DC Industrial Liquidating Trust - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - DC Industrial Liquidating Trust	Financial_Report.xls
EX-31.2 - EX-31.2 - DC Industrial Liquidating Trust	d782091dex312.htm
EX-32.1 - EX-32.1 - DC Industrial Liquidating Trust	d782091dex321.htm
EX-31.1 - EX-31.1 - DC Industrial Liquidating Trust	d782091dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2014

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

For the transition period from to

Commission file number: 000-54372

Industrial Income Trust Inc.

(Exact name of registrant as specified in its charter)

Maryland

27-0477259

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)


518 Seventeenth Street, 17^th Floor, Denver, CO		80202
(Address of principal executive offices)		(Zip Code)

(303) 228-2200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

As of November 5, 2014, there were 211,911,187 shares of the registrant’s common stock outstanding.

INDUSTRIAL INCOME TRUST INC.

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013		3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)		4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)		5
	Condensed Consolidated Statement of Equity for the Nine Months Ended September 30, 2014 (unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (unaudited)		7
	Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 4.	Controls and Procedures		28

PART II. OTHER INFORMATION

Item 1A.	Risk Factors		29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 6.	Exhibits		32

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

INDUSTRIAL INCOME TRUST INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,
(in thousands, except per share data)	2014		2013
	(unaudited)
ASSETS
Net investment in real estate properties	$	3,520,401	$	3,499,570
Investment in unconsolidated joint ventures		8,207		8,066
Cash and cash equivalents		11,161		18,358
Restricted cash		4,094		2,813
Straight-line and tenant receivables, net		42,912		34,111
Notes receivable		3,612		3,612
Other assets		38,038		47,534

Total assets	$	3,628,425	$	3,614,064


LIABILITIES AND EQUITY
Liabilities
Accounts payable and accrued expenses	$	30,406	$	29,092
Debt		1,945,897		1,876,631
Distributions payable		32,896		32,301
Other liabilities		83,121		83,958

Total liabilities		2,092,320		2,021,982

Commitments and contingencies (Note 10)

Equity
Stockholders’ equity:
Preferred stock, $0.01 par value - 200,000 shares authorized, none issued and outstanding		-		-
Common stock, $0.01 par value - 1,000,000 shares authorized, 210,254 and 206,743 shares issued and outstanding, respectively		2,102		2,067
Additional paid-in capital		1,907,869		1,874,539
Accumulated deficit		(372,838)		(287,138)
Accumulated other comprehensive (loss) income		(1,029)		2,613

Total stockholders’ equity		1,536,104		1,592,081
Noncontrolling interests		1		1

Total equity		1,536,105		1,592,082

Total liabilities and equity	$	3,628,425	$	3,614,064

See accompanying Notes to Condensed Consolidated Financial Statements.

INDUSTRIAL INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
(in thousands, except per share data)	2014		2013		2014		2013
Revenues:
Rental revenues	$	76,530	$	65,098	$	234,933	$	171,654

Total revenues		76,530		65,098		234,933		171,654


Operating expenses:
Rental expenses		19,494		16,843		62,146		43,641
Real estate-related depreciation and amortization		33,868		31,025		106,728		84,909
General and administrative expenses		1,467		1,661		5,151		5,114
Asset management fees, related party		7,393		6,077		22,029		15,831
Acquisition expenses, related party		1,690		5,627		3,432		10,961
Acquisition and strategic transaction expenses		465		4,347		819		12,315

Total operating expenses		64,377		65,580		200,305		172,771


Operating income (loss)		12,153		(482)		34,628		(1,117)

Other (expenses) income:
Equity in loss of unconsolidated joint ventures		(9)		(1,349)		(39)		(2,805)
Interest expense and other		(15,319)		(12,488)		(46,629)		(35,526)
Gain on disposition of real estate properties		-		-		24,471		-
Gain on acquisition of joint venture		-		26,481		-		26,481
Incentive fee from acquisition of joint venture		-		1,985		-		1,985

Total other (expenses) income		(15,328)		14,629		(22,197)		(9,865)

Net (loss) income		(3,175)		14,147		12,431		(10,982)
Net (loss) income attributable to noncontrolling interests		-		-		-		-

Net (loss) income attributable to common stockholders	$	(3,175)	$	14,147	$	12,431	$	(10,982)


Weighted-average shares outstanding		210,542		203,024		209,374		170,474

Net (loss) income per common share - basic and diluted	$	(0.02)	$	0.07	$	0.06	$	(0.06)

See accompanying Notes to Condensed Consolidated Financial Statements.

INDUSTRIAL INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
(in thousands)	2014		2013		2014		2013
Net (loss) income attributable to common stockholders	$	(3,175)	$	14,147	$	12,431	$	(10,982)
Unrealized gain (loss) on derivative instruments		2,311		(1,450)		(3,642)		1,075

Comprehensive (loss) income attributable to common stockholders	$	(864)	$	12,697	$	8,789	$	(9,907)

See accompanying Notes to Condensed Consolidated Financial Statements.

INDUSTRIAL INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)


	Stockholders’ Equity
					Additional				Accumulated Other
	Common Stock				Paid-In		Accumulated		Comprehensive		Noncontrolling		Total
(in thousands)	Shares		Amount		Capital		Deficit		Income (Loss)		Interests		Equity
Balance as of December 31, 2013		206,743	$	2,067	$	1,874,539	$	(287,138)	$	2,613	$	1	$	1,592,082
Net income		-		-		-		12,431		-		-		12,431
Unrealized loss on derivative instruments		-		-		-		-		(3,642)		-		(3,642)
Issuance of common stock		4,991		50		48,537		-		-		-		48,587
Share-based compensation		-		-		442		-		-		-		442
Offering costs		-		-		(850)		-		-		-		(850)
Redemptions of common stock		(1,480)		(15)		(14,799)		-		-		-		(14,814)
Distributions to stockholders		-		-		-		(98,131)		-		-		(98,131)

Balance as of September 30, 2014		210,254	$	2,102	$	1,907,869	$	(372,838)	$	(1,029)	$	1	$	1,536,105

See accompanying Notes to Condensed Consolidated Financial Statements.

INDUSTRIAL INCOME TRUST INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Nine Months
	Ended September 30,
(in thousands)	2014		2013
Operating activities:
Net income (loss)	$	12,431	$	(10,982)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Real estate-related depreciation and amortization		106,728		84,909
Equity in loss of unconsolidated joint ventures		39		2,805
Gain on disposition of real estate properties		(24,471)		-
Gain on acquisition of joint venture		-		(26,481)
Incentive fee from acquisition of joint venture		-		(1,985)
Straight-line rent and amortization of above- and below-market leases		(9,715)		(8,562)
Other		1,692		1,665
Changes in operating assets and liabilities:
Tenant receivables and other assets		(1,449)		(3,809)
Accounts payable, accrued expenses and other liabilities		(4,129)		17,167

Net cash provided by operating activities		81,126		54,727

Investing activities:
Real estate acquisitions		(116,826)		(815,634)
Acquisition of joint venture		-		(126,010)
Acquisition deposits		(17,220)		(28,367)
Capital expenditures and development activities		(84,697)		(55,098)
Investment in unconsolidated joint ventures		(181)		(19,802)
Distributions from unconsolidated joint ventures		-		3,754
Proceeds from disposition of real estate properties		125,310		-
Other		-		(247)

Net cash used in investing activities		(93,614)		(1,041,404)

Financing activities:
Proceeds from issuance of mortgage notes		17,500		-
Repayments of mortgage notes		(4,964)		(9,975)
Proceeds from issuance of term loan		-		300,000
Proceeds from lines of credit		165,000		705,000
Repayments of lines of credit		(107,000)		(610,000)
Proceeds from issuance of common stock		-		721,768
Offering costs for issuance of common stock		(908)		(69,781)
Distributions paid to common stockholders		(48,941)		(35,793)
Redemptions of common stock		(14,814)		(9,592)
Other		(582)		(1,849)

Net cash provided by financing activities		5,291		989,778

Net (decrease) increase in cash and cash equivalents		(7,197)		3,101
Cash and cash equivalents, at beginning of period		18,358		24,550

Cash and cash equivalents, at end of period	$	11,161	$	27,651

Supplemental disclosure of cash flow information:
Distributions payable	$	32,896	$	31,725
Distributions reinvested in common stock		48,595		31,853
Debt assumed on real estate and joint venture acquisitions		-		241,280
Acquired investment in unconsolidated joint venture		-		104,246

See accompanying Notes to Condensed Consolidated Financial Statements.

INDUSTRIAL INCOME TRUST INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	BASIS OF PRESENTATION

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

The accompanying unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain disclosures normally included in the annual audited financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been omitted. As such, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on February 19, 2014.

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

Reclassifications

Certain amounts included in the accompanying condensed consolidated balance sheet for 2013 have been reclassified from accounts payable and accrued expenses to other liabilities to conform to the 2014 presentation.

Recent Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”), which changes the criteria at which a disposal will qualify as a discontinued operation and requires new disclosure of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under the revised standard, the definition of discontinued operations has been changed so that only disposals of components that represent strategic shifts qualify for discontinued operations reporting. As permitted, the Company adopted ASU 2014-08 early, and it became effective for the Company for the quarter ended March 31, 2014. The adoption of this standard did not have an impact on the Company’s results of operations, financial position or liquidity.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which provides guidance for revenue recognition and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.” The standard is based on the principle that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance specifically excludes revenue derived from lease contracts from its scope. The standard will be effective for the Company in the first quarter of fiscal year 2017. Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

2.	INVESTMENT IN REAL ESTATE PROPERTIES

As of September 30, 2014 and December 31, 2013, the Company’s consolidated investment in real estate properties consisted of 283 and 296 industrial buildings, respectively, totaling approximately 57.6 million and 57.2 million square feet, respectively.


(in thousands)	September 30, 2014		December 31, 2013
Land	$	904,581	$	874,779
Building and improvements		2,466,117		2,430,999
Intangible lease assets		375,312		390,809
Under construction and other (1)		85,008		15,905

Investment in real estate properties		3,831,018		3,712,492
Less accumulated depreciation and amortization		(310,617)		(212,922)

Net investment in real estate properties	$	3,520,401	$	3,499,570

(1)	As of September 30, 2014, the Company had three buildings under construction totaling approximately 0.3 million square feet, and three buildings where construction has not yet commenced totaling approximately 0.3 million square feet.

Intangible Lease Assets and Liabilities

Intangible lease assets and liabilities included the following:


	September 30, 2014						December 31, 2013
(in thousands)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Intangible lease assets	$	334,950	$	(150,812)	$	184,138	$	347,186	$	(106,872)	$	240,314
Above-market lease assets		40,362		(19,878)		20,484		43,623		(14,453)		29,170
Below-market lease liabilities		(37,177)		10,016		(27,161)		(37,621)		5,763		(31,858)

Rental Revenue and Depreciation and Amortization Expense

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


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Increase (Decrease) to Rental Revenue:
Straight-line rent adjustments	$	3,197	$	5,377	$	12,247	$	11,307
Above-market lease amortization		(1,885)		(2,004)		(6,945)		(5,450)
Below-market lease amortization		1,428		1,134		4,413		2,705

Real Estate-Related Depreciation and Amortization:
Depreciation expense	$	19,095	$	15,276	$	56,674	$	38,889
Intangible lease asset amortization		14,773		15,749		50,054		46,020

3.	INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

The Company enters into joint ventures primarily for purposes of jointly investing in, developing, and acquiring industrial properties located in major U.S. distribution markets. The Company’s investment in joint ventures is included in investment in unconsolidated joint ventures on the Company’s condensed consolidated balance sheets. The following table summarizes the Company’s unconsolidated joint ventures:


	As of September 30, 2014		Investment in Unconsolidated Joint Ventures as of
($ in thousands)	Percent Ownership	Number of Buildings	September 30, 2014		December 31, 2013
Park 355 DC II	75%	1	$	3,967	$	3,791
Valley Parkway	50%	1		4,240		4,275

Total		2	$	8,207	$	8,066

4.	DISPOSITIONS

In April 2014, the Company sold to third-parties, 20 industrial buildings aggregating 2.8 million square feet for net proceeds of $125.3 million, which were previously classified as held for sale. Of these dispositions: (i) one building totaling 1.3 million square feet was located in the Atlanta market; (ii) five buildings totaling 0.9 million square feet were located in the Dallas market; (iii) 13 buildings totaling 0.5 million square feet were located in the Portland market; and (iv) one building totaling 0.1 million square feet was located in the Tampa market.

Gains on the disposition of real estate are recorded when the recognition criteria have been met, generally at the time title is transferred, and the Company no longer has substantial continuing involvement with the real estate sold.

DEBT

The Company’s consolidated indebtedness is currently comprised of borrowings under its lines of credit and unsecured term loans, and under its mortgage note financings. The borrowings under its secured line of credit and the mortgage note financings are secured by mortgages or deeds of trust and related assignments and security interests in collateralized and certain cross-collateralized properties, which are generally owned by single purpose entities. A summary of the Company’s debt is as follows:


	Weighted-Average Stated Interest Rate as of					Balance as of
($ in thousands)	September 30, 2014		December 31, 2013		Maturity Date	September 30, 2014		December 31, 2013
Secured line of credit (1)		2.05%		2.32%	January 2017	$	85,000	$	85,000
Unsecured line of credit (2)		1.90%		2.16%	August 2015		223,000		165,000
Unsecured term loans (3)		2.13%		2.03%	January 2018 - January 2019		500,000		500,000
Variable-rate mortgage note (4)		2.15%		2.19%	May 2015		9,080		9,080
Fixed-rate mortgage notes (5)		4.25%		4.26%	June 2015 - November 2024		1,128,817		1,117,551

Total / Weighted-Average		3.33%		3.39%		$	1,945,897	$	1,876,631

Gross book value of properties encumbered by debt						$	2,404,595	$	2,285,998

(1)	The interest rate is calculated based on one-month London Interbank Offered Rate (“LIBOR”), plus a margin ranging from 1.80% to 2.65%. As of September 30, 2014, the unused portion was $55.0 million, of which $36.9 million was available.

(2)	The interest rate is calculated based on one-month LIBOR, plus a margin ranging from 1.75% to 2.50%. As of September 30, 2014, the unused portion was $277.0 million, of which $75.5 million was available.

(3)

The interest rate is calculated based on one-month LIBOR, plus a margin ranging from 1.50% to 2.45%. Effective January 14, 2014, the interest rate for the $200.0 million unsecured term loan was fixed through the use of interest rate swaps at an all-in interest rate of 2.68% as of September 30, 2014.

(4)	The interest rate is calculated based on one-month LIBOR, plus 2.00%.

(5)	Interest rates range from 3.30% to 6.24%.

As of September 30, 2014, the principal payments due on the Company’s consolidated debt during each of the next five years and thereafter were as follows:


(in thousands)	Lines of Credit		Term Loans		Mortgage Notes		Total
Remainder of 2014	$	-	$	-	$	1,808	$	1,808
2015 (1)		223,000		-		52,981		275,981
2016		-		-		20,040		20,040
2017 (1)		85,000		-		62,175		147,175
2018		-		200,000		169,418		369,418
Thereafter		-		300,000		826,556		1,126,556

Total principal payments		308,000		500,000		1,132,978		1,940,978
Unamortized premium on assumed debt		-		-		4,919		4,919

Total	$	308,000	$	500,000	$	1,137,897	$	1,945,897

(1)	The line of credit may be extended pursuant to two one-year extension options, subject to certain conditions.

Debt Covenants

The Company’s mortgage note financings and secured line of credit contain various property level covenants, including customary affirmative and negative covenants. In addition, the unsecured line of credit and unsecured term loans contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. The Company was in compliance with all debt covenants as of September 30, 2014.

Derivative Instruments

To manage interest rate risk for certain of its variable rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involved the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of September 30, 2014, the Company had seven outstanding interest rate swap contracts that were designated as cash flow hedges of interest rate risk. Certain of the Company’s variable rate borrowings are not hedged, and therefore, to an extent, the Company has on-going exposure to interest rate movements.

The effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“AOCI”) on the condensed consolidated balance sheets and is subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transaction affects earnings, which is when the interest expense is recognized on the related debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. For the three and nine months ended September 30, 2014 and 2013, there was no hedge ineffectiveness. The Company expects no hedge ineffectiveness in the next 12 months.

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


				Fair Value as of
(in thousands)	Notional Amount		Balance Sheet Location	September 30, 2014		December 31, 2013
Interest rate swaps	$	507,560	(Other liabilities) / Other assets	$	(1,029)	$	2,613

The following table presents the effect of the Company’s cash flow hedges on the Company’s condensed consolidated financial statements:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2014		2013		2014		2013
Interest rate swaps:
Gain (loss) recognized in AOCI (effective portion)	$	2,761	$	(1,421)	$	(2,367)	$	1,158
Loss reclassified from AOCI into income (effective portion)		(450)		(29)		(1,275)		(83)

Net other comprehensive gain (loss)	$	2,311	$	(1,450)	$	(3,642)	$	1,075

6.	FAIR VALUE

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

The fair value hierarchy is as follows:

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

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

•

Quoted prices for similar assets/liabilities in active markets;

•

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

•

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

•

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

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

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


(in thousands)	Level 1		Level 2		Level 3		Total Fair Value
September 30, 2014
Liabilities
Derivative instruments	$	-	$	1,029	$	-	$	1,029

Total liabilities measured at fair value	$	-	$	1,029	$	-	$	1,029


December 31, 2013
Assets
Derivative instruments	$	-	$	2,613	$	-	$	2,613

Total assets measured at fair value	$	-	$	2,613	$	-	$	2,613

As of September 30, 2014 and December 31, 2013, the Company had no financial instruments that were transferred among the fair value hierarchy levels. The Company also had no non-financial assets or liabilities that were required to be measured at fair value on a recurring basis.

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

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

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


	September 30, 2014				December 31, 2013
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Notes receivable	$	3,612	$	3,615	$	3,612	$	3,625
Derivative instruments		-		-		2,613		2,613

Liabilities
Lines of credit		308,000		308,387		250,000		250,658
Unsecured term loans		500,000		503,471		500,000		503,388
Mortgage notes		1,137,897		1,163,939		1,126,631		1,122,602
Derivative instruments		1,029		1,029		-		-

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

Notes Receivable. The fair value is estimated by discounting the expected cash flows on the notes receivable at current rates at which the Company believes similar loans would be made. Credit spreads and market interest rates used to determine the fair value of these instruments are based on Level 3 inputs.

Lines of Credit. The fair value of the lines of credit is estimated using discounted cash flow methods based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments. Credit spreads relating to the underlying instruments are based on Level 3 inputs.

Unsecured Term Loans. The fair value of the term loans is estimated using discounted cash flow methods based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments. Credit spreads relating to the underlying instruments are based on Level 3 inputs.

Mortgage Notes. The fair value of the mortgage notes is estimated using discounted cash flow methods based on the Company’s estimate of market interest rates, which the Company has determined to be its best estimate of current market spreads over comparable term benchmark rates of similar instruments. Credit spreads relating to the underlying instruments are based on Level 3 inputs.

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

7.	STOCKHOLDERS’ EQUITY

Public Offering

The Company is continuing to offer and sell shares pursuant to its distribution reinvestment plan, which it may terminate at any time, in its sole discretion. The Company has registered $600.0 million in shares under the Company’s distribution reinvestment plan and is currently offering the shares at a price of $9.88 per share. As of September 30, 2014, $567.5 million in shares remained available for sale pursuant to the Company’s distribution reinvestment plan.

Distributions

The following table summarizes the Company’s distribution activity:


		Amount
(in thousands, except per share data)	Payment Date	Declared per Common Share		Paid in Cash		Reinvested in Shares		Total Distributions
2014
September 30	October 15, 2014	$	0.15625	$	16,621	$	16,275	$	32,896
June 30	July 15, 2014		0.15625		16,426		16,294		32,720
March 31	April 15, 2014		0.15625		16,316		16,199		32,515

Total				$	49,363	$	48,768	$	98,131

2013
December 31	January 15, 2014	$	0.15625	$	16,199	$	16,102	$	32,301
September 30	October 15, 2013		0.15625		15,939		15,786		31,725
June 30	July 15, 2013		0.15625		13,457		12,516		25,973
March 31	April 15, 2013		0.15625		11,782		10,323		22,105

Total				$	57,377	$	54,727	$	112,104

Redemptions

The following table summarizes the Company’s redemption activity:


	For the Nine Months Ended September 30,
(in thousands, except per share data)	2014		2013
Number of eligible shares redeemed		1,480		700
Aggregate amount of shares redeemed	$	14,814	$	6,878
Average redemption price per share	$	10.01	$	9.83

8.	SHARE-BASED COMPENSATION

For the nine months ended September 30, 2014, the Company granted an aggregate of approximately 80,000 shares of restricted stock to certain eligible individuals under the Company’s amended and restated equity incentive plan. Included in these awards were approximately 24,000 shares of restricted stock granted to the Company’s independent directors, of which approximately 14,000 shares immediately vested and 10,000 shares vest over the next nine months. The remainder of the awards generally vest over three years.

A summary of the Company’s activity with respect to the issuance of restricted stock pursuant to its amended and restated equity incentive plan for the nine months ended September 30, 2014, is below:


			Weighted-Average
(shares in thousands)	Shares		Fair Value per Share (1)
Nonvested shares at beginning of period		22	$	10.40
Granted		80	$	10.40
Vested		(31)	$	10.40
Forfeited		(3)	$	10.40

Nonvested shares at end of period		68	$	10.40

(1)	Based on the Company’s most recent primary offering price in the follow-on offering of $10.40 per share on the grant date.

The following table summarizes other share-based compensation data:


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
(in thousands, except per share data)	2014		2013		2014		2013
Share-based compensation expense	$	97	$	22	$	442	$	144
Total fair value of restricted stock vested	$	-	$	-	$	321	$	77
Weighted-average grant date fair value of restricted stock granted, per share (1)	$	10.40	$	10.40	$	10.40	$	10.40

(1)	Based on the Company’s most recent primary offering price in the follow-on offering of $10.40 per share on the grant date.

As of September 30, 2014, the aggregate unrecognized compensation cost related to the restricted stock was approximately $0.5 million and is expected to be fully recognized over a weighted-average period of 0.9 years.

9.	RELATED PARTY TRANSACTIONS

The Company relies on Industrial Income Advisors LLC (the “Advisor”), a related party, to manage the Company’s day-to-day operating and acquisition activities and to implement the Company’s investment strategy pursuant to the terms of a sixth amended and restated advisory agreement (the “Advisory Agreement”), dated June 27, 2014, by and among the Company, Industrial Income Operating Partnership LP (the “Operating Partnership”), and the Advisor. The Advisor is considered to be a related party of the Company because certain indirect owners and officers of the Advisor serve as directors and/or executive officers of the Company. Dividend Capital Securities LLC (the “Dealer Manager”), also a related party, provides dealer manager services. The Advisor and Dealer Manager receive compensation in the form of fees and expense reimbursements for services relating to the Company’s public offerings and for the investment and management of the Company’s assets. The following summarizes the fees and expense reimbursements incurred for the three and nine months ended September 30, 2014 and 2013:

Sales Commissions. Sales commissions were payable to the Dealer Manager, all of which were reallowed to participating unaffiliated broker-dealers, and were equal to up to 7.0% of the gross proceeds from the sale of primary shares in the Company’s follow-on offering.

Dealer Manager Fees. Dealer manager fees were payable to the Dealer Manager and were equal to up to 2.5% of the gross proceeds from sale of primary shares in the Company’s follow-on offering.

Acquisition Fees. Acquisition fees are payable to the Advisor in connection with the acquisition of real property, and will vary depending on whether the Advisor provides development services or development oversight services, each as described below, in connection with the acquisition (including, but not limited to, forward commitment acquisitions) or stabilization (including, but not limited to, development and value add transactions) of such real property, or both. The Company refers to such properties for which the Advisor provides development services or development oversight services as development real properties. For each real property acquired for which the Advisor does not provide development services or development oversight services, the acquisition fee is an amount equal to 1.0% of the total purchase price of the properties acquired (or the Company’s proportional interest therein), including in all instances real property held in joint ventures or co-ownership arrangements. In connection with providing services related to the development, construction, improvement or stabilization, including tenant improvements of development real properties, which the Company refers to collectively as development services, or

overseeing the provision of these services by third parties on the Company’s behalf, which it refers to as development oversight services, the acquisition fee, which the Company refers to as the development acquisition fee, will equal up to 4.0% of total project cost, including debt, whether borrowed or assumed (or the Company’s proportional interest therein with respect to real properties held in joint ventures or co-ownership arrangements). If the Advisor engages a third party to provide development services directly to the Company, the third party will be compensated directly by the Company and the Advisor will receive the development acquisition fee if it provides the development oversight services.

Asset Management Fees. Asset management fees consist of a monthly fee of one-twelfth of 0.80% of the aggregate cost (including debt, whether borrowed or assumed) (before non-cash reserves and depreciation) of each real property asset within the Company’s portfolio (or the Company’s proportional interest therein with respect to real estate property held in joint ventures, co-ownership arrangements or real estate-related entities in which the Company owns a majority economic interest or that the Company consolidates for financial reporting purposes in accordance with GAAP). Asset management fees are also paid in connection with a disposition, which may involve a sale of one or more assets or a sale, merger, or other transaction, in an amount equal to 2.0% of the total consideration paid in connection with the disposition.

Organization and Offering Expenses. The Company reimburses the Advisor for cumulative organization expenses and for cumulative expenses of its offerings up to 1.75% of the gross offering proceeds from its offerings. Organizational costs are expensed and offering costs are reflected as a reduction in additional paid in capital. The Advisor or an affiliate of the Advisor is responsible for the payment of the Company’s cumulative organization and offering expenses to the extent the total of such cumulative expenses exceeds the 1.75% organization and offering expense reimbursements from the Company’s offerings, without recourse against or reimbursement by the Company.

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

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


	Incurred
	For the Three Months				For the Nine Months				Payable as of
	Ended September 30,				Ended September 30,				September 30,		December 31,
(in thousands)	2014		2013		2014		2013		2014		2013
Expensed:
Acquisition fees (1)	$	1,690	$	5,627	$	3,432	$	10,961	$	-	$	-
Asset management fees (2)		7,393		6,077		22,029		15,831		34		13
Other expense reimbursements		187		182		588		691		51		73

Total	$	9,270	$	11,886	$	26,049	$	27,483	$	85	$	86


Additional Paid-In Capital:
Sales commissions	$	-	$	14,468	$	-	$	49,245	$	-	$	-
Dealer manager fees		-		5,419		-		18,294		-		-
Offering expenses		209		3,774		850		13,101		81		139

Total	$	209	$	23,661	$	850	$	80,640	$	81	$	139

(1)

In addition, for the nine months ended September 30, 2014, the Company paid to the Advisor approximately $2.6 million of development acquisition fees, which are included in the total development project costs of the respective properties, and are capitalized in construction in progress on the Company’s condensed consolidated balance sheets.

(2)

In addition, for the nine months ended September 30, 2014, the Company paid to the Advisor approximately $2.6 million of asset management fees in connection with dispositions, which are included in the gain on disposition of real estate properties on the Company’s condensed consolidated statements of operations.

Joint Venture Fees. The Company’s previously unconsolidated joint venture, IIT North American Industrial Fund I Limited Partnership (“Fund I Partnership”), paid fees to the Advisor or its affiliates for providing services to the Fund I Partnership. These fees were paid directly to the Advisor or its affiliates or indirectly, including, without limitation, through the Company or its subsidiaries. For the nine months ended September 30, 2013, the Fund I Partnership paid to the Advisor approximately $3.3 million in fees for providing a variety of services, including with respect to acquisition and asset management activities. With respect to the Company’s percentage interest in the Fund I Partnership, the Company paid to the Advisor any additional amount necessary, after taking into account amounts paid directly by the Fund I Partnership to the Advisor, to provide that the Advisor received the total amount of fees payable pursuant to the Advisory Agreement.

10.

COMMITMENTS AND CONTINGENCIES

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

Environmental Matters

A majority of the properties the Company acquires are subject to environmental reviews either by the Company or the previous owners. In addition, the Company may incur environmental remediation costs associated with certain land parcels it may acquire in connection with the development of land. The Company has acquired certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous material. The Company may purchase various environmental insurance policies to mitigate its exposure to environmental liabilities. The Company is not aware of any environmental liabilities that it believes would have a material adverse effect on its business, financial condition, or results of operations as of September 30, 2014.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain statements that may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements relate to, without limitation, rent and occupancy growth, general conditions in the geographic area where we operate, our future debt and financial position, our future capital expenditures, future distributions and acquisitions (including the amount and nature thereof), other developments and trends of the real estate industry, business strategies and the expansion and growth of our operations. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “project,” or the negative of these words or other comparable terminology. These statements are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions, and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:

•

The failure of acquisitions to perform as we expect;

•

Our failure to successfully integrate acquired properties and operations;

•

Unexpected delays or increased costs associated with our development projects;

•

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

•

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

•

Difficulties in economic conditions generally and the real estate, debt, and securities markets specifically;

•

Legislative or regulatory changes, including changes to the laws governing the taxation of real estate investment trusts (“REITs”);

•

Our failure to obtain, renew, or extend necessary financing or access the debt or equity markets;

•

Conflicts of interest arising out of our relationships with Industrial Income Advisors Group LLC (the “Sponsor”), the Advisor, and their affiliates;

•

Risks associated with using debt to fund our business activities, including re-financing and interest rate risks;

•

Increases in interest rates, operating costs, or greater than expected capital expenditures;

•

Changes to GAAP; and

•

Our ability to qualify as a REIT.

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

OVERVIEW

General

Industrial Income Trust Inc. is a Maryland corporation formed on May 19, 2009 that has operated and elected to be treated as a REIT for U.S. federal income tax purposes, commencing with the taxable year ended December 31, 2010. We were organized to make investments in income-producing real estate assets consisting primarily of high-quality distribution warehouses and other industrial properties that are leased to creditworthy corporate customers. We utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through the Operating Partnership.

On December 18, 2009, we commenced our initial offering of up to $2.0 billion in shares of our common stock, including $1.5 billion in shares of common stock offered at a price of $10.00 per share and $500.0 million in shares offered under our distribution reinvestment plan at a price of $9.50 per share. On April 17, 2012, immediately following the end of our initial offering, which closed on April 16, 2012, we commenced a follow-on offering of up to $2.4 billion in shares of our common stock, including $1.8 billion in shares of common stock offered at a price of $10.40 per share and $600.0 million in shares offered under our distribution reinvestment plan at a price of $9.88 per share. On July 18, 2013, we terminated the offering of primary shares pursuant to our follow-on offering. We are continuing to offer and sell shares pursuant to our distribution reinvestment plan, which we may terminate at any time, in our sole discretion. As of September 30, 2014, we had raised aggregate gross proceeds of approximately $2.2 billion from the sale of 213.5 million shares of our common stock in our public offerings, including approximately $128.1 million from the sale of 13.0 million shares of our common stock through our distribution reinvestment plan.

As of September 30, 2014, our consolidated real estate portfolio included 283 industrial buildings totaling approximately 57.6 million square feet with 544 customers throughout the U.S. with a weighted-average remaining lease term (based on square feet) of 5.4 years. Of the 283 industrial buildings we owned and managed as of September 30, 2014:

•

277 industrial buildings totaling approximately 55.4 million square feet comprised our operating portfolio, which includes stabilized properties, and was 91% occupied (94% leased). The occupied rate reflects the square footage with a paying customer in place. The leased rate includes the occupied square footage and additional square footage with leases in place that have not yet commenced.

•

6 industrial buildings totaling approximately 2.2 million square feet comprised our development portfolio, which includes buildings acquired with the intention to reposition or redevelop, or buildings recently completed which have not yet reached stabilization. We generally consider a building to be stabilized on the earlier to occur of the first anniversary of a building’s completion or a building achieving 90% occupancy.

We have used the net proceeds from our public offerings primarily to make investments in real estate assets. We will continue to focus on select acquisition and development opportunities consisting primarily of high-quality distribution warehouses and other industrial properties that we could acquire through funds provided by debt financings, cash flows generated from our operating activities, cash on-hand or proceeds from dispositions. The number and type of properties we may acquire and debt and other investments we may make will depend upon real estate market conditions and other circumstances existing at the time we make our investments.

Our primary investment objectives include the following:

•

Preserving and protecting our stockholders’ capital contributions;

•

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

•

Realizing capital appreciation upon the potential sale of our assets or other liquidity events.

There is no assurance that we will attain our investment objectives. Our charter places numerous limitations on us with respect to the manner in which we may invest our funds. In most cases these limitations cannot be changed unless our charter is amended, which may require the approval of our stockholders.

We may acquire assets free and clear of mortgage or other indebtedness by paying the entire purchase price in cash or equity securities, or a combination thereof, and we may selectively encumber all or only certain assets with debt. The proceeds from our borrowings may be used to fund investments, make capital expenditures, pay distributions, and for general corporate purposes. As of September 30, 2014 and December 31, 2013, our consolidated debt leverage ratio (calculated as the book value of our debt to total assets) was 53.6% and 51.9%, respectively.

In January 2014, our board of directors announced that it had engaged a third party advisor to assist us with the exploration of potential strategic alternatives, including but not limited to a possible sale, merger or listing of our common stock on a national securities exchange in connection with effecting a liquidity event. We and our board of directors continue to work with the third party advisor in exploring various potential strategic alternatives. There can be no assurance that we will determine to pursue any strategic alternatives or liquidity event.

Industrial Real Estate Outlook

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

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

RESULTS OF OPERATIONS

Summary of 2014 Activities

During the nine months ended September 30, 2014, we completed the following activities:

•

As of September 30, 2014, we had 283 consolidated buildings aggregating 57.6 million rentable square feet as compared to 293 consolidated buildings aggregating 56.5 million rentable square feet as of September 30, 2013.

•

During the nine months ended September 30, 2014, we leased approximately 5.9 million square feet, which included 2.9 million square feet of new leases and expansions and 3.0 million square feet of renewals and future leases. Future leases represent new leases for units that are entered into while the units are occupied by the current customer.

•

As of September 30, 2014, our operating portfolio was 91% occupied and 94% leased, as compared to 94% occupied and 95% leased as of December 31, 2013.

•

As of September 30, 2014, we had three buildings under construction totaling approximately 0.3 million square feet and three buildings where construction had not yet commenced totaling approximately 0.3 million square feet.

•

In April 2014, we sold 20 industrial buildings aggregating 2.8 million square feet for net proceeds of $125.3 million and recognized gains of $24.5 million. All of these buildings were previously classified as held for sale.

Our operating results for the three and nine months ended September 30, 2014 and 2013 are not directly comparable, as we were in the acquisition phase of our life cycle during 2013, and as such, the results of our operations were primarily impacted by the timing of our acquisitions and the equity raised through our public offerings.

Portfolio Information

Our total owned and managed portfolio was as follows:


	As of
(square feet in thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Portfolio data:
Consolidated buildings		283		296		293
Unconsolidated buildings		2		1		-

Total buildings		285		297		293

Rentable square feet of consolidated buildings		57,640		57,230		56,532
Rentable square feet of unconsolidated buildings		710		180		-

Total rentable square feet		58,350		57,410		56,532

Total number of customers (1)		544		553		550
Percent occupied of operating portfolio (1)(2)		91%		94%		94%
Percent occupied of total portfolio (1)(2)		88%		91%		91%
Percent leased of operating portfolio (1)(2)		94%		95%		94%
Percent leased of total portfolio (1)(2)		90%		93%		92%

(1)	Represents our consolidated portfolio.

(2)	See “Overview—General” above for a description of our operating portfolio and our total portfolio (which includes both our operating and development portfolios) and for a description of the occupied and leased rates.

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

The following table summarizes our results of operations for the three and nine months ended September 30, 2014 as compared to the three and nine months ended September 30, 2013. We evaluate the performance of operating properties we own and manage using a same store analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of changes in the composition of the portfolio on performance measures. We have defined the same store portfolio to include operating properties owned for the entirety of both the current and prior reporting periods for which the operations had been stabilized. Other properties include buildings not meeting the same store criteria. The same store operating portfolio for the three month periods presented below included 226 buildings owned as of July 1, 2013, and represented 73% of total rentable square feet or 79% of total revenues as of September 30, 2014. The same store operating portfolio for the nine month periods presented below included 171 buildings owned as of January 1, 2013, and represented 58% of total rentable square feet or 62% of total revenues as of September 30, 2014.


	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
(in thousands, except per share data)	2014		2013		Change		2014		2013		Change
Rental revenues:
Same store operating properties	$	60,240	$	59,216	$	1,024	$	145,621	$	141,087	$	4,534
Other properties		16,290		5,882		10,408		89,312		30,567		58,745

Total revenues		76,530		65,098		11,432		234,933		171,654		63,279

Rental expenses:
Same store operating properties		15,300		15,512		(212)		38,457		35,983		2,474
Other properties		4,194		1,331		2,863		23,689		7,658		16,031

Total rental expenses		19,494		16,843		2,651		62,146		43,641		18,505

Net operating income:
Same store operating properties		44,940		43,704		1,236		107,164		105,104		2,060
Other properties		12,096		4,551		7,545		65,623		22,909		42,714

Total net operating income		57,036		48,255		8,781		172,787		128,013		44,774

Other:
Real estate-related depreciation and amortization		(33,868)		(31,025)		(2,843)		(106,728)		(84,909)		(21,819)
General and administrative expenses		(1,467)		(1,661)		194		(5,151)		(5,114)		(37)
Asset management fees, related party		(7,393)		(6,077)		(1,316)		(22,029)		(15,831)		(6,198)
Acquisition expenses, related party		(1,690)		(5,627)		3,937		(3,432)		(10,961)		7,529
Acquisition and strategic transaction expenses		(465)		(4,347)		3,882		(819)		(12,315)		11,496
Equity in loss of unconsolidated joint ventures		(9)		(1,349)		1,340		(39)		(2,805)		2,766
Interest expense and other		(15,319)		(12,488)		(2,831)		(46,629)		(35,526)		(11,103)
Gain on disposition of real estate properties		-		-		-		24,471		-		24,471
Gain on acquisition of joint venture		-		26,481		(26,481)		-		26,481		(26,481)
Incentive fee from acquisition of joint venture		-		1,985		(1,985)		-		1,985		(1,985)

Total other		(60,211)		(34,108)		(26,103)		(160,356)		(138,995)		(21,361)

Net income (loss)		(3,175)		14,147		(17,322)		12,431		(10,982)		23,413
Net income (loss) attributable to noncontrolling interests		-		-		-		-		-		-

Net income (loss) attributable to common stockholders	$	(3,175)	$	14,147	$	(17,322)	$	12,431	$	(10,982)	$	23,413

Weighted-average shares outstanding		210,542		203,024		7,518		209,374		170,474		38,900

Net income (loss) per common share - basic and diluted	$	(0.02)	$	0.07	$	(0.09)	$	0.06	$	(0.06)	$	0.12

Rental Revenues. Rental revenues are comprised of base rent, straight-line rent, amortization of above- and below-market lease assets and liabilities, and tenant reimbursement revenue. Total rental revenues increased significantly for the three and nine months ended September 30, 2014, as compared to the same periods in 2013, primarily due to the increase in non-same store rental revenues, which was attributable to the growth in our portfolio. For the three months ended September 30, 2014, non-same store rental revenues reflects the addition of 60 buildings we acquired since July 1, 2013, and for the nine months ended September 30, 2014, non-same store rental revenues reflects the addition of 113 buildings we acquired since January 1, 2013. The increase in the number of buildings acquired for both the three and nine months ended September 30, 2014 includes the consolidated results of the 31 properties acquired in conjunction with our acquisition of our partner’s equity interest in the Fund I Partnership joint venture that were previously unconsolidated. In addition, the non-same store rental revenues include the results of the 20 buildings we sold in April 2014. Same store rental revenues for the three months ended September 30, 2014 increased by $1.0 million, or 1.7%, as compared to the same period in 2013, primarily due to an increase in tenant reimbursement revenue, which was driven by higher reimbursable expenses, as well as an increase in base rent, which was driven by rental rate increases and slightly higher occupancy in the same store operating portfolio. Same store rental revenues for the nine months ended September 30, 2014 increased by $4.5 million, or 3.2%, as compared to the same period in 2013, primarily due to an increase in tenant reimbursement revenue, which was driven by higher reimbursable expenses, receipt of early termination fees and an increase in base rent, which was driven by rental rate increases and slightly higher occupancy in the same store operating portfolio.

Rental Expenses. Rental expenses include certain property operating expenses typically reimbursed by our customers such as real estate taxes, property insurance, property management fees, repair and maintenance, and certain non-recoverable expenses such as consulting services and roof repairs; and property operating expenses for unoccupied spaces. Total rental expenses increased for the three and nine months ended September 30, 2014, as compared to the same periods in 2013, primarily due to an increase in non-same store rental expenses attributable to the significant net increase in the number of buildings owned compared to the same periods during 2013. Same store rental expenses for the three months ended September 30, 2014 decreased by $0.2 million, or 1.4%, as compared to the same period in 2013, primarily due to a decrease in non-recoverable expenses. Same store rental expenses for the nine months ended September 30, 2014 increased by $2.5 million, or 6.9%, as compared to the same period in 2013, primarily due to an increase in certain real estate taxes and higher snow removal costs due to the extreme snowfall in the first quarter of 2014, partially offset by lower insurance premiums.

Other Income and Expenses. Other expenses increased for the three and nine months ended September 30, 2014, as compared to the same periods in 2013, primarily due to:

•

an increase in real estate-related depreciation and amortization expense resulting from the $205.8 million growth of our investment in real estate properties since September 30, 2013;

•

an increase in interest expense primarily due to an increase in average net borrowings under our lines of credit of $42.5 million and $93.4 million for the three and nine months ended September 30, 2014 as compared to the same periods in 2013; and

•

an increase in asset management fees as a result of the significant growth of our portfolio since September 30, 2013; all partially offset by:

•

a gain of approximately $24.5 million as a result of the disposition of 20 buildings in April 2014; and

•

a decrease in acquisition-related expenses as a result of reduced acquisition activity in 2014 as compared to 2013.

ADDITIONAL MEASURES OF PERFORMANCE

Net Operating Income (“NOI”)

We define NOI as GAAP rental revenues less GAAP rental expenses. For the three and nine months ended September 30, 2014, NOI was $57.0 million and $172.8 million, respectively, as compared to $48.3 million and $128.0 million, respectively, for the three and nine months ended September 30, 2013. Same store NOI for the three and nine months ended September 30, 2014 increased by $1.2 million, or 2.8%, and $2.1 million, or 2.0%, respectively, as compared to the same periods in 2013. We consider NOI to be an appropriate supplemental performance measure and believe NOI provides useful information to our investors regarding our financial condition and results of operations because NOI reflects the operating performance of our properties and excludes certain items that are not considered to be controllable in connection with the management of the properties, such as real estate-related depreciation and amortization, acquisition-related expenses, general and administrative expenses, and interest expense. However, NOI should not be viewed as an alternative measure of our financial performance since it excludes such expenses, which could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies as they may use different methodologies for calculating NOI. Therefore, we believe net loss, as defined by GAAP, to be the most appropriate measure to evaluate our overall performance. Refer to “Results of Operations—Results for the Three and Nine Months Ended September 30, 2014 Compared to the Same Periods in 2013” above for a reconciliation of our net loss to NOI for the three and nine months ended September 30, 2014 and 2013.

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

We believe that FFO, Company-defined FFO, and MFFO, in addition to net loss and cash flows from operating activities as defined by GAAP, are useful supplemental performance measures that our management uses to evaluate our consolidated operating performance. However, these supplemental, non-GAAP measures should not be considered as an alternative to net loss or to cash flows from operating activities as an indication of our performance and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity, and results of operations. In addition, other REITs may define FFO and similar measures differently and choose to treat acquisition and strategic transaction costs and potentially other accounting line items in a manner different from us due to specific differences in investment and operating strategy or for other reasons.

FFO. As defined by the National Association of Real Estate Investment Trusts (“NAREIT”), FFO is a non-GAAP measure that excludes certain items such as real estate-related depreciation and amortization and gains or losses on sales of assets. We believe FFO is a meaningful supplemental measure of our operating performance that is useful to investors because depreciation and amortization in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. In addition, FFO adjusts for non-recurring gains or losses on the acquisition of certain joint venture properties. We use FFO as an indication of our consolidated operating performance and as a guide to making decisions about future investments.

Company-defined FFO. Similar to FFO, Company-defined FFO is a non-GAAP measure that excludes real estate-related depreciation and amortization and gains or losses on sales of assets, and also excludes non-recurring acquisition and strategic transaction costs (including acquisition fees paid to the Advisor) and a non-recurring loss from the early extinguishment of debt, each of which are characterized as expenses in determining net loss under GAAP. Loss from the early extinguishment of debt was excluded because it was a loss recognized as part of a one-time transaction. Strategic transaction costs, which are costs incurred in connection with our exploration of potential strategic alternatives, as described in “—Overview—General” above, represent non-recurring costs that make our operating results on an on-going basis less comparable and, as such, are excluded from Company-defined FFO. Acquisition and strategic transaction costs are paid in cash out of operational cash flow, additional debt, net proceeds from the sale of properties, or ancillary cash flows, and, as a result, such costs negatively impact our operating performance and cash flows from operating activities during the period they are incurred. As such, Company-defined FFO may not be a complete indicator of our operating performance, especially during periods in which properties are being acquired or strategic transactions costs are being incurred, and may not be a useful measure of the long-term operating performance of our properties if we do not continue to operate our business plan as disclosed.

MFFO. As defined by the Investment Program Association (“IPA”), MFFO is a non-GAAP supplemental financial performance measure used to evaluate our operating performance. Similar to FFO, MFFO excludes items such as real estate-related depreciation and amortization and gains or losses on sales of assets. Similar to Company-defined FFO, MFFO excludes acquisition costs and loss from the early extinguishment of debt. MFFO also excludes straight-line rent and amortization of above- and below-market leases. In addition, there are certain other MFFO adjustments as defined by the IPA that are not applicable to us and are not included in our presentation of MFFO.

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

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


									For the Period
	For the Three Months				For the Nine Months				From Inception
	Ended September 30,				Ended September 30,				(May 19, 2009) to
(in thousands, except per share data)	2014		2013		2014		2013		September 30, 2014
Net (loss) income	$	(3,175)	$	14,147	$	12,431	$	(10,982)	$	(72,721)

Net (loss) income per common share	$	(0.02)	$	0.07	$	0.06	$	(0.06)	$	(0.72)

Reconciliation of net (loss) income to FFO:
Net (loss) income	$	(3,175)	$	14,147	$	12,431	$	(10,982)	$	(72,721)
Add (deduct) NAREIT-defined adjustments:
Real estate-related depreciation and amortization		33,868		31,025		106,728		84,909		312,604
Real estate-related depreciation and amortization of unconsolidated joint ventures		-		1,310		9		4,468		12,974
Gain on acquisition of joint venture		-		(26,481)		-		(26,481)		(26,481)
Gain on disposition of real estate properties		-		-		(24,471)		-		(24,471)

FFO	$	30,693	$	20,001	$	94,697	$	51,914	$	201,905

FFO per common share	$	0.15	$	0.10	$	0.45	$	0.30	$	2.00

Reconciliation of FFO to Company-defined FFO:
FFO	$	30,693	$	20,001	$	94,697	$	51,914	$	201,905
Add (deduct) Company-defined adjustments:
Acquisition and strategic transaction costs		2,155		9,974		4,251		23,276		74,957
Acquisition costs of unconsolidated joint ventures		-		784		-		863		3,133
Loss on early extinguishment of debt		-		-		-		-		837

Company-defined FFO	$	32,848	$	30,759	$	98,948	$	76,053	$	280,832

Company-defined FFO per common share	$	0.16	$	0.15	$	0.47	$	0.45	$	2.78

Reconciliation of Company-defined FFO to MFFO:
Company-defined FFO	$	32,848	$	30,759	$	98,948	$	76,053	$	280,832
Add (deduct) MFFO adjustments:
Straight-line rent and amortization of above/below market leases		(2,740)		(4,507)		(9,715)		(8,562)		(30,556)
Straight-line rent and amortization of above/below market leases of unconsolidated joint ventures		-		(795)		-		(1,612)		(2,123)
Strategic transaction costs		(465)		-		(819)		-		(819)

MFFO	$	29,643	$	25,457	$	88,414	$	65,879	$	247,334

MFFO per common share	$	0.14	$	0.13	$	0.42	$	0.39	$	2.44

Weighted-average shares outstanding		210,542		203,024		209,374		170,474		101,200

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our primary sources of capital for meeting our cash requirements are cash flows generated by our real estate operations, debt financings and refinancings, and asset sales. Our principal uses of funds are and will continue to be for select acquisition and development of properties and other investments, operating expenses, distributions to our stockholders, payments under our debt obligations, and capital expenditures, which we expect to be able to pay over the next 12 months from our primary sources of capital. We believe that our cash on-hand, cash flows from operations, and any financing and disposition activities will be sufficient to meet our anticipated future operating, distribution, debt service, and development and other capital requirements.

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


	For the Nine Months
	Ended September 30,
(in thousands)	2014		2013
Total cash provided by (used in):
Operating activities	$	81,126	$	54,727
Investing activities		(93,614)		(1,041,404)
Financing activities		5,291		989,778

Net (decrease) increase in cash	$	(7,197)	$	3,101

Cash provided by operating activities during the nine months ended September 30, 2014 increased by $26.4 million as compared to the same period in 2013, primarily driven by the growth of our real estate portfolio, which resulted in a significant increase in net cash flows generated from our operating properties, partially offset by an increase in net working capital accounts.

Cash used in investing activities during the nine months ended September 30, 2014 decreased by $947.8 million as compared to the same period in 2013, primarily due to a reduction in our acquisition activity during the nine months ended September 30, 2014 as compared to the same period in 2013 and by proceeds from the disposition of real estate properties, partially offset by an increase in capital expenditures, including development activity, tenant improvements and leasing commissions, and property and maintenance investments.

Cash provided by financing activities during the nine months ended September 30, 2014 decreased by $984.5 million as compared to the same period in 2013, primarily as a result of us closing our offering of primary shares pursuant to our follow-on offering in July 2013, and no longer being in the acquisition phase of our life cycle.

Capital Resources and Uses of Liquidity

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

Lines of Credit. As of September 30, 2014, we had $223.0 million outstanding under our unsecured line of credit. The unused portion was $277.0 million, of which $75.5 million was available. Our unsecured line of credit is available for general corporate purposes, including but not limited to the acquisition and operation of industrial properties and other permitted investments. As of September 30, 2014, we had $85.0 million outstanding under our secured line of credit. The unused portion was $55.0 million, of which $36.9 million was available. Our secured line of credit is available to finance the acquisition and operation of collateral properties. Amounts under this line of credit become available when properties are added as collateral pursuant to the loan agreement.

Unsecured Term Loans. As of September 30, 2014, we had $500.0 million outstanding under our unsecured term loan facilities with a weighted-average stated interest rate of 2.13%, which includes the effect of the interest rate swap agreements relating to our $200.0 million unsecured term loan. Our unsecured term loans are available for general corporate purposes, including but not limited to the acquisition and operation of industrial properties and other permitted investments.

Mortgage Note Financings. As of September 30, 2014, we had property-level borrowings of approximately $1.1 billion outstanding. These borrowings are secured by mortgages or deeds of trust and related assignments and security interests in the collateralized properties, and had a weighted-average stated interest rate of 4.23%, which includes the effect of an interest rate swap agreement. Refer to “Note 5” to the condensed consolidated financial statements for additional details relating to our interest rate swaps. The proceeds from the mortgage note financings were used to partially finance certain of our acquisitions, and can be used to finance our capital requirements, which may include the funding of future acquisitions, capital expenditures, distributions, and general corporate purposes.

Debt Covenants. Our mortgage notes and secured line of credit contain various property level covenants, including customary affirmative and negative covenants. In addition, the unsecured line of credit and unsecured term loans contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. These covenants may limit our ability to incur additional debt, make borrowings under our lines of credit, or pay distributions. We were in compliance with all debt covenants as of September 30, 2014.

Distributions. We intend to continue to make distributions on a quarterly basis. For the nine months ended September 30, 2014, 50% of our total distributions were paid from cash flows from operating activities, as determined on a GAAP basis, and 50% of our total distributions were funded from sources other than cash flows from operating activities, specifically with proceeds from the issuance of distribution reinvestment plan (“DRIP”) shares. Some or all of our future distributions may be paid from these sources, as well as from sales of assets, refinancing proceeds and our cash balances. We have not established a cap on the amount of our distributions that may be paid from any of these sources. Distributions will be authorized at the discretion of our board of directors, and will depend on, among other things, current and projected cash requirements, tax considerations and other factors deemed relevant by our board. Our board of directors has authorized cash distributions at a quarterly rate of $0.15625 per share of common stock for the fourth quarter of 2014.

There can be no assurances that the current distribution rate or amount per share will be maintained. We may need to utilize cash flows from financing activities, as determined on a GAAP basis, to supplement the payment of cash distributions, which if insufficient could negatively impact our ability to pay distributions.

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


	Source of Distributions
	Provided by			Proceeds from
	Operating			Issuance of			Total
($ in thousands)	Activities (1)			DRIP Shares (2)			Distributions
2014
September 30	$	16,621	51 %	$	16,275	49 %	$	32,896
June 30		16,426	50		16,294	50		32,720
March 31		16,316	50		16,199	50		32,515

Total	$	49,363	50 %	$	48,768	50 %	$	98,131


2013
December 31	$	16,199	50 %	$	16,102	50 %	$	32,301
September 30		15,939	50		15,786	50		31,725
June 30		13,457	52		12,516	48		25,973
March 31		11,782	53		10,323	47		22,105

Total	$	57,377	51 %	$	54,727	49 %	$	112,104

(1)	Reflects use of the current period’s cash flows from operating activities, plus any excess operating cash flows from previous periods, as determined on a GAAP basis.

(2)	Stockholders may elect to have cash distributions reinvested in shares of our common stock through our distribution reinvestment plan. Participation in our distribution reinvestment plan has averaged approximately 48% of total distributions since inception.

Redemptions. For the nine months ended September 30, 2014 and 2013, we received eligible redemption requests related to approximately 1.5 million and 0.7 million shares of our common stock, respectively, all of which we redeemed using cash flows from financing activities, for an aggregate amount of approximately $14.8 million, or an average price of $10.01 per share, and $6.9 million, or an average price of $9.83 per share, respectively. The aggregate amount expended for redemptions under our share redemption program is subject to certain caps not to exceed the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan. However, to the extent that the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan are not at a level sufficient to fund redemption requests, subject to a five percent limitation as discussed in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds—Share Redemption Program,” our board of directors may, in its sole discretion, choose to use other sources of funds to redeem shares of our common stock. Such sources of funds could include cash on hand and cash available from borrowings, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders, debt repayment, and purchases of property investments. Our board of directors may, in its sole discretion, amend, suspend, or terminate the share redemption program at any time if it determines that the funds available to fund the share redemption program are needed for other business or operational purposes or that amendment, suspension, or termination of the share redemption program is in the best interests of our stockholders.

CONTRACTUAL OBLIGATIONS

A summary of future obligations as of December 31, 2013, was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC on February 19, 2014 (“2013 Form 10-K”). Except as otherwise disclosed in “Note 5” of our condensed consolidated financial statements relating to our principal payments due on our debt for the next five years and thereafter, there were no material changes outside of the ordinary course of business.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2014, we had no off-balance sheet arrangements, other than those disclosed under contractual obligations that have or are reasonably likely to have an effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

RECENT ACCOUNTING STANDARDS

In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which changes the criteria at which a disposal will qualify as a discontinued operation and requires new disclosure of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under the revised standard, the definition of discontinued operations has been changed so that only disposals of components that represent strategic shifts qualify for discontinued operations reporting. As permitted, we adopted ASU 2014-08 early, and it became effective for us for the quarter ended March 31, 2014. The adoption of this standard did not have an impact on our results of operations, financial position or liquidity.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides guidance for revenue recognition and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.” The standard is based on the principle that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance specifically excludes revenue derived from lease contracts from its scope. The standard will be effective for us in the first quarter of fiscal year 2017. Early adoption is not permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our market risk is exposure to changes in interest rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows, and optimize overall borrowing costs. To achieve these objectives, we primarily borrow on a fixed interest rate basis for longer-term debt and utilize interest rate swap agreements on certain variable interest rate debt in order to limit the effects of changes in interest rates on our results of operations. As part of our risk management strategy, we enter into interest swap agreements with high-quality counterparties to manage the impact of variable interest rates on interest expense. As of September 30, 2014, our debt instruments were comprised of mortgage note financings, unsecured term loans, and borrowings under our lines of credit.

Fixed Interest Rate Debt. As of September 30, 2014, our consolidated fixed interest rate debt consisted of mortgage notes and our $200.0 million unsecured term loan and represented 68.3% of our total consolidated debt (83.7% of our total consolidated debt assuming the effects of the forward-starting interest rate swap agreements relating to our $300.0 million unsecured term loan). Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed interest rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes could affect the fair value of our fixed interest rate debt. As of September 30, 2014, the fair value and the carrying value of our consolidated fixed interest rate debt were approximately $1.4 billion and $1.3 billion, respectively. The fair value estimate of our fixed interest rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated on September 30, 2014. As we expect to hold our fixed interest rate debt instruments to maturity, based on the underlying structure of the debt instrument, and that the amounts due under such instruments are limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that market fluctuations in interest rates, and the resulting change in fair value of our fixed interest rate debt instruments, would have a significant impact on our operating cash flows.

Variable Interest Rate Debt. As of September 30, 2014, our consolidated variable interest rate debt consisted of borrowings under our lines of credit, our $300.0 million unsecured term loan, and a mortgage note, and represented 31.7% of our total consolidated debt (16.3% of our total consolidated debt assuming the effects of the forward-starting interest rate swap agreements relating to our $300.0 million unsecured term loan). Interest rate changes in LIBOR could impact our future earnings and cash flows, but would not significantly affect the fair value of the variable interest rate debt instruments. As of September 30, 2014, we were exposed to market risks related to fluctuations in interest rates on approximately $617.1 million of aggregate consolidated borrowings. A hypothetical 10% change in the average interest rate on the outstanding balance of our variable interest rate debt as of September 30, 2014, would change our annual interest expense by approximately $240,000.

Derivative Instruments. As of September 30, 2014, we had seven outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk, with a total notional amount of $507.6 million. See “Note 5” to the condensed consolidated financial statements for more information concerning our derivative instruments.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2014. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2014, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months 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 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of our 2013 Form 10-K, which could materially affect our business, financial condition, and/or future results. The risks described in our 2013 Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

With the exception of the revised risk factors set forth below, there have been no material changes to the risk factors disclosed in our 2013 Form 10-K.

RISKS RELATED TO THE ADVISOR AND ITS AFFILIATES

We will compete with entities sponsored or advised by affiliates of our Sponsor for opportunities to acquire or sell investments, and for customers, which may have an adverse impact on our operations.

We will compete with entities sponsored or advised by affiliates of our Sponsor whether existing or created in the future, for opportunities to acquire, finance or sell certain types of properties. We may also buy, finance or sell properties at the same time as entities sponsored or advised by affiliates of our Sponsor are buying, financing or selling properties. In this regard, there is a risk that the Advisor will purchase a property that provides lower returns to us than a property purchased by entities sponsored or advised by affiliates of our Sponsor. Certain entities sponsored or advised by affiliates of our Sponsor own and/or manage properties in geographical areas in which we expect to own properties. Therefore, our properties may compete for customers with other properties owned and/or managed by entities sponsored or advised by affiliates of our Sponsor. The Advisor may face conflicts of interest when evaluating customer leasing opportunities for our properties and other properties owned and/or managed by entities sponsored or advised by affiliates of our Sponsor and these conflicts of interest may have a negative impact on our ability to attract and retain customers.

The Sponsor and the Advisor have agreed, subject to changes approved by the Conflicts Resolution Committee, that (the “IPT/IIT Allocation Arrangement”): if an investment is equally suitable for Industrial Property Trust Inc. (“IPT”) and us, until such time as all of the proceeds from IPT’s public offerings have been fully invested and except as noted below, IPT will have priority over us with respect to: (i) industrial properties (including all new stabilized, value add, and forward commitment opportunities, collectively “Core Industrial Investment Opportunities”) located in the U.S. or Mexico; and (ii) debt investments related to industrial properties located in the U.S. or Mexico; provided, however, that: (a) other than development or re-development opportunities associated with existing IPT investments (e.g., development on excess land or expansion of an existing facility) which opportunities shall remain with IPT, we will have priority with respect to all opportunities related to development of industrial properties (including all new speculative and build-to-suit opportunities, collectively, “Industrial Development Opportunities”) located in the U.S. or Mexico; and (b) when, from time to time, we have additional capital to deploy (either through the sale of assets or otherwise) into Core Industrial Investment Opportunities, and, when, from time to time, IPT has capital available to deploy into Industrial Development Opportunities, our CEO and regional Managing Directors (who currently serve in similar positions at IPT) will determine in their sole discretion for which program the investment is most suitable by utilizing the following allocation factors:

•

The investment objectives and criteria of each program;

•

The general real property sector or debt investment allocation targets of each program and any targeted geographic concentration;

•

The cash requirements of each program;

•

The strategic proximity of the investment opportunity to other assets owned by each program;

•

The effect of the acquisition both on diversification of each program’s investments by type of commercial property and geographic area, and on diversification of the customers of its properties;

•

The policy of each program relating to leverage of investments;

•

The anticipated cash flow of each program;

•

The tax effects of the purchase on each program;

•

The size of the investment; and

•

The amount of funds available to each program and the length of time such funds have been available for investment.

Any such determinations will be reported, at least quarterly, to our Conflicts Resolution Committee in order to evaluate whether we are receiving our fair share of opportunities.

In addition, Dividend Capital Diversified Property Fund Inc. (“DPF”) has priority over us and IPT (collectively, “IPT/IIT”) for all other non-industrial real estate or non-industrial debt investment opportunities until such time as it is no longer engaged in a public offering and all of the proceeds from its public offerings have been fully invested. Further, in recognition of the fact that DPF also desires to acquire industrial properties and industrial debt investments and has a separate day-to-day asset acquisition team, the Sponsor and the Advisor have agreed, subject to changes approved or required by our Conflicts Resolution Committee, that (1) if an industrial property or industrial debt opportunity is a widely-marketed, brokered transaction, DPF, on the one hand, and IPT/IIT, on the other hand, may simultaneously and independently pursue such transaction, and (2) if an industrial property or industrial debt opportunity is not a widely-marketed, brokered transaction, then, as between DPF, on the one hand, and IPT/IIT, on the other hand, the management team and employees of each company generally are free to pursue any such industrial property or industrial debt opportunity at any time, subject to certain allocations if non-widely-marketed transactions are first sourced by certain shared employees, managers or directors.

We may use the most recent price paid to acquire a share in the Follow-On Offering as the estimated value of our shares until we are required to disclose an estimated per share value of our common stock. The purchase price stockholders paid for shares of our common stock in our public offerings may be higher than such estimated per share value. The estimated per share value may not be an accurate reflection of the fair market value of our assets and liabilities and likely will not represent the amount of net proceeds that would result if we were liquidated or dissolved.

To assist the Financial Industry Regulatory Authority (“FINRA”) members and their associated persons that participated in our public offerings, pursuant to FINRA Rule 2310, we disclose in each annual report distributed to stockholders a per share estimated value of our shares, the method by which it was developed, and the date of the data used to develop the estimated value. For these purposes, the estimated value of our common stock was deemed to be $10.40 per share as of December 31, 2013. The basis for this valuation is the fact that this was the most recent primary share offering price in the Follow-On Offering to third-party investors through arms-length transactions. We will continue to use the most recent primary share offering price as the estimated per share value. We are not obligated and do not expect to disclose an estimated per share value of our common stock based on an appraisal of our assets until 18 months following the date on which the Follow-On Offering was terminated, regardless of whether valuations or appraisals are undertaken in connection with other activities and regardless of whether preliminary or other appraisals are obtained in preparation for the disclosure of our estimated share value.

Although this estimated value represents the most recent price at which most investors were willing to purchase shares in the Follow-On Offering, it is likely to differ from the price that a stockholder would receive upon the events described below because: (i) there is no public trading market for the shares at this time; (ii) the $10.40 primary offering price involved the payment of underwriting compensation and other directed selling efforts, which payments and efforts are likely to produce a higher sale price than could otherwise be obtained; (iii) the estimated value does not reflect, and is not derived from, the fair market value of our assets because the amount of proceeds available for investment from our primary public offerings is net of selling commissions, dealer manager fees, other organization and offering costs and acquisition and origination fees and expenses; (iv) the estimated value does not take into account how market fluctuations affect the value of our investments, including how disruptions in the financial and real estate markets may affect the values of our investments; and (v) the estimated value does not take into account how developments related to individual assets may have increased or decreased the value of our portfolio.

The current price which is based on the most recent offering price and any estimated per share value that we disclose in the future may not be an accurate reflection of the fair value of our assets and liabilities in accordance with GAAP, may not reflect the price at which we would be able to sell all or substantially all of our assets or the outstanding shares of our common stock in an arm’s length transaction, may not represent the value that stockholders could realize upon a sale of the Company or upon the liquidation of our assets and settlement of our liabilities, and may not be indicative of the price at which shares of our common stock would trade if they were listed on a national securities exchange. In addition, the current price and any estimated per share value that we disclose in the future may not be the equivalent of the disclosure of a market price by an open-ended real estate fund.

Currently there are no SEC, FINRA, federal or state rules in effect that establish requirements concerning the methodologies to employ in determining an estimated per share value. Any methodologies used to determine the estimated per share value of our common stock may be based upon assumptions, estimates and judgments that may not be accurate or complete, such that, if different property-specific and general real estate and capital market assumptions, estimates and judgments were used, it could result in an estimated value per share that is significantly different.

The actual value of shares that we repurchase under our share redemption program may be substantially less or more than what we pay.

Under our share redemption program, shares currently may be repurchased at varying prices depending on (a) the number of years the shares have been held, (b) the purchase price paid for the shares and (c) whether the redemptions are sought upon a stockholder’s death or disability. As described below, the offering price of primary shares of our common stock in our public offerings was arbitrarily

determined. Although the offering price represents the most recent price at which our investors were willing to purchase such shares, it does not accurately represent the current value of our assets per share of our common stock at any particular time and may be higher or lower than the actual value of our assets per share at such time. Accordingly, when we repurchase shares of our common stock at or below the offering price, the actual value of the shares that we repurchase may be less, and the repurchase could be dilutive to our remaining stockholders. Alternatively, the actual value of the shares that we repurchase may be more than the redemption price and a stockholder participating in the redemption plan may not benefit from any increase in the value of the underlying assets.

We sold shares of our common stock in fixed price offerings, and continue to sell shares pursuant to our distribution reinvestment plan in a fixed price offering, and the fixed offering price may not accurately represent the current value of our assets at any particular time; therefore, the purchase price paid for shares of our common stock in our distribution reinvestment plan may be higher or lower than the value of our assets per share of our common stock at the time of purchase or at any time in the future.

Our public offerings were fixed price offerings, which means that the offering price for shares of our common stock was fixed and did not vary based on the underlying value of our assets at any time. Our board of directors arbitrarily determined the offering price for our public offerings, including our ongoing offering pursuant to our distribution reinvestment plan, in its sole discretion. The various factors considered by our board of directors in determining the fixed offering price for our public offerings were based on a number of assumptions and estimates that may not be accurate or complete. The fixed offering price established for shares of our common stock may not now or in the future accurately represent the current value of our assets per share of our common stock at any particular time and may be higher or lower than the actual value of our assets per share at any time. In addition, the fixed offering price may not be indicative of either the price you would receive if you sold your shares, the price at which shares of our common stock would trade if they were listed on a national securities exchange or if we were to execute a liquidity event or were to liquidate or dissolve.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Redemption Program

Per the terms of our amended and restated share redemption program (the “Amended SRP”), subject to certain restrictions and limitations, a stockholder may redeem shares of our common stock for cash at a price that may reflect a discount from the purchase price paid for the shares of common stock being redeemed. Shares of common stock must be held for a minimum of one year, subject to certain exceptions. We are not obligated to redeem shares of our common stock under the share redemption program. We presently limit the number of shares to be redeemed during any consecutive 12-month period to no more than five percent of the number of shares of common stock outstanding at the beginning of such 12-month period. We also limit redemptions in accordance with a quarterly cap.

After a stockholder has held shares of our common stock for a minimum of one year, our share redemption program may provide a limited opportunity for a stockholder to have its shares of common stock redeemed, subject to certain restrictions and limitations, at a price that may reflect a discount from the purchase price of the shares of our common stock being redeemed (the “Original Purchase Price”), and the amount of the discount (the “Holding Period Discount”) will vary based upon the length of time that a stockholder has held its shares of our common stock subject to redemption, as described in the table below (the “Holding Period Discount Table”), which has been posted on our website at www.industrialincome.com. Except as noted below, the redemption price (the “Redemption Price”) will be calculated by multiplying the Original Purchase Price by the applicable Holding Period Discount. Shares purchased through our distribution reinvestment plan, regardless of the offering in which they were purchased, will not be subject to the Holding Period Discount. With respect to shares of our common stock purchased pursuant to our initial public offering, including shares purchased through our distribution reinvestment plan pursuant to our initial public offering, the Redemption Price will be determined as described above, however the Original Purchase Price paid for such shares first will be increased by four percent, which is the amount by which the offering price increased between our initial public offering and our second public offering (the “Initial Offering Adjustment”) subject to the adjustments applicable to shares of common stock in connection with a redemption request with respect to the death of a stockholder, as described below. The redemption price is not intended to reflect the current value of shares being redeemed and such amount does not reflect the value that a stockholder might receive from selling his or her shares to a third party or upon a liquidity event. Currently, we are not required to disclose a new estimated price per share until January 2015.


Share Purchase Anniversary		Redemption Price as a Percentage of Original Purchase Price (as increased, if applicable, by the Initial Offering Adjustment)
Less than one year		No redemption allowed
One year		92.5%
Two years		95.0%
Three years		97.5%
Four years and longer		100.0%

In the event that a stockholder seeks to redeem all of its shares of our common stock, shares of our common stock purchased pursuant to our distribution reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of our board of directors. If a stockholder has made more than one purchase of our common stock (other than through our distribution reinvestment plan), the one-year holding period will be calculated separately with respect to each such purchase. In addition, for purposes of the one-year holding period, holders of Operating Partnership Units (“OP Units”) who exchange their OP Units for shares of our common stock shall be deemed to have owned their shares as of the date they were issued their OP Units. Neither the one-year holding period nor the Redemption Caps (as defined in the Amended SRP) will apply in the event of the death of a stockholder; provided, however, that any such redemption request with respect to the death of a stockholder must be submitted to us within 18 months after the date of death, as further described in the Amended SRP. Shares of common stock subject to a redemption request with respect to the death of a stockholder will be redeemed at a price equal to (i) with respect to shares purchased in the follow-on offering, 100% of the Original Purchase Price paid by the deceased stockholder for the shares without application of the Holding Period Discount, and (ii) with respect to shares purchased in our initial public offering, the greater of (x) 100% of the Original Purchase Price paid by the deceased stockholder for the shares, without application of the Initial Offering Adjustment or the Holding Period Discount and (y) the Redemption Price determined as described in the paragraph preceding the Holding Period Discount Table, including application of the Initial Offering Adjustment and the Holding Period Discount. Our board of directors reserves the right in its sole discretion at any time and from time to time to (a) waive the one-year holding period and either of the Redemption Caps (defined in the Amended SRP) in the event of the disability (as such term is defined in Section 72(m)(7) of the Internal Revenue Code) of a stockholder, (b) reject any request for redemption for any reason, or (c) reduce the number of shares of our common stock allowed to be redeemed under the share redemption program. A stockholder’s request for redemption in reliance on any of the waivers that may be granted in the event of the disability of the stockholder must be submitted within 18 months of the initial determination of the stockholder’s disability, as further described in the Amended SRP. If our board of directors waives the one-year holding period in the event of the disability of a stockholder, such stockholder will have its shares redeemed as described in the paragraph preceding the Holding Period Discount Table as though the stockholder has held its shares for one year, including application of the Initial Offering Adjustment (if applicable) and the Holding Period Discount. In all other cases in the event of the disability of a stockholder, such stockholder will have its shares redeemed as described in the paragraph preceding the Holding Period Discount Table. Furthermore, any shares redeemed in excess of the Quarterly Redemption Cap (as defined in the Amended SRP) as a result of the death or disability of a stockholder will be included in calculating the following quarter’s redemption limitations. At any time we are engaged in an offering of shares of our common stock, the per share price for shares of our common stock redeemed under our redemption program will never be greater than the then-current offering price of our shares of our common stock sold in the primary offering. The above description of the Amended SRP is a summary of certain of the terms of the Amended SRP. Please see the full text of the Amended SRP, which is incorporated by reference as Exhibit 4.2 to this Quarterly Report on Form 10-Q, for all the terms and conditions of the Amended SRP.

For the nine months ended September 30, 2014 and 2013, we received eligible redemption requests related to approximately 1.5 million and 0.7 million shares of our common stock, respectively, all of which we redeemed using cash flows from financing activities, for an aggregate amount of approximately $14.8 million, or an average price of $10.01 per share, and $6.9 million, or an average price of $9.83 per share, respectively.

The table below summarizes the redemption activity for the three months ended September 30, 2014:


					Total Number of Shares		Maximum Number of
	Total Number		Average		Redeemed as Part of		Shares That May Yet Be
	of Shares		Price Paid		Publicly Announced		Redeemed Under the
For the Month Ended	Redeemed		per Share		Plans or Programs		Plans or Programs (1)
July 31, 2014		-	$	-		-		-
August 31, 2014		-		-		-		-
September 30, 2014		521,254		10.00		521,254		-

Total		521,254	$	10.00		521,254		-

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

ITEM 6.

EXHIBITS

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

SIGNATURES

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


	INDUSTRIAL INCOME TRUST INC.

November 12, 2014	By:	/S/ DWIGHT L. MERRIMAN III
		Dwight L. Merriman III Chief Executive Officer *(Principal Executive Officer)*

November 12, 2014	By:	/S/ THOMAS G. MCGONAGLE
		Thomas G. McGonagle Chief Financial Officer *(Principal Financial Officer and Principal Accounting Officer)*

EXHIBIT INDEX


EXHIBIT NUMBER		DESCRIPTION

3.1		Second Articles of Amendment and Restatement of Industrial Income Trust Inc., dated February 9, 2010. Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed with the SEC on March 26, 2010.

3.2		Bylaws of Industrial Income Trust Inc. Incorporated by reference to Exhibit 3.2 to Pre-effective Amendment No. 4 to the Issuer’s Registration Statement on Form S-11 (File No. 333-159445) filed with the SEC on December 17, 2009.

3.3		Certificate of Correction to Second Articles of Amendment and Restatement of Industrial Income Trust Inc., dated March 19, 2014. Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on March 21, 2014.

3.4		Amended and Restated Bylaws of Industrial Income Trust Inc. Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on March 21, 2014.

4.1		Second Amended and Restated Distribution Reinvestment Plan. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on February 27, 2012.

4.2		Third Amended and Restated Share Redemption Program effective as of June 1, 2012. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on February 27, 2012.

10.1		Sixth Amended and Restated Advisory Agreement, dated as of June 27, 2014, by and among Industrial Income Trust Inc., Industrial Income Operating Partnership LP and Industrial Income Advisors LLC. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on August 11, 2014.

31.1*		Certification of Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from Industrial Income Trust Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, filed on November 12, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statement of Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.

*	Filed herewith.

**	Furnished herewith.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company