable interest entities ("VIE") and the unconsolidated investments in real estate affiliates accounted for under the equity method of accounting. We consider the authoritative guidance of accounting for investments in common stock, investments in real estate ventures, investors accounting for an investee when the investor has the majority of the voting interest but the minority partners have certain approval or veto rights, determining whether a general partner or general partners as a group controls a limited partnership or similar entity when the limited partners have certain rights, and the consolidation of VIEs in which we own less than a 100% interest. All significant intercompany balances and transactions have been eliminated in consolidation.
Parenthetical disclosures are shown on our Consolidated Balance Sheets regarding the amounts of VIE assets and liabilities that are consolidated. Our VIEs include entities owning The District at Howell Mill, Cabana Beach San Marcos, Cabana Beach Gainesville, Campus Lodge of Athens, Campus Lodge Columbia, The Edge at Lafayette and Campus Lodge Tampa as we maintain control over significant decisions, which began at the time of acquisition of the properties. The creditors of our VIEs do not have general recourse to us.
Noncontrolling interests represent the minority members’ proportionate share of the equity in our VIEs. At acquisition, the assets, liabilities and non-controlling interests were measured and recorded at the estimated fair value. Noncontrolling interests will increase for the minority members’ share of net income of these entities and contributions and decrease for the minority members’ share of net loss and distributions. As of September 30, 2014, noncontrolling interests represented the minority members’ proportionate share of the equity of the entities listed above as VIEs and Grand Lakes Marketplace.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the accounting policies described in the consolidated financial statements and related notes included in our Form 10-K filed with the SEC on March 6, 2014 (our “2013 Form 10-K”) and should be read in conjunction with such consolidated financial statements and related notes. The following notes to these interim consolidated financial statements highlight changes to the notes included in the December 31, 2013 audited consolidated financial statements included in our 2013 Form 10-K and present interim disclosures as required by the SEC.
The interim financial data as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 is unaudited. In the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided against the portion of accounts receivable and deferred rent receivable that is estimated to be uncollectible. Such allowance is reviewed periodically based upon our recovery experience. At September 30, 2014 and December 31, 2013, our allowance for doubtful accounts was $17 and $41, respectively.
Deferred Expenses
Deferred expenses consist of debt issuance costs and lease commissions. Debt issuance costs are capitalized and amortized over the terms of the respective agreements as a component of interest expense. Lease commissions are capitalized and amortized over the term of the related lease as a component of depreciation and amortization expense. Accumulated amortization of deferred expenses at September 30, 2014 and December 31, 2013 was $2,357 and $2,286, respectively.
Acquisitions
We have allocated the purchase price of our acquisitions to acquired intangible assets, which include acquired in-place lease intangibles, acquired above-market in-place lease intangibles and acquired ground lease intangibles, which are reported net of accumulated amortization of $24,154 and $15,181 at September 30, 2014 and December 31, 2013, respectively, on the accompanying Consolidated Balance Sheets. The acquired intangible liabilities represent acquired below-market in-place leases, which are reported net of accumulated amortization of $1,882 and $948 at September 30, 2014 and December 31, 2013, respectively, on the accompanying Consolidated Balance Sheets.

8


Assets and Liabilities Measured at Fair Value
The Financial Accounting Standards Board’s (“FASB”) guidance for fair value measurement and disclosure states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have access to at the measurement date.
Level 2—Observable inputs, other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.
Level 3—Unobservable inputs for the asset or liability. Unobservable inputs are those inputs that reflect our own assumptions that market participants would use to price the asset or liability based on the best available information.
The authoritative guidance requires the disclosure of the fair value of our financial instruments for which it is practicable to estimate that value. The guidance does not apply to all balance sheet items. Market information as available or present value techniques have been utilized to estimate the amounts required to be disclosed. Since such amounts are estimates, there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument. We have estimated the fair value of our mortgage notes and other debt payable reflected in the accompanying Consolidated Balance Sheets at amounts that are based upon an interpretation of available market information and valuation methodologies (including discounted cash flow analysis with regard to fixed rate debt) for similar loans made to borrowers with similar credit ratings and for the same maturities. The fair value of our mortgage notes payable, including our line of credit which was entered into at market rates on June 25, 2013, using level two inputs was approximately $4,765 and $296 higher than the aggregate carrying amounts at September 30, 2014 and December 31, 2013, respectively. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of our mortgage notes payable.
Derivative Financial Instruments
We record all derivatives on the Consolidated Balance Sheets at fair value in prepaid expenses and other assets or accounts payable and other accrued expenses. Changes in the fair value of our derivatives are recorded on our Consolidated Statements of Operations and Comprehensive Income (Loss) as we have not designated our derivative instruments as hedges. Our objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we use interest rate caps and swaps.
        As of September 30, 2014, we had the following outstanding interest rate derivatives related to managing our interest rate risk:
Interest Rate Derivative
 
Number of Instruments
 
Notional Amount
Interest Rate Caps
 
6
 
$97,930
Interest Rate Swap
 
1
 
$8,600
The fair value of our interest rate caps and swap represent a liability of $8 and an asset of $262 at September 30, 2014 and December 31, 2013, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions. These estimates and assumptions impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For example, significant estimates and assumptions have been made with respect to useful lives of assets, recoverable amounts of receivables, fair value of derivatives and real estate assets, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions. Actual results could differ from those estimates.

9


NOTE 3—PROPERTY
The primary reason we make acquisitions of real estate investments in the apartment, industrial, office, retail and other property sectors is to invest capital contributed by stockholders in a diversified portfolio of real estate assets. The consolidated properties we acquired during 2014 and our gross acquisition price of each are as follows:
Property  
 
Sector  
 
Square Feet 
 
Location  
 
Ownership %  
 
Acquisition Date
 
Gross Acquisition Price
Oak Grove Plaza
 
Retail
 
120,000

 
Sachse, TX
 
100
%
 
January 17, 2014
 
$
22,525

Grand Prairie Distribution Center
 
Industrial
 
277,000

 
Grand Prairie, TX
 
100

 
January 22, 2014
 
17,200

South Beach Parking Garage (1)
 
Other
 
130,000

 
Miami Beach, FL
 
100

 
January 28, 2014
 
22,050

Rancho Temecula Town Center
 
Retail
 
165,000

 
Temecula, CA
 
100

 
June 16, 2014
 
60,000

Charlotte Distribution Center
 
Industrial
 
347,000

 
Charlotte, NC
 
100

 
June 27, 2014
 
25,550

 
(1)
Property includes 127,000 square feet of parking space containing 340 parking spaces and 3,000 square feet of retail space.
During the nine months ended September 30, 2014 and 2013, we incurred $520 and $311, respectively, of acquisition expenses recorded on the Consolidated Statements of Operations and Other Comprehensive Income (Loss). For properties acquired during 2014, we recorded total revenue of $6,874 and net income of $222 for the nine months ended September 30, 2014. For properties acquired during 2013, we recorded total revenue of $1,230 and net loss of $1 for the nine months ended September 30, 2013.
2014 Acquisitions
We allocated the purchase price of our 2014 acquisitions in accordance with authoritative guidance as follows:
 
 
2014 Acquisitions
Land
$
26,515

Building and equipment
108,997

Ground lease value
428

In-place lease intangible
18,810

Above-market lease intangible
1,214

Below-market lease intangible
(8,639
)
 
$
147,325

Weighted average amortization period for intangible assets and liabilities
3-14 years
Pro forma Information
The following pro forma financial information is presented as if our 2014 acquisitions had been consummated on the earlier of January 1, 2013 or the date the property began operations. The pro forma financial information is for comparative purposes only and not necessarily indicative of what actual results of operations of the Company would have been had our 2014 acquisitions been consummated on the earlier of January 1, 2013 or the date the property began operations, nor does it purport to represent the results of operations for future periods.
If these acquisitions had occurred on the earlier of January 1, 2013 or the date the property began operations, the Company's consolidated revenues and net income for the nine months ended September 30, 2014 would have been $76,734 and $4,982, respectively, and the Company's consolidated revenues and net loss for the nine months ended September 30, 2013 would have been $69,398 and $11,490, respectively.
2014 Dispositions
On August 8, 2014, we sold Stirling Slidell Shopping Centre, a 139,000 square foot retail property located in Slidell, Louisana for $14,600. In conjunction with the sale, we paid off the mortgage loan for approximately $12,007. We recorded a gain on the sale of the property in the amount of $181 and recorded a loss on the extinguishment of the debt of $236.

10


On September 30, 2014, we transferred our ownership in 4 Research Park Drive, a 60,000 square foot office building located in St. Charles, Missouri, to the lender. We were relieved of a $6,049 mortgage debt obligation as part of the transfer. As a result, a $260 non-cash accounting gain was recognized on the transfer of property representing the difference between the fair value and net book value of the property transferred as of the date of transfer. Upon extinguishment of the mortgage debt obligation, a $384 non-cash accounting gain was recognized representing the difference between the book value of debt, interest payable and other obligations extinguished over the fair value of the property and other assets transferred as of the transfer date. The transfer resulted in a total non-cash accounting gain of $644.
Discontinued Operations
The following table summarizes the loss from discontinued operations for 300 Old River Road, 500 Old River Road, 500 West Thomas Road, 1500 South Central Avenue, 18350 Roscoe Boulevard, 18460 Roscoe Boulevard, 18546 Roscoe Boulevard, 4545 East Chandler, 485 South Dobson, 1501 North Gilbert, 116 South Palisade, 525 East Plaza, and 10440 East Riggs (collectively, the "Dignity Health Disposition Portfolio") and Canyon Plaza, each of which was disposed of during 2013:
 
 
Three months ended September 30, 2014
 
Three months ended September 30, 2013
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
Total revenue
$
839

 
$
4,220

 
$
839

 
$
19,129

Real estate taxes

 
(462
)
 

 
(1,369
)
Property operating
(26
)
 
(1,782
)
 
(26
)
 
(4,739
)
Net recovery of doubtful accounts

 
(11
)
 

 
286

General and administrative

 
(141
)
 

 
(333
)
Net provision for impairment

 
(10,182
)
 

 
(10,182
)
Depreciation and amortization

 
(812
)
 

 
(9,511
)
Interest expense

 
(1,351
)
 

 
(4,053
)
Income (loss) from discontinued operations
$
813

 
$
(10,521
)
 
$
813

 
$
(10,772
)

The dispositions of Stirling Slidell Centre and 4 Research Park Drive are not included in discontinued operations as a result of the adoption of guidance on January 1, 2014 (See Note 11). Discontinued operations presented for the three and nine months ended September 30, 2014 relate to operations of properties classified as discontinued operations prior to adopting guidance on January 1, 2014.

NOTE 4—UNCONSOLIDATED REAL ESTATE AFFILIATE
On August 25, 2004, we acquired a 46.5% membership interest in Legacy Village Investors, LLC, which owns Legacy Village, a 595,000 square-foot lifestyle center in Lyndhurst, Ohio, built in 2003. The aggregate consideration for our 46.5% ownership interest was approximately $35,000. On October 29, 2013, we sold our interest in Legacy Village Investors, LLC to our joint venture partners for $27,350 and recorded a gain on that sale of $7,290.
Summarized Combined Statements of Operations - Unconsolidated Real Estate Affiliate
 
 
Three months ended September 30, 2013
 
Nine months ended September 30, 2013
Total revenues
 
$
4,595

 
$
13,649

Total operating expenses
 
3,262

 
10,152

Operating income
 
1,333

 
3,497

Total other expenses
 
1,194

 
3,617

Net income (loss)
 
$
139

 
$
(120
)





11


Company Equity in Income of Unconsolidated Real Estate Affiliate
 
 
Three months ended September 30, 2013
 
Nine months ended September 30, 2013
Net income (loss) of unconsolidated real estate affiliate
 
$
139

 
$
(120
)
Other members’ share of net (income) loss
 
(75
)
 
65

Adjustments and other expenses
 
(6
)
 
21

Other expense from unconsolidated real estate affiliate
 
(23
)
 
(23
)
Company equity in income (loss) of unconsolidated real estate affiliate
 
$
35

 
$
(57
)
NOTE 5—MORTGAGE NOTES AND OTHER DEBT PAYABLE
Mortgage notes and other debt payable have various maturities through 2027 and consist of the following:
Mortgage notes and other debt payable
 
Maturity/Extinguishment Date
 
Interest
Rate
 
Amount payable as of
September 30, 2014
 
December 31, 2013
Mortgage notes payable (1) (2) (3) (4) (5) (6) (7) (8)
 
October 2016 -
March 2027
 
2.05% - 6.14%
 
$
421,818

 
$
356,665

Net debt premium on assumed debt
 

 
898

 
1,141

Mortgage notes and other debt payable, net
 
$
422,716

 
$
357,806

(1) On January 17, 2014, we entered into a $10,550 mortgage note payable on Oak Grove Plaza. The mortgage note is for ten years and bearing interest at a fixed rate of 4.17%.
(2) On March 4, 2014, we entered into a $19,500 mortgage note payable on South Seattle Distribution Center. The mortgage
note is for ten years and bearing interest at a fixed rate of 4.38%, interest-only for two years.
(3) On March 7, 2014, we entered into a $9,250 mortgage note payable on South Beach Parking Garage. The mortgage note is for three years and bearing a floating interest rate equal to LIBOR plus 1.90% (2.05% as of September 30, 2014). We entered into a LIBOR interest rate cap at 2.00% for the next two years.
(4) On April 28, 2014, we entered into an $8,600 mortgage note payable on Grand Prairie Distribution Center. The mortgage note is for five years and bears a floating interest rate equal to LIBOR plus 1.80%. We entered into an interest rate swap for this loan which fixed the interest rate at 3.58% for the five year term.
(5) On June 16, 2014, we entered into a $28,000 mortgage note payable on Rancho Temecula Town Center. The mortgage note is for 12 years and bearing interest at a fixed rate of 4.02%.
(6) On August 8, 2014, we retired the mortgage note payable on Stirling Slidell Shopping Centre in conjunction with the sale of the property. The outstanding balance of the mortgage note payable was approximately $12,007.
(7) On August 21, 2014, we entered into a $10,220 mortgage note payable on Charlotte Distribution Center. The mortgage note is for ten years at a fixed rate of 3.66%.
(8) On September 30, 2014, we transferred 4 Research Park Drive to the lender. The outstanding mortgage balance at the time of transfer was $6,049 and we recognized a gain on extinguishment of debt of $384. The loan was set to mature in March 2015.
Aggregate future principal payments of mortgage notes payable as of September 30, 2014 are as follows: 
Year
 
Amount
2014
 
$
433

2015
 
1,788

2016
 
33,360

2017
 
93,963

2018
 
90,994

Thereafter
 
201,280

Total
 
$
421,818

 

12




Line of Credit
On June 25, 2013, we entered into a $40,000 revolving line of credit agreement with Bank of America, N.A. to cover short-term capital needs for new property acquisitions and working capital. The line of credit has a two-year term and bears interest based on LIBOR plus a spread ranging from 1.50% to 2.75% depending on the Company's leverage ratio (1.75% spread at September 30, 2014). We may not draw funds on our line of credit if we experience a material adverse effect, which is defined to include, among other things, (a) a material adverse effect upon the operations, business, assets, liabilities, or financial condition of the Company, taken as a whole; (b) a material impairment of the rights and remedies of any lender under any loan document or the ability of any loan party to perform its obligations under any loan document; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any loan party of any loan document to which it is a party. As of September 30, 2014, no material adverse effects had occurred. Our line of credit does require us to meet certain customary debt covenants which include a maximum leverage ratio, a minimum debt service coverage ratio as well as maintaining minimum amounts of equity and liquidity. There was no outstanding balance on our line of credit as of September 30, 2014 and December 31, 2013.
At September 30, 2014, we were in compliance with all debt covenants.
NOTE 6—COMMON STOCK
We have five classes of common stock authorized as of September 30, 2014, Class A, Class M, Class A-I, Class M-I, and Class D. Our previously existing class of undesignated common stock was designated as Class E common stock on September 27, 2012. The outstanding shares of Class E common stock converted to Class M common stock on October 1, 2013. We are no longer authorized to issue any additional shares of Class E common stock. On May 6, 2014, our board of directors approved the creation and designation of new Class A-I, Class M-I and Class D shares. Shares of Class A and M common stock are currently being sold under our continuous Public Offering. Shares of Class A-I, Class M-I and Class D common stock are currently being offered pursuant to the Private Offering. The fees payable to our dealer manager with respect to each outstanding share of each class, as a percentage of NAV, are as follows:
Public Offering
 
 
Selling Commission
 
Dealer Manager Fee
 
Distribution Fee
Class A Shares
 
up to 3.5%
 
0.55%
 
0.50%
Class M Shares
 
None
 
0.55
%
(1)
 
None
(1) The dealer manager agreed to reduce the Dealer Manager Fee on Class M shares to 0.30% effective June 1, 2014.
The selling commission, dealer manager fee and distribution fee are offering costs and are recorded as a reduction of capital in excess of par value.
Private Offering
 
 
Selling Commission
 
Dealer Manager Fee
 
Distribution Fee
Class A-I Shares
 
up to 1.5%
 
0.30%
 
None
Class M-I Shares
 
None
 
0.05%
 
None
Class D Shares
 
up to 1.0%
 
None
 
None

13



Stock Issuances
The stock issuances for our classes of shares, including those issued through our distribution reinvestment plan, for the nine months ended September 30, 2014 and for the year ended December 31, 2013 were as follows:
 
 
Nine months ended
 
Year ended
 
 
September 30, 2014
 
December 31, 2013
 
 
# of shares
 
Amount
 
# of shares
 
Amount
Class A Shares
 
5,453,256
 
$
56,738

 
9,462,512

 
$
96,945

Class M Shares
 
1,667,622
 
17,276

 
2,369,700

 
24,145

Class M-I Shares
 
96,525
 
1,000

 

 

Class D Shares
 
3,320,683
 
35,000

 

 

Total
 
 
 
$
110,014

 
 
 
$
121,090

Share Repurchase Plan
Our share repurchase plan allows stockholders to request that we repurchase all or a portion of their shares of Class A, Class M, Class A-I, Class M-I and Class D common stock on a daily basis at that day's NAV per share. The share repurchase plan is subject to a one-year holding period, with certain exceptions, and limited to 5% of NAV per quarter with certain limitations based on the size of the capital raise in our public and private offerings. For the nine months ended September 30, 2014, we repurchased 237,363 and 163,335 shares of Class A and Class M common stock, respectively. All Class M common stock repurchases were made prior to the commencement of our tender offer, which began on August 25, 2014. During the nine months ended September 30, 2013, we repurchased 26,048 and 438 shares of Class A and Class M common stock, respectively. Additionally, we repurchased 179,822 of our Class M common stock in privately negotiated transactions during the nine months ended September 30, 2014.
Tender Offer
Beginning on August 25, 2014 and concluding on September 24, 2014, we conducted a tender offer to repurchase up to $40,000 of outstanding shares of Class M common stock at $10.48 per share. Because the tender offer was oversubscribed, the Company accepted, on a pro rata basis and in accordance with the terms of the tender offer, $46,000 or approximately 71% of each stockholder's validly tendered shares.
Period Ending
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Programs
 
September 2014
 
4,389,280

 
$
10.48

 
4,389,280

 
$—
(1)
(1) In compliance with SEC rules, the share repurchase plan for Class M common stock was suspended on August 25, 2014 and reopened for repurchases on October 8, 2014.
Distribution Reinvestment Plan
Pursuant to our distribution reinvestment plan, holders of shares of any class of our common stock may elect to have their cash distributions reinvested in additional shares of our common stock at the NAV per share applicable to the class of shares being purchased on the distribution date. For the nine months ended September 30, 2014, we issued 267,113 and 74,035 shares of Class A and Class M common stock, respectively, for $3,531 under the distribution reinvestment plan. For the nine months ended September 30, 2013, we issued 97,142 and 22,172 shares of Class A and Class M common stock, respectively for $1,211 under the distribution reinvestment plan.
Earnings Per Share (“EPS”)
Basic per share amounts are based on the weighted average of shares outstanding of 47,271,566 and 45,043,996 for the three and nine months ended September 30, 2014 and 38,860,238 and 35,270,437 for the three and nine months ended September 30, 2013, respectively. We have no dilutive or potentially dilutive securities.


14



Organization and Offering Costs
Organization and offering costs include, but are not limited to, legal, accounting and printing fees and personnel costs of our Advisor (including reimbursement of personnel costs for our executive officers) attributable to our organization, preparation of the registration statement, registration and qualification of our common stock for sale with the SEC and in the various states and filing fees incurred by our Advisor. LaSalle agreed to fund our organization and offering expenses through October 1, 2012, which is the date the SEC declared our registration statement effective, following which time we commenced reimbursing LaSalle over 36 months for organization and offering costs incurred prior to the commencement date of the Public Offering. Following the Public Offering commencement date, we began paying directly or reimbursing LaSalle if it pays on our behalf any organization and offering costs incurred during the Public Offering period (other than selling commissions, the dealer manager fee and distribution fees) as and when incurred. After the termination of the Public Offering, our Advisor has agreed to reimburse us to the extent that the organization and offering costs that we incur exceed 15% of our gross proceeds from the Public Offering. Organization costs are expensed, whereas offering costs are recorded as a reduction of capital in excess of par value. As of September 30, 2014 and December 31, 2013, LaSalle had paid $2,872 and $3,815, respectively, of organization and offering costs on our behalf which we had not reimbursed. These costs are included in Accounts payable and other accrued expenses.
NOTE 7—RELATED PARTY TRANSACTIONS
Effective as of October 1, 2012, we entered into a First Amended and Restated Advisory Agreement with LaSalle, pursuant to which we pay a fixed advisory fee of 1.25% of our NAV calculated daily. The Advisory Agreement allows for a performance fee to be earned for each share class based on the total return of that share class during the calendar year. The performance fee is calculated as 10% of the return in excess of 7% per annum. On June 5, 2014, we entered into a Second Amended and Restated Advisory Agreement with our Advisor with a one year term expiring on June 5, 2015.
The fixed advisory fees for the three and nine months ended September 30, 2014 were $1,554 and $4,356, respectively. The fixed advisory fees for the three and nine months ended September 30, 2013 were $1,248 and $3,355, respectively. The fixed advisory fees payable at September 30, 2014 and December 31, 2013 were $514 and $450, respectively. There were no performance fees for the three and nine months ended September 30, 2014 and 2013.
We pay Jones Lang LaSalle Americas, Inc. (“JLL Americas”), an affiliate of our Advisor, for property management and leasing services performed at various properties we own, on terms no less favorable than we could receive from other third party service providers. For the three and nine months ended September 30, 2014, we paid JLL Americas $367 and $780, respectively. For the three and nine months ended September 30, 2013, we paid JLL Americas $58 and $163, respectively. During the nine months ended September 30, 2014, we paid JLL Americas $201 in loan placement fees related to the mortgage notes payable on South Seattle Distribution Center, Oak Grove Plaza and Charlotte Distribution Center.
LaSalle Investment Management Distributors, LLC, an affiliate of our Advisor, is the dealer manager (the “Dealer Manager”) for the Public Offering and Private Offering. For the three and nine months ended September 30, 2014, we paid the Dealer Manager selling commissions, dealer manager fees and distribution fees totaling $891 and $2,718, respectively. For the three and nine months ended September 30, 2013, we paid the Dealer Manager selling commissions, dealer manager fees and distribution fees totaling $508 and $1,360, respectively. A majority of the selling commissions, dealer manager fees and distribution fees are reallowed to participating broker-dealers.
As of September 30, 2014, we owed $2,872 for organization and offering costs paid by LaSalle (see Note 6-Common Stock). These costs are included in Accounts payable and other accrued expenses.
NOTE 8—COMMITMENTS AND CONTINGENCIES
From time to time, we have entered into contingent agreements for the acquisition and financing of properties. Such acquisitions and financings are subject to satisfactory completion of due diligence.
We are subject to fixed ground lease payments on South Beach Parking Garage of $94 per year until September 30, 2016. The fixed amount will increase every five years thereafter by the lesser of 12% or the cumulative CPI over the previous five year period. We are also subject to a variable ground lease payment calculated as 2.5% of revenue. The lease expires September 30, 2041 and has a ten-year renewal option.

15



NOTE 9—SEGMENT REPORTING
We have five operating segments: apartment, industrial, office, retail and other properties. Consistent with how we review and manage our properties, the financial information summarized below is presented by operating segment and reconciled to income (loss) from continuing operations as of and for the three and nine months ended September 30, 2014 and 2013.
 
 
 Apartment
 
 Industrial
 
 Office
 
 Retail
 
Other
 
 Total
Assets as of September 30, 2014
 
$
208,162

 
$
182,971

 
$
253,853

 
$
203,628

 
$
22,270

 
$
870,884

Assets as of December 31, 2013
 
205,058

 
141,352

 
260,734

 
129,374

 

 
736,518

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
   Minimum rents
 
$
7,341

 
$
3,249

 
$
6,346

 
$
3,508

 
$
71

 
$
20,515

   Tenant recoveries and other rental income
 
521

 
694

 
1,098

 
1,210

 
642

 
4,165

Total revenues
 
$
7,862

 
$
3,943

 
$
7,444

 
$
4,718

 
$
713

 
$
24,680

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate taxes
 
$
936

 
$
554

 
$
841

 
$
788

 
$
76

 
$
3,195

   Property operating
 
4,469

 
177

 
1,738

 
664

 
355

 
7,403

 Provision for doubtful accounts
 
162

 

 
5

 

 
1

 
168

Total segment operating expenses
 
$
5,567

 
$
731

 
$
2,584

 
$
1,452

 
$
432

 
$
10,766

Operating income - Segments
 
$
2,295

 
$
3,212

 
$
4,860

 
$
3,266

 
$
281

 
$
13,914

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures by segment
 
$
1,551

 
$
605

 
$
751

 
$
160

 
$

 
$
3,067

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to income from continuing operations
Operating income - Segments
 
 
 
 
 
 
 
 
 
 
 
$
13,914

   Advisor fees
 
 
 
 
 
 
 
 
 
 
 
1,554

   Company level expenses
 
 
 
 
 
 
 
 
 
 
 
724

   General and administrative
 
 
 
 
 
 
 
 
 
 
 
212

   Acquisition related expenses
 
 
 
 
 
 
 
 
 
 
 
5

   Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
7,353

Operating income
 
 
 
 
 
 
 
 
 
 
 
$
4,066

Other income and (expenses):
 
 
 
 
 
 
 
 
 
 
 
 
   Interest expense
 
 
 
 
 
 
 
 
 
 
 
$
(4,687
)
   Gain on disposition of property and extinguishment of debt
 
 
 
589

Total other income and (expenses)
 
 
 
 
 
 
 
 
 
 
 
$
(4,098
)
Loss from continuing operations
 
 
 
 
 
 
 
 
 
 
 
$
(32
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to total consolidated assets as of September 30, 2014
Assets per reportable segments
 
 
 
 
 
 
 
 
 
 
 
$
870,884

Corporate level assets
 
 
 
 
 
 
 
 
 
 
 
26,024

Total consolidated assets
 
 
 
 
 
 
 
 
 
 
 
$
896,908

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to total consolidated assets as of December 31, 2013
Assets per reportable segments
 
 
 
 
 
 
 
 
 
 
 
$
736,518

Corporate level assets
 
 
 
 
 
 
 
 
 
 
 
38,421

Total consolidated assets
 
 
 
 
 
 
 
 
 
 
 
$
774,939


16



 
 
 Apartment
 
 Industrial
 
 Office
 
 Retail
 
 Total
 Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
   Minimum rents
 
$
7,326

 
$
1,891

 
$
6,120

 
$
1,609

 
$
16,946

   Tenant recoveries and other rental income
 
490

 
335

 
993

 
393

 
2,211

Total revenues
 
$
7,816

 
$
2,226

 
$
7,113

 
$
2,002

 
$
19,157

Operating expenses:
 
 
 
 
 
 
 
 
 
 
   Real estate taxes
 
$
841

 
$
294

 
$
724

 
$
34

 
$
1,893

   Property operating
 
4,307

 
94

 
1,661

 
377

 
6,439

   Provision for doubtful accounts
 
103

 

 

 
1

 
104

Total segment operating expenses
 
$
5,251

 
$
388

 
$
2,385

 
$
412

 
$
8,436

Operating income - Segments
 
$
2,565

 
$
1,838

 
$
4,728

 
$
1,590

 
$
10,721

 
 
 
 
 
 
 
 
 
 
 
Capital expenditures by segment
 
$
1,504

 
$
21

 
$
1,505

 
$

 
$
3,030

 
 
 
 
 
 
 
 
 
 
 
Reconciliation to income from continuing operations
Operating income - Segments
 
 
 
 
 
 
 
 
 
$
10,721

   Advisor fees
 
 
 
 
 
 
 
 
 
1,248

   Company level expenses
 
 
 
 
 
 
 
 
 
605

   General and administrative
 
 
 
 
 
 
 
 
 
145

   Acquisition related expenses
 
 
 
 
 
 
 
 
 
220

   Depreciation and amortization
 
 
 
 
 
 
 
 
 
5,694

Operating income
 
 
 
 
 
 
 
 
 
$
2,809

Other income and (expenses):
 
 
 
 
 
 
 
 
 
 
   Interest expense
 
 
 
 
 
 
 
 
 
$
(4,892
)
   Equity in income of unconsolidated affiliate
 
 
 
35

   Gain on disposition of property and extinguishment of debt
 
 
1,149

Total other income and (expenses)
 
 
 
 
 
 
 
 
 
$
(3,708
)
Loss from continuing operations
 
 
 
 
 
 
 
 
 
$
(899
)








17



 
 
 Apartments
 
 Industrial
 
 Office
 
 Retail
 
Other
 
 Total
Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
   Minimum rents
 
$
23,477

 
$
8,826

 
$
18,856

 
$
9,021

 
$
190

 
$
60,370

   Tenant recoveries and other rental income
 
1,390

 
2,315

 
3,168

 
3,015

 
1,977

 
11,865

Total revenues
 
$
24,867

 
$
11,141

 
$
22,024

 
$
12,036

 
$
2,167

 
$
72,235

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate taxes
 
$
2,676

 
$
1,771

 
$
2,499

 
$
1,854

 
$
236

 
$
9,036

   Property operating
 
10,809

 
488

 
5,020

 
1,598

 
1,037

 
18,952

   Provision for doubtful accounts
 
245

 

 
47

 
24

 
1

 
317

Total segment operating expenses
 
$
13,730

 
$
2,259

 
$
7,566

 
$
3,476

 
$
1,274

 
$
28,305

Operating income - Segments
 
$
11,137

 
$
8,882

 
$
14,458

 
$
8,560

 
$
893

 
$
43,930

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures by segment
 
$
2,936

 
$
1,454

 
$
4,842

 
$
265

 
$

 
$
9,497

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to income from continuing operations
Operating income - Segments
 
 
 
 
 
 
 
 
 
 
 
$
43,930

   Advisor fees
 
 
 
 
 
 
 
 
 
 
 
4,356

   Company level expenses
 
 
 
 
 
 
 
 
 
 
 
1,901

   General and administrative
 
 
 
 
 
 
 
 
 
 
 
640

   Acquisition related expenses
 
 
 
 
 
 
 
 
 
 
 
520

   Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
20,685

Operating income
 
 
 
 
 
 
 
 
 
 
 
$
15,828

Other income and (expenses):
 
 
 
 
 
 
 
 
 
 
 
 
   Interest expense
 
 
 
 
 
 
 
 
 
 
 
$
(13,736
)
   Gain on disposition of property and extinguishment of debt
 
 
 
 
 
589

Total other income and (expenses)
 
 
 
 
 
 
 
 
 
 
 
$
(13,147
)
Income from continuing operations
 
 
 
 
 
 
 
 
 
 
 
$
2,681












18



 
 
 Apartments
 
 Industrial
 
 Office
 
 Retail
 
 Total
Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
   Minimum rents
 
$
23,175

 
$
3,975

 
$
17,763

 
$
4,643

 
$
49,556

   Tenant recoveries and other rental income
 
1,301

 
722

 
2,742

 
1,518

 
6,283

Total revenues
 
$
24,476

 
$
4,697

 
$
20,505

 
$
6,161

 
$
55,839

Operating expenses:
 
 
 
 
 
 
 
 
 
 
   Real estate taxes
 
$
2,525

 
$
621

 
$
2,185

 
$
662

 
$
5,993

   Property operating
 
10,722

 
151

 
4,536

 
957

 
16,366

   Provision for (recovery of) doubtful accounts
 
200

 

 
(4
)
 
36

 
232

Total segment operating expenses
 
$
13,447

 
$
772

 
$
6,717

 
$
1,655

 
$
22,591

Operating income - Segments
 
$
11,029

 
$
3,925

 
$
13,788

 
$
4,506

 
$
33,248

 
 
 
 
 
 
 
 
 
 
 
Capital expenditures by segment
 
$
2,463

 
$
62

 
$
11,054

 
$
74

 
$
13,653

 
 
 
 
 
 
 
 
 
 
 
Reconciliation to income from continuing operations
Operating income - Segments
 
 
 
 
 
 
 
 
 
$
33,248

   Advisor fees
 
 
 
 
 
 
 
 
 
3,355

   Company level expenses
 
 
 
 
 
 
 
 
 
1,604

   General and administrative
 
 
 
 
 
 
 
 
 
465

   Acquisition related expenses
 
 
 
 
 
 
 
 
 
311

   Depreciation and amortization
 
 
 
 
 
 
 
 
 
16,184

Operating income
 
 
 
 
 
 
 
 
 
$
11,329

Other income and (expenses):
 
 
 
 
 
 
 
 
 
 
   Interest expense
 
 
 
 
 
 
 
 
 
$
(15,068
)
   Debt modification expenses
 
 
 
 
 
 
 
 
 
(182
)
   Equity in loss of unconsolidated affiliate
 
 
 
 
 
 
 
 
 
(57
)
   Gain on disposition of property and extinguishment of debt
 
 
 
 
 
1,149

Total other income and (expenses)
 
 
 
 
 
 
 
 
 
$
(14,158
)
Loss from continuing operations
 
 
 
 
 
 
 
 
 
$
(2,829
)




19



NOTE 10—DISTRIBUTIONS PAYABLE
On August 5, 2014, our board of directors approved a gross dividend for the third quarter of 2014 of $0.12 per share to stockholders of record as of September 29, 2014. The dividend will be paid on or around November 7, 2014. Class A, Class M, Class M-I and Class D stockholders received $0.12 per share, less applicable class-specific fees, if any. There were no stockholders of record for Class A-I, as of September 30, 2014.
NOTE 11— RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2014, FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends GAAP to require reporting of discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This pronouncement will be effective for the first annual reporting period beginning after December 15, 2014 with early adoption permitted. We adopted this accounting pronouncement effective January 1, 2014.
In May 2014, the FASB issued an accounting standard update that will use a five step model to recognize revenue from customer contracts in an effort to increase consistency and comparability throughout global capital markets and across industries.  The model will identify the contract, identify any separate performance obligations in the contract, determine the transaction price, allocate the transaction price and recognize revenue when the performance obligation is satisfied.  The new standard will replace most existing revenue recognition in GAAP when it becomes effective for us on January 1, 2017.  We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
NOTE 12—SUBSEQUENT EVENTS
On November 4, 2014, our board of directors approved a gross dividend for the fourth quarter of 2014 of $0.12 per share to stockholders of record as of December 30, 2014, payable on or around February 6, 2015. Class A, Class M, Class A-I, Class M-I and Class D stockholders will receive $0.12 per share, less applicable class-specific fees, if any.

*  *  *  *  *  *

20



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
$ in thousands, except per share amounts
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), regarding, among other things, our plans, strategies and prospects, both business and financial. Forward-looking statements include, but are not limited to, statements that represent our beliefs concerning future operations, strategies, financial results or other developments. Forward-looking statements can be identified by the use of forward-looking terminology such as, but not limited to, “may,” “should,” “expect,” “anticipate,” “estimate,” “would be,” “believe,” or “continue” or the negative or other variations of comparable terminology. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the SEC. Except as required by law, we do not undertake to update or revise any forward-looking statements contained in this Form 10-Q. Important factors that could cause actual results to differ materially from the forward-looking statements are disclosed in “Item 1A. Risk Factors,” “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2013 Form 10-K and our periodic reports filed with the SEC.
Management Overview
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements appearing elsewhere in this Form 10-Q. All references to numbered Notes are to specific notes to our Consolidated Financial Statements beginning on page 7 of this Form 10-Q, and the descriptions referred to are incorporated into the applicable portion of this section by reference. References to “base rent” in this Form 10-Q refer to cash payments made under the relevant lease(s), excluding real estate taxes and certain property operating expenses that are paid by us and are recoverable under the relevant lease(s) and exclude adjustments for straight-line rent revenue and above- and below-market lease amortization.
The discussions surrounding our consolidated properties refer to our wholly or majority owned and controlled properties, which as of September 30, 2014, were comprised of:
Apartment
Station Nine Apartments,
Cabana Beach San Marcos,
Cabana Beach Gainesville,
Campus Lodge of Athens,
Campus Lodge Columbia,
The Edge at Lafayette and
Campus Lodge Tampa.
Industrial
Kendall Distribution Center,
Norfleet Distribution Center,
Joliet Distribution Center,
Suwanee Distribution Center,
South Seattle Distribution Center,
Grand Prairie Distribution Center (acquired in 2014) and
Charlotte Distribution Center (acquired in 2014).

21




Office
Monument IV at Worldgate,
111 Sutter Street,
14600 Sherman Way,
14624 Sherman Way,
36 Research Park Drive and
Railway Street Corporate Centre.
Retail
The District at Howell Mill,
Grand Lakes Marketplace,
Oak Grove Plaza (acquired in 2014) and
Rancho Temecula Town Center (acquired in 2014).
Other
South Beach Parking Garage (acquired in 2014).
Discontinued Operations and Sold Properties
Canyon Plaza (sold in 2013, excluded from December 31, 2013 Consolidated Properties),
the Dignity Health Disposition Portfolio (sold in 2013, excluded from December 31, 2013 Consolidated Properties),
Stirling Slidell Shopping Centre (sold in 2014) and
4 Research Park Drive (transferred to the lender in 2014).
Discussions surrounding our unconsolidated property refer to Legacy Village which was owned through a non-controlling interest in a joint venture. Our interest in Legacy Village was sold on October 29, 2013.
Our primary business is the ownership and management of a diversified portfolio of apartment, industrial, office, retail and other properties primarily located in the United States. It is expected that over time our real estate portfolio will be further diversified on a global basis and will be complemented by investments in real estate-related assets.
We are managed by our Advisor, LaSalle Investment Management, Inc., a subsidiary of our Sponsor, Jones Lang LaSalle Incorporated, a global real estate services firm that specializes in commercial property management, leasing and investment management. We hire property management and leasing companies to provide the on-site, day-to-day management and leasing services for our properties. When selecting a property management or leasing company for one of our properties, we look for service providers that have a strong local market or industry presence, create portfolio efficiencies, have the ability to develop new business for us and will provide a strong internal control environment that will comply with our Sarbanes-Oxley Act of 2013 (“Sarbanes-Oxley”) internal control requirements. We currently use a mix of property management and leasing service providers that include large national real estate service firms, including an affiliate of our Advisor, and smaller local firms.
We seek to minimize risk and maintain stability of income and principal value through broad diversification across property sectors and geographic markets and by balancing tenant lease expirations and debt maturities across the real estate portfolio. Our diversification goals also take into account investing in sectors or regions we believe will create returns consistent with our investment objectives. Under normal conditions, we intend to pursue investments principally in well-located, well-leased properties within the apartment, industrial, office, retail and other sectors. We expect to actively manage the mix of properties and markets over time in response to changing operating fundamentals within each property sector and to changing economies and real estate markets in the geographic areas considered for investment. When consistent with our investment objectives, we also seek to maximize the tax efficiency of our investments through like-kind exchanges and other tax planning strategies.
The following charts summarize our portfolio diversification by property sector and geographic region based upon the fair value of our properties. These tables provide examples of how our Advisor evaluates our real estate portfolio when making investment decisions.

22



Estimated Percent of Fair Value as of September 30, 2014:



23



Seasonality
For our six student-oriented apartments, the majority of our leases commence mid-August and terminate the last day of July. These dates generally coincide with the commencement of the universities’ fall academic term and the completion of the subsequent summer school session. In certain cases we enter into leases for less than the full academic year, including nine-month or shorter-term leases. As a result, cash flows may be reduced during the summer months at properties having lease terms shorter than 12 months. The annual releasing cycle results in significant turnover in the tenant population from year to year. Accordingly, certain property revenues and operating expenses tend to be seasonal in nature, and therefore not incurred ratably over the course of the year. Prior to the commencement of each new lease period, mostly during the first two weeks of August, we prepare the units for new incoming tenants. Other than revenue generated by in-place leases for returning tenants, we do not generally recognize lease revenue during this period, referred to as the “Turn,” as we have no leases in place. In addition, during the Turn we incur significant expenses making our units ready for occupancy, which we recognize immediately. This lease Turn period results in seasonality impacts on our operating results during the second and third quarter of each year.
With the exception of our student-oriented apartments described above, our investments are not materially impacted by seasonality, despite certain of our retail tenants being impacted by seasonality. Percentage rents (rents computed as a percentage of tenant sales) that we earn from investments in retail properties may, in the future, be impacted by seasonality.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions. These estimates and assumptions impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. For example, significant estimates and assumptions have been made with respect to the useful lives of assets, recoverable amounts of receivables, fair value of derivatives and real estate assets, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions. Actual results could differ from those estimates.
Critical Accounting Policies
The MD&A is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no significant changes during the three and nine months ended September 30, 2014 to the items that we disclosed as our critical accounting policies and estimates under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2013 Form 10-K.

24



Properties
Properties owned at September 30, 2014 are as follows:
 
 
 
 
 
 
 
 
 
 
Percentage
Leased as of September 30, 2014
Property Name
 
Location
 
Acquisition Date
 
Ownership
%
 
Net Rentable
Square Feet
 
Apartment Segment:
 
 
 
 
 
 
 
 
 
 
Station Nine Apartments
 
Durham, NC
 
April 16, 2007
 
100%
 
312,000
 
99%
Student-oriented Apartment Communities:
 
 
 
 
 
 
 
 
 
 
Cabana Beach San Marcos (1)
 
San Marcos, TX
 
November 21, 2007
 
78
 
258,000
 
88
Cabana Beach Gainesville (1)
 
Gainesville, FL
 
November 21, 2007
 
78
 
598,000
 
94
Campus Lodge of Athens (1)
 
Athens, GA
 
November 21, 2007
 
78
 
229,000
 
99
Campus Lodge Columbia (1)
 
Columbia, MO
 
November 21, 2007
 
78
 
256,000
 
88
The Edge at Lafayette (1)
 
Lafayette, LA
 
January 15, 2008
 
78
 
207,000
 
95
Campus Lodge Tampa (1)
 
Tampa, FL
 
February 29, 2008
 
78
 
477,000
 
91
Industrial Segment:
 
 
 
 
 
 
 
 
 
 
Kendall Distribution Center
 
Atlanta, GA
 
June 30, 2005
 
100
 
409,000
 
100
Norfleet Distribution Center
 
Kansas City, MO
 
February 27, 2007
 
100
 
702,000
 
100
Joliet Distribution Center
 
Joliet, IL
 
June 26, 2013
 
100
 
442,000
 
100
Suwanee Distribution Center
 
Suwanee, GA
 
June 28, 2013
 
100
 
559,000
 
100
South Seattle Distribution Center
 
 
 
 
 
 
 
 
 
 
3800 1st Avenue
 
Seattle, WA
 
December 18, 2013
 
100
 
162,000
 
100
3844 1st Avenue
 
Seattle, WA
 
December 18, 2013
 
100
 
101,000
 
100
3601 2nd Avenue
 
Seattle, WA
 
December 18, 2013
 
100
 
60,000
 
100
Grand Prairie Distribution Center
 
Grand Prairie, TX
 
January 22, 2014
 
100
 
277,000
 
100
Charlotte Distribution Center
 
Charlotte, NC
 
June 27, 2014
 
100
 
347,000
 
100
Office Segment:
 
 
 
 
 
 
 
 
 
 
Monument IV at Worldgate
 
Herndon, VA
 
August 27, 2004
 
100
 
228,000
 
100
111 Sutter Street
 
San Francisco, CA
 
March 29, 2005
 
100
 
286,000
 
95
14600 Sherman Way
 
Van Nuys, CA
 
December 21, 2005
 
100
 
50,000
 
94
14624 Sherman Way
 
Van Nuys, CA
 
December 21, 2005
 
100
 
53,000
 
85
36 Research Park Drive
 
St. Charles, MO
 
June 13, 2007
 
100
 
81,000
 
100
Railway Street Corporate Centre
 
Calgary, Canada
 
August 30, 2007
 
100
 
135,000
 
95
Retail Segment:
 
 
 
 
 
 
 
 
 
 
The District at Howell Mill (1)
 
Atlanta, GA
 
June 15, 2007
 
88
 
306,000
 
98
Grand Lakes Marketplace (1)
 
Katy, TX
 
September 17, 2013
 
90
 
131,000
 
100
Oak Grove Plaza
 
Sachse, TX
 
January 17, 2014
 
100
 
120,000
 
97
Rancho Temecula Town Center
 
Temecula, CA
 
June 16, 2014
 
100
 
165,000
 
94
Other Segment:
 
 
 
 
 
 
 
 
 
 
South Beach Parking Garage (2)
 
Miami Beach, FL
 
January 28, 2014
 
100
 
130,000
 
100
(1)
We own an interest in the joint venture that owns a fee interest in this property.    
(2)
Percentage leased is based on 3,000 square feet of retail space.

25



Operating Statistics
We generally hold investments in properties with high occupancy rates leased to quality tenants under long-term, non-cancelable leases. We also hold investments in apartment properties which typically have one-year leases. We believe these leases are beneficial to achieving our investment objectives. The following table shows our operating statistics by property type as of September 30, 2014:
 
 
Number of
Properties
 
Total Area
(Sq Ft)
 
% of Total
Area
 
Occupancy %
 
Average Minimum
Base Rent per
Occupied Sq Ft (1)
Apartment
 
7

 
2,337,000

 
34
%
 
93
%
 
$
14.69

Industrial
 
9

 
3,059,000

 
44

 
100

 
4.12

Office
 
6

 
833,000

 
12

 
96

 
30.70

Retail
 
4

 
723,000

 
10

 
97

 
17.73

Other
 
1

 
3,000

 

 
100

 
75.71

Total
 
27

 
6,955,000

 
100
%
 
97
%
 
$
12.08

 
(1)
Amount calculated as in-place minimum base rent for all occupied space at September 30, 2014 and excludes any straight line rents, tenant recoveries and percentage rent revenues.
As of September 30, 2014, our average effective annual rent per square foot, calculated as average minimum base rent per occupied square foot less tenant concessions and allowances, was $10.75.
Recent Events and Outlook
General Company and Market Commentary
On October 1, 2012, the SEC declared effective our registration statement on Form S-11 (File No. 333-177963) with respect to our Public Offering of up to $3,000,000 in any combination of Class A and Class M shares of common stock, consisting of up to $2,700,000 of shares in our primary offering and up to $300,000 of shares pursuant to our distribution reinvestment plan. We intend to offer shares of our common stock on a continuous basis for an indefinite period of time by filing a new registration statement before the end of each offering period, subject to regulatory approval. The per share purchase price varies from day-to-day and, on each day, equals our NAV per share for each class of common stock, plus, for Class A shares, applicable selling commissions. LaSalle Investment Management Distributors, LLC, an affiliate of our Advisor and the Dealer Manager of our Public Offering, has agreed to distribute shares of our common stock. We intend to primarily use the net proceeds from the Public Offering, after we pay the fees and expenses attributable to the Public Offering and our operations, to (1) grow and further diversify our portfolio by making investments in accordance with our investment strategy and policies, (2) reduce borrowings and repay indebtedness incurred under various financing instruments and (3) fund repurchases of our shares under our share repurchase plan.
Designation of Class A-I, Class M-I and Class D Common Stock
On June 5, 2014, we filed Articles Supplementary to our Second Articles of Amendment and Restatement that created and designated new Class I-A, Class I-M and Class I shares of common stock, par value $0.01 per share and on July 8, 2014, we filed Articles of Amendment that amended the name and designation of our Class I-A, Class I-M and Class I common shares to “Class A-I”, “Class M-I” and “Class D” common shares, respectively.
Follow-On Offering
On June 18, 2014, we filed a registration statement on Form S-11 (File No. 333-196886) with the SEC to register our Follow-On Offering of up to $2,700,000 in any combination of shares of our Class A, Class M, Class A-I and Class M-I common stock, consisting of up to $2,400,000 of shares offered in the primary offering and up to $300,000 in shares offered pursuant to our distribution reinvestment plan. The per share purchase price for each class of shares offered in the Follow-On Offering will vary from day-to-day and, on each day, will equal our NAV per share for each class of shares, plus, for Class A and Class A-I shares sold in the primary offering only, applicable selling commissions. Proceeds from our Follow-On Offering will be used for the same corporate purposes as the proceeds of the Public Offering.




26



Private Offering
We are currently engaged in a Private Offering of up to $400,000 in any combination of our Class A-I, Class M-I and Class D shares of common stock. The Class A-I and M-I shares being offered in the Private Offering are eligible to institutional accredited investors able to invest $1,000 or more in shares of our common stock. Proceeds from the Private Offering will be used for the same corporate purposes as the proceeds of the Public Offering.
We have executed on a number of our key strategic initiatives during the nine months ended September 30, 2014, including:
Property Acquisitions
purchased Oak Grove Plaza for $22,525;
purchased Grand Prairie Distribution Center for $17,200;
purchased South Beach Parking Garage for $22,050;
purchased Rancho Temecula Town Center for $60,000; and
purchased Charlotte Distribution Center for $25,550.
Property Dispositions
sold Stirling Slidell Shopping Centre for $14,600; and
transferred our ownership of 4 Research Park Drive to the lender.
Financings
entered into a $10,550 mortgage note payable on Oak Grove Plaza;
entered into a $19,500 mortgage note payable on South Seattle Distribution Center;
entered into a $9,250 mortgage note payable on South Beach Parking Garage;
entered into an $8,600 mortgage note payable on Grand Prairie Distribution Center;
entered into a $28,000 mortgage note payable on Rancho Temecula Town Center; and
entered into a $10,220 mortgage note payable on Charlotte Distributions Center.
Through these specific and other important accomplishments we continued to reduce our Company leverage ratio, decreased our average interest rate on debt, increased cash reserves and Company-wide liquidity at the same time as providing cash flow to our stockholders through our regular quarterly dividend payments.
Our primary investment objectives are:
to generate an attractive level of current income for distribution to our stockholders;
to preserve and protect our stockholders' capital investments;
to achieve appreciation of our NAV over time; and
to enable stockholders to utilize real estate as an asset class in diversified, long-term investment portfolios.
The cornerstone of our investment strategy is to acquire and manage income-producing commercial real estate properties and real estate-related assets around the world. We believe this strategy enables us to provide our stockholders with a portfolio that is well-diversified across property type, geographic region and industry, both in the United States and, over time, internationally. It is our belief that adding international investments to our portfolio over time will serve as an effective tool to construct a well-diversified portfolio designed to provide our stockholders with stable distributions and attractive long-term risk-adjusted returns.
We believe that our broadly diversified portfolio benefits our stockholders by providing:
diversification of sources of income;
access to attractive real estate opportunities currently in the United States and, over time, around the world; and
exposure to a return profile that should have lower correlations with other investments.
Since real estate markets are often cyclical in nature, our strategy allows us to more effectively deploy capital into property types and geographic regions where the underlying investment fundamentals are relatively strong or strengthening and away from those property types and geographic regions where such fundamentals are relatively weak or weakening. We intend to meet our investment objectives by selecting investments across multiple property types and geographic regions to achieve portfolio stability, diversification, current income and favorable risk-adjusted returns. To a lesser degree, we also intend to invest in debt and equity interests backed principally by real estate, which we refer to collectively as “real estate-related assets.”

27



Our board of directors has adopted investment guidelines for our Advisor to implement and actively monitor in order to allow us to achieve and maintain diversification in our overall investment portfolio. Our board of directors formally reviews our investment guidelines on an annual basis and our investment portfolio on a quarterly basis or, in each case, more often as they deem appropriate. Our board of directors reviews the investment guidelines to ensure that the guidelines are being followed and are in the best interests of our stockholders.
After we have raised substantial proceeds in our public and private offerings, and our total NAV has reached $800,000, which we refer to as our ramp-up period, we will seek to invest:
up to 80% of our assets in properties;
up to 25% of our assets in real estate-related assets; and
up to 15% of our assets in cash, cash equivalents and other short-term investments.
Notwithstanding the above, the actual percentage of our portfolio that is invested in each investment type may from time to time be outside these target levels due to numerous factors including, but not limited to, large inflows of capital over a short period of time, lack of attractive investment opportunities or increases in anticipated cash requirements for repurchase requests. During the ramp-up period, we will balance the goals of diversifying our portfolio and reducing our leverage.
We expect to maintain a targeted Company leverage ratio (calculated as our share of total liabilities divided by our share of the fair value of total assets) of between 30% and 50%. We intend to use low leverage, or in some cases possibly no leverage, to finance new acquisitions in order to maintain our targeted Company leverage ratio. Our Company leverage ratio was 46% as of September 30, 2014.
2014 Key Initiatives
During the remainder of 2014, we intend to continue to use capital raised from our public and private offerings to make new acquisitions that will further our investment objectives and which are in keeping with our investment strategy. Likely acquisition candidates may include well located, well leased industrial properties, grocery-anchored community oriented retail properties and apartment properties. We will look to acquire other property types when the opportunities and risk profile match our investment objectives and strategy. We will also attempt to further our geographic diversification by targeting investment properties located in the eastern and western United States. We will use debt financing to take advantage of the current favorable interest rate environment, while looking to keep the Company leverage ratio between 30% and 50% in the near term. We also intend to use our revolving line of credit to allow us to more efficiently manage our cash flows.
2014 Key Events and Accomplishments
On January 17, 2014, we acquired Oak Grove Plaza, a 120,000 square foot retail property located in Sachse, TX, for approximately $22,525. The acquisition was financed with a ten-year mortgage loan that bears interest at fixed rate of 4.17%, interest only in the amount of $10,550 and cash on hand.
On January 22, 2014, we acquired Grand Prairie Distribution Center, a 277,000 square foot industrial building located in Grand Prairie, TX for approximately $17,200, using cash on hand. The property is 100% leased to a single tenant for ten years.
On January 28, 2014, we acquired South Beach Parking Garage, a 340 stall, multi-level parking facility located on South Beach in Miami, FL for approximately $22,050, using cash on hand and a $13,000 draw on our line of credit.
On March 4, 2014, we entered into a $19,500 mortgage note payable on South Seattle Distribution Center. The mortgage note is for ten years and bears interest at a fixed rate of 4.38%, interest-only for two years.
On March 7, 2014, we entered into a $9,250 mortgage note payable on South Beach Parking Garage. The mortgage note is for three years and bears a floating interest rate equal to LIBOR plus 1.90%. On April 16, 2014, we entered into an interest rate cap for this loan to limit our interest rate exposure.
On April 28, 2014, we entered into an $8,600 mortgage note payable on Grand Prairie Distribution Center. The mortgage note is for five years and bears a floating interest rate equal to LIBOR plus 1.80%. We entered into an interest rate swap for this loan which fixed the interest rate at 3.58% for the five year term.
On June 1, 2014, our Dealer Manager agreed to reduce the Dealer Manager Fee on Class M common stock from 0.55% to 0.30% of NAV annually. The reduced fee will directly increase the dividend per share to all Class M stockholders.

28



On June 12, 2014, we executed a lease extension with the sole tenant of Norfleet Distribution Center, a 702,000 square foot industrial building located in Kansas City, MO. The new lease is for a period of twelve years, extending the lease maturity date from 2017 to 2027. The new lease provides for current market rental rates and provides for 1.5% annual rent increases.
On June 16, 2014, we acquired Rancho Temecula Town Center, a 165,000 square foot retail property located in Temecula, CA, for approximately $60,000. The acquisition was financed with a 12-year fixed rate mortgage loan which bears interest at a fixed rate of 4.02%, interest-only in the amount of $28,000 and cash on hand.
On June 27, 2014, we acquired Charlotte Distribution center, a 347,000 square foot industrial building located in Charlotte, NC, for approximately $25,550 using cash on hand. The property is 100% leased to a single tenant for 14 years.
On August 5, 2014, our board approved an increase in our gross dividend from $0.11 per quarter to $0.12 per quarter, a 9.1% increase.
On August 8, 2014, we sold Stirling Slidell Shopping Centre, a 139,000 square foot retail property located in Slidell, LA for approximately $14,600. The disposition was made as this non -grocer anchored property no longer fit with our strategy to own grocery-anchored community oriented retail properties.
On August 21, 2014, we entered into a $10,220 mortgage note payable on Charlotte Distribution Center. The mortgage note is for 10 years at a fixed rate of 3.66%.
On September 24, 2014, we completed a tender offer in which we repurchased 4,389,280 shares of Class M common stock at $10.48 per share for a total of $46,000. The tender offer was conducted to provide Class M stockholders an alternative liquidity option at the then current NAV per share in advance of certain Class M shares becoming eligible for repurchase under their eligibility for the Company’s Share Repurchase Plan on October 1, 2014.
For the three months ended September 30, 2014, we raised gross proceeds of $60,129 through sales of shares of common stock, our largest quarterly raise since we went effective on October 1, 2012. For the nine months ended September 30, 2014, we raised gross proceeds of $109,973, and from October 1, 2012 through September 30, 2014, we raised gross proceeds of $268,692 through the sale of shares of common stock.
 


29



Results of Operations
General
Our revenues are primarily received from tenants in the form of fixed minimum base rents and recoveries of operating expenses. Our expenses primarily relate to the costs of operating and financing the properties. Our share of the net income or net loss from our unconsolidated property is included in the equity in loss of unconsolidated affiliate. We believe the following analysis of reportable segments provides important information about the operating results of our real estate investments, such as trends in total revenues or operating expenses that may not be as apparent in a period-over-period comparison of the entire Company. We group our investments in real estate assets from continuing operations into five reportable operating segments based on the type of property, which are apartment, industrial, office, retail and other. Operations from corporate level items and real estate assets sold are excluded from reportable segments.
Revenues and operating expenses related to Canyon Plaza and the Dignity Health Disposition Portfolio disposed of in 2013 are shown in discontinued operations for the three and nine months ended September 30, 2014 and 2013. Properties acquired during any of the periods presented are presented within the recent acquisitions and sold properties line until the property has been owned for all periods presented. Properties sold during 2014 are reported within the recent acquisitions and sold properties line. The properties currently presented within the recent acquisitions and sold properties line include Joliet Distribution Center, Suwanee Distribution Center, Grand Lakes Marketplace, South Seattle Distribution Center, Oak Grove Plaza, South Beach Parking Garage, Grand Prairie Distribution Center, Rancho Temecula Town Center, Charlotte Distribution Center, Stirling Slidell Shopping Centre and 4 Research Park Drive. Properties owned for the three and nine months ended September 30, 2014 and 2013 are referred to as our comparable properties.
Results of Operations for the Three Months Ended September 30, 2014 and 2013
Revenues
The following chart sets forth revenues from continuing operations, by reportable segment, for the three months ended September 30, 2014 and 2013:
 
 
Three months ended September 30, 2014
 
Three months ended September 30, 2013
 
$
 Change
 
%
Change
Revenues:
 
 
 
 
 
 
 
 
Minimum rents
 
 
 
 
 


 


Apartment
 
$
7,341

 
$
7,326

 
$
15

 
0.2
 %
Industrial
 
1,033

 
1,033

 

 

Office
 
6,120

 
5,897

 
223

 
3.8

Retail
 
1,137

 
1,115

 
22

 
2.0

Comparable properties total
 
$
15,631

 
$
15,371

 
$
260

 
1.7
 %
Recent acquisitions and sold properties
 
4,884

 
1,575

 
3,309

 
210.1

Total
 
$
20,515

 
$
16,946

 
$
3,569

 
21.1
 %
 
 
 
 
 
 
 
 
 
Tenant recoveries and other rental income
 
 
 
 
 


 


Apartment
 
$
521

 
$
490

 
$
31

 
6.3
 %
Industrial
 
99

 
115

 
(16
)
 
(13.9
)
Office
 
1,054

 
950

 
104

 
10.9

Retail
 
456

 
273

 
183

 
67.0

Comparable properties total
 
$
2,130

 
$
1,828

 
$
302

 
16.5
 %
Recent acquisitions and sold properties
 
2,035

 
383

 
1,652

 
431.3

Total
 
$
4,165

 
$
2,211

 
$
1,954

 
88.4
 %
Total revenues
 
$
24,680

 
$
19,157


$
5,523

 
28.8
 %
Minimum rents at comparable properties increased by $260 for the three months ended September 30, 2014 as compared to the same period in 2013. The increase is primarily due to increased rents of $230 at 111 Sutter Street related to higher occupancy during the three months ended September 30, 2014 as compared to the same period in 2013.

30



Tenant recoveries relate mainly to real estate taxes and certain property operating expenses that are paid by us and are recoverable under the various tenants’ leases. Tenant recoveries and other rental income at comparable properties increased by $302 for the three months ended September 30, 2014 as compared to the same period in 2013. The District at Howell Mill recorded increased recovery revenue of $183 related to higher real estate taxes and operating expenses. Additionally, there was an increase of recovery revenue of $56 at 111 Sutter Street related to higher occupancy for the three months ended September 30, 2014 as compared to the same period in 2013.
Operating Expenses
The following chart sets forth real estate taxes, property operating expenses and provisions for doubtful accounts from continuing operations, by reportable segment, for the three months ended September 30, 2014 and 2013:
 
 
Three months ended September 30, 2014
 
Three months ended September 30, 2013
 
$
 Change
 
%
Change
Operating expenses:
 
 
 
 
 
 
 
 
Real estate taxes
 
 
 
 
 
 
 
 
Apartment
 
$
936

 
$
841

 
$
95

 
11.3
 %
Industrial
 
80

 
139

 
(59
)
 
(42.4
)
Office
 
797

 
681

 
116

 
17.0

Retail
 
226

 
(23
)
 
249

 
(1,083
)
Comparable properties total
 
$
2,039

 
$
1,638

 
$
401

 
24.5
 %
Recent acquisitions and sold properties
 
1,156

 
255

 
901

 
353.3

Total
 
$
3,195

 
$
1,893

 
$
1,302

 
68.8
 %
 
 
 
 
 
 
 
 
 
Property operating
 
 
 
 
 
 
 
 
Apartment
 
$
4,469

 
$
4,307

 
$
162

 
3.8
 %
Industrial
 
45

 
29

 
16

 
55.2

Office
 
1,735

 
1,656

 
79

 
4.8

Retail
 
297

 
262

 
35

 
13.4

Comparable properties total
 
$
6,546

 
$
6,254

 
$
292

 
4.7
 %
Recent acquisitions and sold properties
 
857

 
185

 
672

 
363.2

Total
 
$
7,403

 
$
6,439

 
$
964

 
15.0
 %
 
 
 
 
 
 
 
 
 
Net provision for doubtful accounts
 
 
 


 


Apartment
 
$
163

 
$
103

 
$
60

 
58.3
 %
Office
 
5

 

 
5

 
100.0

Retail
 

 
1

 
(1
)
 
(100.0
)
Total
 
$
168

 
$
104

 
$
64

 
61.5
 %
Total operating expenses
 
$
10,766

 
$
8,436

 
$
2,330

 
27.6
 %
Real estate taxes at comparable properties increased by $401 for the three months ended September 30, 2014 as compared to the same period in 2013. The increase was primarily due to an increase of $249 at The District at Howell Mill related to a higher assessment that occurred during the three months ended September 30, 2013 as well as increases of $79 and $61 at Monument IV at Worldgate and Cabana Beach San Marcos, respectively, related to higher tax reassessment in the three months ended September 30, 2014.
Property operating expenses consist of the costs of ownership and operation of the real estate investments, many of which are recoverable under net leases. Examples of property operating expenses include insurance, utilities and repair and maintenance expenses. Property operating expenses at comparable properties increased $292 for the three months ended September 30, 2014 as compared to the same period of 2013. The increase is primarily related to increased costs of $162 at our apartment properties due to higher utility and repair and maintenance expenses. Additionally, there was an increase of $54 at the Sherman Way properties due to higher parking garage expenses for the three months ended September 30, 2014. Property operating expenses also increased by $48 at 111 Sutter Street relating to higher occupancy for the three months ended September 30, 2014 as compared to the same period in 2013.

31



Net provision for doubtful accounts relates to receivables deemed potentially uncollectible due to the age of the receivable or the status of the tenant. Provision for doubtful accounts increased by $64 for the three months ended September 30, 2014 as compared to the same period of 2013, primarily related to $60 of higher bad debt during the Turn at our apartment properties.
The following chart sets forth expenses not directly related to the operations of the reportable segments for the three months ended September 30, 2014 and 2013:
 
 
Three months ended September 30, 2014
 
Three months ended September 30, 2013
 
$
 Change
 
%
 Change
Advisor fees
 
$
1,554

 
$
1,248

 
$
306

 
24.5
 %
Company level expenses
 
724

 
605

 
119

 
19.7

General and administrative
 
212

 
145

 
67

 
46.2

Acquisition related expenses
 
5

 
220

 
(215
)
 
(97.7
)
Depreciation and amortization
 
7,353

 
5,694

 
1,659

 
29.1

Interest expense
 
4,687

 
4,892

 
(205
)
 
(4.2
)
Equity in income of unconsolidated affiliate
 

 
(35
)
 
35

 
(100.0
)
Gain on disposition of property and extinguishment of debt
 
(589
)
 
(1,149
)
 
560

 
(48.7
)
(Income) loss from discontinued operations
 
(813
)
 
10,521

 
(11,334
)
 
(107.7
)
Total expenses
 
$
13,133

 
$
22,141

 
$
(9,008
)
 
(40.7
)%
Advisor fees relate to the fixed advisory fees earned by the Advisor. Fixed fees increase or decrease based on changes in our NAV which will be primarily impacted by changes in capital raised and the value of our properties. The increase in advisor fees of $306 for the three months ended September 30, 2014 as compared to the same period of 2013 is primarily related to the increase in our net asset value attributable to capital raised over the past year.
Company level expenses relate mainly to our compliance and administration related costs. Company level expenses increased $119 for the three months ended September 30, 2014 as compared to the same period in 2013 primarily due to an increase in corporate legal fees related to conducting the tender offer.
General and administrative expenses relate mainly to property expenses unrelated to the operations of the property. General and administrative expenses increased $67 due to additional properties acquired in late 2013 and 2014.
Acquisition related expenses relate to expenses incurred during the acquisition of a property. The decrease in acquisition expenses of $215 related to the acquisition of Grand Lakes Marketplace which occurred during the three months ended September 30, 2013. We did not make an acquisition during the three months ended September 30, 2014.
Depreciation and amortization expense is impacted by the values assigned to buildings, personal property and in-place lease assets as part of the initial purchase price allocation. The increase of $1,659 in depreciation and amortization expense for the three months ended September 30, 2014 as compared to the same period in 2013 is primarily related to an increase of $1,699 for our acquisitions that occurred in 2013 and 2014.
Interest expense decreased by $205 for the three months ended September 30, 2014 as compared to the same period in 2013 as debt payoffs and interest savings from loan refinancings more than offset new debt inurred as part of our new property acquisitions.
Equity in income of unconsolidated affiliate relates to our share of the income from Legacy Village, which was sold on October 29, 2013, to our joint venture partners.
Gain on disposition of property and extinguishment of debt of $589 is related to the dispositions of Stirling Slidell Shopping Centre and 4 Research Park Drive during the three months ended September 30, 2014. Gain on extinguishment of debt of $1,149 is related to the early debt retirement at 36 Research Park Drive during the three months ended September 30, 2013.
Income from discontinued operations in the period ended September 30, 2014 is related to bankruptcy proceeds from Canyon Plaza in the three months ended September 30, 2014. Loss from discontinued operations in the period ended September 30, 2013 is related to the sales of the Dignity Health Disposition Portfolio and Canyon Plaza during 2013.

32



Results of Operations for the Nine Months Ended September 30, 2014 and 2013
Revenues
The following chart sets forth revenues from continuing operations, by reportable segment, for the nine months ended September 30, 2014 and 2013:
 
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
 
$
 Change
 
%
Change
Revenues:
 
 
 
 
 
 
 
 
Minimum rents
 
 
 
 
 
 
 
 
Apartment
 
$
23,477

 
$
23,175

 
$
302

 
1.3
 %
Industrial
 
3,099

 
3,099

 

 

Office
 
18,180

 
17,093

 
1,087

 
6.4

Retail
 
3,391

 
3,372

 
19

 
0.6

Comparable properties total
 
$
48,147

 
$
46,739

 
$
1,408

 
3.0
 %
Recent acquisitions and sold properties
 
12,223

 
2,817

 
9,406

 
333.9

Total
 
$
60,370

 
$
49,556

 
$
10,814

 
21.8
 %
 
 
 
 
 
 
 
 
 
Tenant recoveries and other rental income
 
 
 
 
 
 
 
 
Apartment
 
$
1,390

 
$
1,301

 
$
89

 
6.8
 %
Industrial
 
459

 
502

 
(43
)
 
(8.6
)
Office
 
3,041

 
2,612

 
429

 
16.4

Retail
 
1,206

 
1,146

 
60

 
5.2

Comparable properties total
 
$
6,096

 
$
5,561

 
$
535

 
9.6
 %
Recent acquisitions and sold properties
 
5,769

 
722

 
5,047

 
699.0

Total
 
$
11,865

 
$
6,283

 
$
5,582

 
88.8
 %
Total revenues
 
$
72,235

 
$
55,839

 
$
16,396

 
29.4
 %
Minimum rents at comparable properties increased by $1,408 for the nine months ended September 30, 2014 as compared to the same period in 2013. The increase is primarily due to increased rents of $981 at Monument IV at Worldgate related to the commencement of the Amazon Corporate LLC and Fannie Mae leases. Additionally, there was an increase of $302 at our apartment properties for the nine months ended September 30, 2014 as compared to the same period in 2013 primarily due to increased rental rates.
Tenant recoveries and other rental income relate mainly to real estate taxes and certain property operating expenses that are paid by us and are recoverable under the various tenants’ leases. Tenant recoveries and other rental income at comparable properties increased by $535 for the nine months ended September 30, 2014 as compared to the same period in 2013. The increase is primarily related to higher recoveries of $195 at Monument IV at Worldgate and $110 at Railway Street Corporate Center due to increased occupancy during the nine months ended September 30, 2014 as compared to the same period in 2013. Additionally, there was an increase of $117 at Cabana Beach Gainesville due to higher utility expenses during the nine months ended September 30, 2014 as compared to the same period in 2013.

33



Operating Expenses
The following chart sets forth real estate taxes, property operating expenses and provisions for (recovery of) doubtful accounts from continuing operations, by reportable segment, for the nine months ended September 30, 2014 and 2013:
 
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
 
$
 Change
 
%
Change
Operating expenses:
 
 
 
 
 
 
 
 
Real estate taxes
 
 
 
 
 
 
 
 
Apartment
 
$
2,676

 
$
2,525

 
$
151

 
6.0
 %
Industrial
 
406

 
461

 
(55
)
 
(11.9
)
Office
 
2,371

 
2,056

 
315

 
15.3

Retail
 
648

 
530

 
118

 
22.3

Comparable properties total
 
$
6,101

 
$
5,572

 
$
529

 
9.5
 %
Recent acquisitions and sold properties
 
2,935

 
421

 
2,514

 
597.1

Total
 
$
9,036

 
$
5,993

 
$
3,043

 
50.8
 %
 
 
 
 
 
 
 
 
 
Property operating
 
 
 
 
 
 
 
 
Apartment
 
$
10,809

 
$
10,722

 
$
87

 
0.8
 %
Industrial
 
103

 
85

 
18

 
21.2

Office
 
5,012

 
4,526

 
486

 
10.7

Retail
 
760

 
687

 
73

 
10.6

Comparable properties total
 
$
16,684

 
$
16,020

 
$
664

 
4.1
 %
Recent acquisitions and sold properties
 
2,268

 
346

 
1,922

 
555.5

Total
 
$
18,952

 
$
16,366

 
$
2,586

 
15.8
 %
 
 
 
 
 
 
 
 
 
Net provision for (recovery of) doubtful accounts
 
 
 
 
 
 
Apartment
 
$
245

 
$
200

 
$
45

 
22.5
 %
Office
 
47

 
(4
)
 
51

 
(1,275
)
Retail
 
1

 
24

 
(23
)
 
(95.8
)
Comparable properties total
 
$
293

 
$
220

 
73

 
33.2
 %
Recent acquisitions and sold properties
 
24

 
12

 
12

 
100.0

Total
 
$
317

 
$
232

 
$
85

 
36.6
 %
Total operating expenses
 
$
28,305

 
$
22,591

 
$
5,714

 
25.3
 %
Real estate taxes at comparable properties increased by $529 for the nine months ended September 30, 2014 as compared to the same period in 2013. The increase was primarily due to increases of $192, $129, $118 and $117 at Monument IV at Worldgate, Cabana Beach San Marcos, The District at Howell Mill and 111 Sutter Street, respectively, related to higher tax reassessments in the nine months ended September 30, 2014.
Property operating expenses consist of the costs of ownership and operation of the real estate investments, many of which are recoverable under net leases. Examples of property operating expenses include insurance, utilities and repair and maintenance expenses. Property operating expenses at comparable properties increased $664 for the nine months ended September 30, 2014 as compared to the same period of 2013. The increase is primarily related to increased costs of $269 at the Sherman Way properties due to higher parking garage expenses. Property operating expenses increased by $149 at Monument IV at Worldgate related to the commencement of the Amazon Corporate LLC and Fannie Mae leases. Additionally, there was an increase of $74 at The District of Howell Mill related to an increase in utility and repair and maintenance expenses during the nine months ended September 30, 2014, as compared to the same period in 2013.
Net provision for (recovery of) doubtful accounts relates to receivables deemed potentially uncollectible due to the age of the receivable or the status of the tenant. Provision for doubtful accounts increased by $73 for the nine months ended September 30, 2014 as compared to the same period of 2013, primarily related to $45 of higher bad debts during the Turn at our apartment properties. Additionally, there were higher bad debts of $51 at the Sherman Way properties related to tenant defaults during the nine months ended September 30, 2014 as compared to the same period in 2013. This was partially offset by lower bad debts of $23 at The District at Howell Mill related to a tenant default during the nine months ended September 30, 2013.

34



The following chart sets forth expenses not directly related to the operations of the reportable segments for the nine months ended September 30, 2014 and 2013:
 
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
 
$
 Change
 
%
 Change
Advisor fees
 
$
4,356

 
$
3,355

 
$
1,001

 
29.8
 %
Company level expenses
 
1,901

 
1,604

 
297

 
18.5

General and administrative
 
640

 
465

 
175

 
37.6

Acquisition related expenses
 
520

 
311

 
209

 
67.2

Depreciation and amortization
 
20,685

 
16,184

 
4,501

 
27.8

Interest expense
 
13,736

 
15,068

 
(1,332
)
 
(8.8
)
Debt modification expense
 

 
182

 
(182
)
 
(100.0
)
Equity in income of unconsolidated affiliate
 

 
57

 
(57
)
 
(100.0
)
Gain on disposition of property and extinguishment of debt
 
(589
)
 
(1,149
)
 
560

 
(48.7
)
(Income) loss from discontinued operations
 
(813
)
 
10,772

 
(11,585
)
 
(107.5
)
Total expenses
 
$
40,436

 
$
46,849

 
$
(6,413
)
 
(13.7
)%
Advisor fees relate to the fixed advisory fees earned by the Advisor. Fixed fees increase or decrease based on changes in our NAV which will be primarily impacted by changes in capital raised and the value of our properties. The increase in advisor fees of $1,001 for the nine months ended September 30, 2014 as compared to the same period of 2013 is primarily related to capital raised over the past year.
Company level expenses relate mainly to our compliance and administration related costs. Company level expenses increased $297 for the nine months ended September 30, 2014 as compared to the same period in 2013 primarily due to an increase in professional fees and higher corporate legal fees related to conducting the tender offer.
General and administrative expenses relate mainly to property expenses unrelated to the operations of the property. General and administrative expenses increased $175 due to the acquisition of properties during the nine months ended September 30, 2014. We expect general and administrative expenses to continue to increase as we acquire properties in the future.
Acquisition related expenses relate to expenses incurred during the acquisition of a property. Acquisition expenses increased $209 for the nine months ended September 30, 2014 as compared to the period ended September 30, 2013 as we acquired more properties during 2014 than we did during the same period in 2013.
Depreciation and amortization expense is impacted by the values assigned to buildings, personal property and in-place lease assets as part of the initial purchase price allocation. The increase of $4,501 in depreciation and amortization expense for the nine months ended September 30, 2014 as compared to the period ended September 30, 2013 is primarily related to an increase of $4,946 related to our 2013 and 2014 acquisitions. Additionally, there was an increase of $836 at Monument IV at Worldgate related to the commencement of the Amazon Corporate LLC and Fannie Mae Leases. These increases were partially offset by a decrease of $419 and $260 at Railway Street Corporate Centre and 111 Sutter Street, respectively, related to the in-place asset becoming fully amortized in 2013.
Interest expense decreased by $1,332 for the nine months ended September 30, 2014 as compared to the period ended September 30, 2013 as debt payoffs and interest savings from loan refinancings more than offset new debt incurred as part of our new property acquisitions.
Debt modification expenses in 2013 are due to expenses incurred for the mortgage note modification at 111 Sutter Street.
Equity in income of unconsolidated affiliate relates to our share of the income from Legacy Village, which was sold on October 29, 2013 to our joint venture partners.
Gain on disposition of property and extinguishment of debt of $589 is related to the dispositions of Stirling Slidell Shopping Centre and 4 Research Park Drive during the nine months ended September 30, 2014. Gain on extinguishment of debt of $1,149 is related to the early debt retirement at 36 Research Park Drive during the nine months ended September 30, 2013.
Income from discontinued operations in the period ended September 30, 2014 is related to bankruptcy proceeds from Canyon Plaza in the nine months ended September 30, 2014. Loss from discontinued operations in the period ended September 30, 2013 is related to the sales of the Dignity Health Disposition Portfolio and Canyon Plaza during 2013.

35



Funds From Operations
Consistent with real estate industry and investment community preferences, we consider FFO as a supplemental measure of the operating performance for a real estate investment trust and a complement to GAAP measures because it facilitates an understanding of the operating performance of our properties. The National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss) attributable to the Company (computed in accordance with GAAP), excluding gains or losses from cumulative effects of accounting changes, extraordinary items, impairment write-downs of depreciable real estate and sales of properties, plus real estate related depreciation and amortization and after adjustments for these items related to noncontrolling interests and unconsolidated affiliates.
FFO does not give effect to real estate depreciation and amortization because these amounts are computed to allocate the cost of a property over its useful life. Because values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, we believe that FFO provides investors with an additional view of our operating performance. We also use Adjusted FFO ("AFFO") as a supplemental measure of operating performance. We define AFFO as FFO adjusted for straight-line rental income, amortization of above- and below-market leases, amortization of net discount on assumed debt, gains or losses on the extinguishment or modification of debt and acquisition related costs.
In order to provide a better understanding of the relationship between FFO, AFFO and GAAP net income, the most directly comparable GAAP financial reporting measure, we have provided reconciliations of GAAP net income (loss) attributable to Jones Lang LaSalle Income Property Trust, Inc., to FFO and FFO to AFFO. FFO and AFFO do not represent cash flow from operating activities in accordance with GAAP, should not be considered as an alternative to GAAP net income and are not necessarily indicative of cash available to fund cash needs. Our presentations of FFO and AFFO are not necessarily comparable to the similarly titled measures of other REITs due to the fact that not all REITs use the same definitions.
The following table presents a reconciliation of net income (loss) to FFO for the periods presented:
 Reconciliation of net income (loss) to FFO
 
Three months ended September 30, 2014
 
Three months ended September 30, 2013
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
Net income (loss) attributable to Jones Lang LaSalle Income Property Trust, Inc.
 
$
969

 
$
(11,059
)
 
$
3,127

 
$
(13,306
)
Plus: Real estate depreciation and amortization (1)
 
7,010

 
6,707

 
19,672

 
26,294

Gain on disposition of property
 
(441
)
 

 
(441
)
 

Impairment of real estate held for sale
 

 
10,182

 

 
10,182

FFO attributable to Jones Lang LaSalle Income Property Trust, Inc.
 
$
7,538

 
$
5,830

 
$
22,358

 
$
23,170

Weighted average shares outstanding, basic and diluted
 
47,271,566

 
38,860,238

 
45,043,996

 
35,270,437

FFO per share, basic and diluted
 
$
0.16

 
$
0.15

 
$
0.50

 
$
0.66

(1)
Includes amounts attributable to discontinued operations, non-controlling interests and unconsolidated real estate affiliate.

36



The following table presents a reconciliation of FFO to AFFO for the periods presented:
 Reconciliation of FFO to AFFO
 
Three months ended September 30, 2014
 
Three months ended September 30, 2013
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
FFO attributable to Jones Lang LaSalle Income Property Trust, Inc.
 
$
7,538

 
$
5,830

 
$
22,358

 
$
23,170

Straight-line rental income (1)
 
(332
)
 
(751
)
 
(1,931
)
 
(2,754
)
Amortization of above- and below-market leases (1)
 
(344
)
 
(266
)
 
(1,055
)
 
(4,569
)
Amortization of net discount on assumed debt (1)
 
(78
)
 
(136
)
 
(231
)
 
(620
)
Gain on derivative instruments and extinguishment or modification of debt
 
(206
)
 
(1,149
)
 
(90
)
 
(967
)
Acquisition expenses
 
5

 
220

 
520

 
311

AFFO attributable to Jones Lang LaSalle Income Property Trust, Inc.
 
$
6,583

 
$
3,748

 
$
19,571

 
$
14,571

Weighted average shares outstanding, basic and diluted
 
47,271,566

 
38,860,238

 
45,043,996

 
35,270,437

AFFO per share, basic and diluted
 
$
0.14

 
$
0.10

 
$
0.43

 
$
0.41

(1)
Includes amounts attributable to discontinued operations, non-controlling interests and unconsolidated real estate affiliate.
NAV as of September 30, 2014
The NAV per share for our Class A, Class M, Class M-I and Class D shares as of September 30, 2014 was $10.42, $10.44, $10.44 and $10.43, respectively. The increase in NAV of Class A and M shares from December 31, 2013, is primarily related to a net increase of 1.3% in the value of our properties, which resulted in an increase in NAV of $0.25 per share for the year. Property operations for the nine months ended September 30, 2014 had a slightly positive impact on NAV as property operations exceeded dividends declared for the period. Our NAV for the different share classes is reduced by normal and recurring class-specific fees and offering and organization costs.
The following table provides a breakdown of the major components of our NAV as of September 30, 2014 and December 31, 2013:
 
 
September 30, 2014
 
December 31, 2013
Component of NAV
 
Class A Shares
 
Class M Shares
 
Class M-I Shares
 
Class D Shares
 
Class A Shares
 
Class M Shares
Real estate investments (1)
 
$
328,904

 
$
461,662

 
$
1,743

 
$
59,887

 
$
221,587

 
$
487,332

Debt
 
(149,672
)
 
(210,085
)
 
(793
)
 
(27,252
)
 
(100,775
)
 
(221,632
)
Other assets and liabilities, net
 
10,955

 
15,377

 
58

 
1,994

 
11,812

 
25,977

Estimated enterprise value premium
 
None 
Assumed

 
None 
Assumed

 
None 
Assumed

 
None 
Assumed

 
None 
Assumed

 
None 
Assumed

NAV
 
$
190,187

 
$
266,954

 
$
1,008

 
$
34,629

 
$
132,624

 
$
291,677

Number of outstanding shares
 
18,259,345

 
25,570,007

 
96,525

 
3,320,683

 
13,043,452

 
28,634,822

NAV per share
 
$
10.42

 
$
10.44

 
$
10.44

 
$
10.43

 
$
10.17

 
$
10.19


(1)
The value of our real estate investments was less than the historical cost by approximately 3.9% and 8.4% as of September 30, 2014 and December 31, 2013, respectively.
The following are key assumptions (shown on a weighted-average basis) that are used in the discounted cash flow models to estimate the value of our real estate investments as of September 30, 2014:
 
 
Apartment
 
Industrial
 
Office
 
Retail
 
Other (1)
 
Total
Company
Exit capitalization rate
 
6.94
%
 
6.44
%
 
6.63
%
 
6.59
%
 
N/A

 
6.66
%
Discount rate/internal rate of return (IRR)
 
8.25

 
7.34

 
7.70

 
7.25

 
8.75
%
 
7.72

Annual market rent growth rate
 
2.79

 
3.03

 
3.17

 
3.31

 
3.89

 
3.09

Holding period (years)
 
10.00

 
10.00

 
10.00

 
10.00

 
35.00

 
12.00


(1)
The Other category includes South Beach Parking Garage, which is subject to a ground lease. The appraisal of the garage incorporated discounted cash flows over the remaining term of the ground lease.

37



The following are key assumptions (shown on a weighted-average basis) that are used in the discounted cash flow models to estimate the value of our real estate investments as of December 31, 2013:
 
 
Apartment
 
Industrial
 
Office
 
Retail
 
Total
Company
Exit capitalization rate
 
6.94
%
 
6.72
%
 
6.82
%
 
7.32
%
 
6.90
%
Discount rate/internal rate of return (IRR)
 
8.26

 
7.80

 
8.03

 
7.76

 
8.03

Annual market rent growth rate
 
2.84

 
2.89

 
3.27

 
3.31

 
3.08

Holding period (years)
 
10.00

 
10.00

 
10.00

 
10.00

 
10.00

While we believe our assumptions are reasonable, a change in these assumptions would impact the calculation of the value of our real estate assets. For example, assuming all other factors remain unchanged, an increase in the weighted-average discount rate/internal rate of return (IRR) used as of September 30, 2014 of 0.25% would yield a decrease in our total real estate asset value of 1.70% and our NAV per each share class would have been $10.11, $10.13, $10.13 and $10.12 for Class A, Class M, Class M-I and Class D, respectively. An increase in the weighted-average discount rate/internal rate of return (IRR) used as of December 31, 2013 of 0.25% would yield a decrease in our total real estate asset value of 1.54% and our NAV per each share class would have been $9.91 and $9.93 for Class A and Class M, respectively.
Limitations and Risks
As with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different NAV per share. Accordingly, with respect to our NAV per share, we can provide no assurance that:
a stockholder would be able to realize this NAV per share upon attempting to resell his or her shares;
we would be able to achieve for our stockholders the NAV per share upon a listing of our shares of common stock on a national securities exchange, selling our real estate portfolio, or merging with another company; or
the NAV per share, or the methodologies relied upon to estimate the NAV per share, will be found by any regulatory authority to comply with any regulatory requirements.
Furthermore, the NAV per share was calculated as of a particular point in time. The NAV per share will fluctuate over time in response to, among other things, changes in real estate market fundamentals, capital markets activities, and attributes specific to the properties and leases within our portfolio.


38



Liquidity and Capital Resources
Our primary uses and sources of cash are as follows:
Uses
 
Sources
 
 
 
 
Short-term liquidity and capital needs such as:
 
Operating cash flow, including the receipt of distributions of our share of cash flow produced by our unconsolidated real estate affiliates
Interest payments on debt
 
 
Distributions to stockholders
 
Proceeds from secured loans collateralized by individual properties
Fees payable to the Advisor
 
 
Minor improvements made to individual properties that are not recoverable through expense recoveries or common area maintenance charges to tenants
 
Proceeds from our revolving line of credit
 
 
Sales of our shares
General and administrative costs
 
Sales of real estate investments
Costs associated with our continuous public offering
 
Draws from lender escrow accounts
Other Company level expenses
 
 
 
Lender escrow accounts for real estate taxes, insurance, and capital expenditures
 
 
 
Fees payable to our Dealer Manager
 
 
 
 
 
 
 
 
Longer-term liquidity and capital needs such as:
 
 
 
Acquisitions of new real estate investments
 
 
 
Expansion of existing properties
 
 
 
Tenant improvements and leasing commissions
 
 
 
Debt repayment requirements, including both principal and interest
 
 
 
Repurchases of our shares pursuant to our Share Repurchase Plan
 
 
 
The sources and uses of cash for the nine months ended September 30, 2014 and 2013 were as follows:
 
 
 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
 
$ Change
Net cash provided by operating activities
 
$
23,449

 
$
16,082

 
$
7,367

Net cash used in investing activities
 
(129,612
)
 
(115,692
)
 
(13,920
)
Net cash provided by financing activities
 
111,643

 
76,653

 
34,990

Cash provided by operating activities increased by $7,367 for the nine months ended September 30, 2014, as compared to the same period in 2013. An increase of $6,969 in cash from operating activities is primarily related to leasing of Monument IV at Worldgate and acquisitions of new properties. Also impacting our cash provided by operating activities are changes in our working capital, which include tenant accounts receivable, prepaid expenses and other assets, Advisor fee payable and accounts payable and other accrued expenses. These changes in our working capital caused an increase to cash provided by operating activities of $398 between the nine months ended September 30, 2014 and the same period in 2013, primarily related to higher accrued real estate taxes.
Cash used in investing activities increased by $13,920 for the nine months ended September 30, 2014, as compared to the same period in 2013. The increase was primarily related to the acquisition of five properties totaling $136,865 during the nine months ended September 30, 2014 as compared to the acquisition of three properties totaling $103,295 for the same period in 2013. The increase in 2014 was slightly offset by net proceeds from the sale of Stirling Slidell totaling $14,301.
Cash provided by financing activities increased by $34,990 for the nine months ended September 30, 2014 as compared to the same period in 2013. An increase of $36,770 in proceeds from mortgage notes payable is related to debt placed on new acquisitions. Additionally, a decrease in principal payments on mortgage notes of $55,747 is related to the retirement of various mortgage notes and other debt payable during the nine months ended September 30, 2013. Offsetting the increase is $51,988 related to the repurchase of shares during 2014 primarily related to the tender offer discussed in Note 6 (Common Stock).

39



Financing
We have relied primarily on fixed-rate financing, locking in what were favorable spreads between real estate income yields and mortgage interest rates, and have tried to maintain a balanced schedule of debt maturities. We also use interest rate derivatives to manage our exposure to interest rate movements on our variable rate debt. The following consolidated debt table provides information on the outstanding principal balances and the weighted average interest rates at September 30, 2014 and December 31, 2013 for such debt.
Consolidated Debt
 
 
 
September 30, 2014
 
December 31, 2013
 
 
Principal
Balance
 
Weighted Average Interest Rate
 
Principal
Balance
 
Weighted Average Interest Rate
Fixed
 
$
311,888

 
4.77
%
 
$
255,985

 
5.05
%
Variable
 
109,930

 
2.58

 
100,680

 
2.64

Total
 
$
421,818

 
4.20
%
 
$
356,665

 
4.37
%

Contractual Cash Obligations and Commitments
From time to time, we have entered into contingent agreements for the acquisition and financing of properties. Such acquisitions and financings are subject to satisfactory completion of due diligence.
We are subject to fixed ground lease payments on South Beach Parking Garage of $94 per year until September 30, 2016. The fixed amount will increase every five years thereafter by the lesser of 12% or the cumulative CPI over the previous five year period. We are also subject to a variable ground lease payment calculated as 2.5% of revenue. The lease expires September 30, 2041 and has one ten-year renewal option.
Other Sources
On October 1, 2012, the SEC declared effective our registration statement on Form S-11 (File No. 333-177963) with respect to our continuous Public Offering of up to $3,000,000 in any combination of Class A and Class M shares of common stock, consisting of up to $2,700,000 of shares in our primary Public Offering and up to $300,000 of shares pursuant to our distribution reinvestment plan. We intend to offer shares of our common stock on a continuous basis for an indefinite period of time by filing a new registration statement before the end of each three-year offering period, subject to regulatory approval. We intend to use the net proceeds from the Public Offering, which are not used to pay the fees and other expenses attributable to our operations, to (1) grow and further diversify our portfolio by making investments in accordance with our investment strategy and policies, (2) reduce borrowings and repay indebtedness incurred under various financing instruments and (3) fund repurchases under our share repurchase plan.
On June 18, 2014, we filed a registration statement on Form S-11 (File No. 333-196886) with the SEC to register our Follow-On Offering of up to $2,700,000 in any combination of shares of our Class A, Class M, Class A-I and Class M-I common stock, consisting of up to $2,400,000 of shares offered in the primary offering and up to $300,000 in shares offered pursuant to our distribution reinvestment plan. Proceeds from our Follow-On Offering will be used for the same corporate purposes as the proceeds of the Public Offering.
We are currently engaged in a Private Offering of up to $400,000 in any combination of our Class A-I, Class M-I and
Class D shares of common stock. Upon the SEC declaring the registration statement for our Follow-on Offering effective, we will terminate the Private Offering for Class A-I and M-I shares and our ongoing Public Offering and commence the Follow-on Offering. We will reserve the right to terminate the Follow-on Offering at any time and to extend the Follow-on Offering term to the extent permissible under applicable law.
Off Balance Sheet Arrangements
At September 30, 2014 and December 31, 2013, we had approximately $150 in outstanding letters of credit, none of which are reflected as liabilities on our balance sheet. We have no other off balance sheet arrangements.

40



Distributions to Stockholders
To remain qualified as a REIT for federal income tax purposes, we must distribute or pay tax on 100% of our capital gains and distribute at least 90% of ordinary taxable income to stockholders.
The following factors, among others, will affect operating cash flow and, accordingly, influence the decisions of our board of directors regarding distributions:
scheduled increases in base rents of existing leases;
changes in minimum base rents and/or overage rents attributable to replacement of existing leases with new or renewal leases;
changes in occupancy rates at existing properties and procurement of leases for newly acquired or developed properties;
necessary capital improvement expenditures or debt repayments at existing properties; and
our share of distributions of operating cash flow generated by the unconsolidated real estate affiliate, less management costs and debt service on additional loans that have been or will be incurred.
We anticipate that operating cash flow, cash on hand, proceeds from dispositions of real estate investments, or refinancings will provide adequate liquidity to conduct our operations, fund general and administrative expenses, fund operating costs and interest payments and allow distributions to our stockholders in accordance with the REIT qualification requirements of the Internal Revenue Code of 1986, as amended.
Recently Issued Accounting Pronouncements
In April 2014, FASB issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends GAAP to require reporting of discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This pronouncement will be effective for the first annual reporting period beginning after December 15, 2014 with early adoption permitted. We adopted this accounting pronouncement effective January 1, 2014.
In May 2014, the FASB issued an accounting standard update that will use a five step model to recognize revenue from customer contracts in an effort to increase consistency and comparability throughout global capital markets and across industries.  The model will identify the contract, identify any separate performance obligations in the contract, determine the transaction price, allocate the transaction price and recognize revenue when the performance obligation is satisfied.  The new standard will replace most existing revenue recognition in GAAP when it becomes effective for us on January 1, 2017.  We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
We are subject to market risk associated with changes in interest rates in terms of our variable-rate debt and the price of new fixed-rate debt for refinancing of existing debt. We manage our interest rate risk exposure by obtaining fixed-rate loans where possible as well as by entering into interest rate cap and swap agreements. As of September 30, 2014, we had consolidated debt of $421,818, which included $109,930 of variable-rate debt. Including the $898 net premium on the assumption of debt, we have consolidated debt of $422,716 at September 30, 2014. We also entered into interest rate cap and swap agreements on $106,530 of debt which cap the LIBOR rate at between 1.0% and 3.6% over the next three years. A 0.25% movement in the interest rate on the $109,930 of variable-rate debt would have resulted in an approximately $275 annualized increase or decrease in consolidated interest expense and cash flow from operating activities.
We are subject to interest rate risk with respect to our fixed-rate financing in that changes in interest rates will impact the fair value of our fixed-rate financing. To determine fair market value, the fixed-rate debt is discounted at a rate based on an estimate of current lending rates, assuming the debt is outstanding through maturity and considering the collateral. At September 30, 2014, the fair value of our mortgage notes payable was estimated to be approximately $4,765 higher than the carrying value of $421,818. If treasury rates were 0.25% higher at September 30, 2014, the fair value of our mortgage notes payable would have been approximately $742 lower than the carrying value.
In August 2007, we purchased Railway Street Corporate Centre located in Calgary, Canada. For this investment, we use the Canadian dollar as the functional currency. When preparing consolidated financial statements, assets and liabilities of foreign entities are translated at the exchange rates at the balance sheet date, while income and expense items are translated at

41



weighted average rates for the period. Foreign currency translation adjustments are recorded in accumulated other comprehensive income on the Consolidated Balance Sheet and foreign currency translation adjustment on the Consolidated Statement of Operations and Comprehensive Income (Loss).
As a result of our Canadian investment, we are subject to market risk associated with changes in foreign currency exchange rates. These risks include the translation of local currency balances of our Canadian investment and transactions denominated in Canadian dollars. Our objective is to control our exposure to these risks through our normal operating activities. For the nine months ended September 30, 2014 and 2013, we recognized a foreign currency translation loss of $474 and $529, respectively. At September 30, 2014, a 10% unfavorable exchange rate movement would have caused our $474 foreign currency translation loss to be increased by $786, resulting in a foreign currency translation loss of approximately $1,260.
Item 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on management’s evaluation as of September 30, 2014, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
PART II
OTHER INFORMATION

Item 1.
Legal Proceedings.
We are involved in various claims and litigation matters arising in the ordinary course of business, some of which involve claims for damages. Many of these matters are covered by insurance, although they may nevertheless be subject to deductibles or retentions. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have a material adverse effect on our financial position, results of operations, or liquidity.
Item 1A.
Risk Factors.
The most significant risk factors applicable to the Company are described in Item 1A to our 2013 Form 10-K. The following risk factor supplements the risk factors set forth in our 2013 Form 10-K.
The mortgage loans on two of our properties provide that the issuance, transfer and redemption of our shares are permitted only so long as we are advised by LaSalle, its affiliate, or a suitable successor or replacement, which could limit our ability to terminate our advisor, or make such termination costly.
The loan agreement executed on April 30, 2007 in connection with the mortgage loan on Station Nine Apartments, or the loan agreement, provides that the transfer or redemption of shares of our common stock and the transfer of ownership of Station Nine Apartments or our subsidiary which owns Station Nine Apartments are permitted equity transfers under the loan agreement only so long as we are advised by LaSalle or its affiliate, a successor by merger to LaSalle or its affiliate or any entity that, together with its affiliates, owns, manages, advises or lends against commercial real estate assets of at least $1.0 billion. In the event that we ceased to be advised by LaSalle or its affiliate or another qualifying entity under the loan agreement, any transfer or redemption of our shares or transfer or sale of Station Nine Apartments could be deemed an event of default under the loan agreement. Such an event of default would entitle the lender to exercise all rights and remedies available under the loan agreement and the other loan documents and at law and in equity, including, without limitation, declaring the full

42



amount of the loan immediately due and payable and seeking foreclosure. The loan on Station Nine Apartments may be prepaid, subject to the payment of a prepayment fee of the greater of 1% of the outstanding loan balance or yield maintenance.
The deed of trust executed on June 17, 2005 in connection with the mortgage loan on 111 Sutter Street, or the deed of trust, provides that the issuance, transfer or redemption of shares of our common stock are permitted transfers under the deed of trust only so long as we are advised by LaSalle or its affiliate, a successor by merger to LaSalle or its affiliate or any entity that, together with its affiliates, owns, manages, advises or lends against commercial real estate assets of at least $3.0 billion. In the event that we ceased to be advised by LaSalle or its affiliate or another qualifying entity under the deed of trust, any issuance, transfer or redemption of shares of our common stock could be deemed an event of default under the deed of trust. Such an event of default would entitle the beneficiary under the deed of trust to exercise all rights and remedies available under the deed of trust and the other loan documents and at law and in equity, including, without limitation, declaring the full amount of the loan immediately due and payable and seeking foreclosure. The loan on 111 Sutter Street may be prepaid, subject to the payment of a prepayment fee of the greater of 3% of the outstanding loan balance or yield maintenance.
The foregoing provisions could have the effect of limiting our ability to terminate our advisor or, in the event that we incur a fee in connection with the prepayment of the loan on Station Nine Apartments or 111 Sutter Street, make such a termination more costly. In addition, in the event that we were to default under the loan agreement or the deed of trust, it could have a material adverse effect on our business, results of operations or financial condition.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Our share repurchase plan limits repurchases during any calendar quarter to shares with an aggregate value (based on the repurchase price per share on the day the repurchase is effected) of 5% of the combined NAV of all classes of shares as of the last day of the previous calendar quarter, which means that in any 12-month period, we limit repurchases to approximately 20% of our total NAV. If the quarterly volume limitation is reached on or before the third business day of a calendar quarter, repurchase requests during the next quarter will be satisfied on a stockholder by stockholder basis, which we refer to as a “per stockholder allocation,” instead of a first-come, first-served basis. Pursuant to the per stockholder allocation, each of our stockholders would be allowed to request repurchase at any time during such quarter of a total number of shares not to exceed 5% of the shares of common stock the stockholder held as of the end of the prior quarter. The per stockholder allocation requirement will remain in effect for each succeeding quarter for which the total repurchases for the immediately preceding quarter exceeded four percent of our NAV on the last business day of such preceding quarter. If total repurchases during a quarter for which the per stockholder allocation applies are equal to or less than four percent of our NAV on the last business day of such preceding quarter, then repurchases will again be first-come, first-served for the next succeeding quarter and each quarter thereafter.
Moreover, until our total NAV has reached $600,000, repurchases for shares of all classes in the aggregate may not exceed 25% of the gross proceeds received by us from the commencement of our public and private offerings through the last day of the prior calendar quarter.
During the three months ended September 30, 2014, we repurchased 118,095 and 116,277 shares of Class A and Class M common stock, respectively, under the share repurchase plan.
Period
  
Total Number of Shares Redeemed
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
 
Maximum Number of Shares that May Yet Be Purchased Pursuant to the Program (2)
July 1-July 31, 2014 (3)
 
146,276
 
$10.42
 
55,617
 
August 1-August 31, 2014
 
135,275
 
$10.47
 
135,275
 
September 1-September 30, 2014
 
43,480
 
$10.47
 
43,480
 
(1)     On October 1, 2012, we adopted our current share repurchase plan.
(2)     Redemptions are limited as described above. 
(3) In July 2014, we repurchased 90,659 shares of our Class M common stock in privately negotiated transactions at an
approximate 2-3% discount to the Class M NAV per share.
On October 1, 2012, our registration statement on Form S-11 (File No. 333-177963), with respect to our Public Offering of up to $3,000,000 of shares of common stock, of which $2,700,000 of shares of common stock are being offered pursuant to our primary offering and $300,000 of shares of common stock are being offered pursuant to our distribution reinvestment plan, was declared effective under the Securities Act and we commenced the Public Offering. The per share price for each class equals the daily NAV per share for such class, plus, for Class A shares only, applicable selling commissions, with discounts available to certain categories of purchasers.

43



As of September 30, 2014, we have sold the following shares of common stock and raised the following proceeds in connection with the Public Offering:
 
Shares
 
Proceeds
Primary Offering
 
 
 
Class A Shares
18,102,506

 
$
186,364

Class M Shares
3,980,096

 
40,799

Distribution Reinvestment Plan
 
 
 
Class A Shares
425,430

 
4,369

Class M Shares
112,508

 
1,160

Total
22,620,540

 
$
232,692

On June 18, 2014, we filed a registration statement on Form S-11 (File No. 333-196886) with the SEC to register a public offering of up to $2,700,000 in any combination of shares of our Class A, Class M, Class A-I and Class M-I common stock, consisting of up to $2,400,000 of shares offered in our primary offering and up to $300,000 in shares offered pursuant to our distribution reinvestment plan (the "Follow-on Offering").
As of September 30, 2014, we incurred the following costs in connection with the issuance and distribution of shares of our common stock in the Public Offering:
Type of Cost
 
Amount
Offering costs to related parties (1)
$
13,369


(1)
Comprised of $1,399 in selling commissions, $2,623 in dealer manager fees, $1,071 in distribution fees and $8,276 in other offering costs. Selling commissions, dealer manager fees and distribution fees of $3,684 have been reallowed to third parties.
From the commencement of the Public Offering through September 30, 2014, the net proceeds to us from our Public Offering, excluding DRIP proceeds, after deducting the total expenses incurred described above, were $213,794. From the commencement of the Public Offering through September 30, 2014, net proceeds from our Public Offering have been allocated to reduce borrowings by $109,613 and to purchase interests in real estate of $104,181.
We are currently engaged in a private offering of up to $400,000 in any combination of our Class A-I, Class M-I and Class D shares of common stock (the "Private Offering"). Upon the SEC declaring the registration statement for our Follow-on Offering effective, we will terminate the Private Offering for Class A-I and M-I shares and the Public Offering and commence the Follow-on Offering. We will reserve the right to terminate the Follow-on Offering at any time and to extend the Follow-on Offering term to the extent permissible under applicable law.
As of September 30, 2014, we have sold the following shares of common stock and raised the following proceeds in connection with the Private Offering:
 
Shares
 
Proceeds
Private Offering
 
 
 
Class M-I Shares
96,525

 
$
1,000

Class D Shares
3,320,683

 
35,000

Total
3,417,208

 
$
36,000

From the commencement of the Private Offering through September 30, 2014, the net proceeds to us were used to increase our cash and cash equivalents and fund redemptions.
Item 3.
Defaults Upon Senior Securities.
Not applicable.
Item 4.
Mine Safety Disclosures.
Not applicable.

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Item 5.
Other Information.
None.
Item 6.
Exhibits.
The Exhibit Index that immediately follows the signature page to this Form 10-Q is incorporated herein by reference.


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Jones Lang LaSalle Income Property Trust, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
JONES LANG LASALLE INCOME PROPERTY TRUST, INC.
 
 
 
 
Date:
November 6, 2014
By:
/s/ C. Allan Swaringen
 
 
 
C. Allan Swaringen
 
 
 
President, Chief Executive Officer

46



EXHIBIT INDEX
 
Exhibit No.
  
Description
 
 
 
1.1
 
Dealer Manager Agreement between Jones Lang LaSalle Income Property Trust, Inc. and LaSalle     Investment Management Distributors, LLC, dated as of July 8, 2014 (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 9, 2014)
 
 
 
3.1
 
Articles of Amendment to the Second Articles of Amendment and Restatement of Jones Lang LaSalle Income Property Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 9, 2014)
 
 
 
31.1
  
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
  
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
  
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
  
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS*
  
XBRL Instance Document
 
 
101.SCH*
  
XBRL Schema Document
 
 
101.CAL*
  
XBRL Calculation Linkbase Document
 
 
101.DEF*
  
Definition Linkbase Document
 
 
101.LAB*
  
XBRL Labels Linkbase Document
 
 
101.PRE*
  
XBRL Presentation Linkbase Document
 
*    Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or 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 Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.





47