Black Creek Diversified Property Fund Inc. - FORM 8-K - EX-99.2 - EXHIBIT 99.2 Q1 2017 PORTFOLIO PERFORMANCE AND OPERATIONAL REVIEW

Attached files

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EX-99.1 - EXHIBIT 99.1 - PRESS RELEASE - Black Creek Diversified Property Fund Inc.	ex991q117pressrelease.htm
8-K - 8-K - Black Creek Diversified Property Fund Inc.	q117form8-k.htm

Dividend Capital Diversified Property Fund Inc. 8-K

Exhibit 99.2



TABLE OF CONTENTS

PERFORMANCE	3
FINANCIAL HIGHLIGHTS	4
NET ASSET VALUE	5
PORTFOLIO PROFILE	7
BALANCE SHEETS	8
STATEMENTS OF INCOME	9
FUNDS FROM OPERATIONS	10
RESULTS OF OPERATIONS	12
FINANCE & CAPITAL	15
REAL PROPERTIES	18
LEASING ACTIVITY	19
INVESTMENT ACTIVITY	24
DEFINITIONS	26

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

The forward looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to: the continuing impact of high unemployment and the slow economic recovery, which is having and may continue to have a negative effect on the following, among other things, the fundamentals of our business, including overall market demand and occupancy, tenant space utilization, and rental rates; the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis; general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); our ability to effectively raise and deploy proceeds from our equity offerings; risks associated with the availability and terms of debt and equity financing and refinancing and the use of debt to fund acquisitions and developments, including the risk associated with interest rates impacting the cost and/or availability of financing and refinancing; the business opportunities that may be presented to and pursued by us; changes in laws or regulations (including changes to laws governing the taxation of real estate investment trusts); changes in accounting principles, policies and guidelines applicable to real estate investment trusts; environmental, regulatory and/or safety requirements; and the availability and cost of comprehensive insurance, including coverage for terrorist acts and earthquakes. 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 supplemental package, whether as a result of new information, future events, changed circumstances or any other reason. You should review the risk factors contained in Part I, Item 1A of our 2016 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 3, 2017, and in our subsequent quarterly reports.

Please see the section titled “Definitions” at the end of this portfolio performance and review package for definitions of terms used herein.

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PERFORMANCE

Dividend Capital Diversified Property Fund Inc. is a daily NAV-based REIT and has invested in a diverse portfolio of real property and real estate related investments. As used herein, “the Portfolio,” “we,” “our” and “us” refer to Dividend Capital Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.

Quarter Highlights


•	Total return of 0.55% for the quarter; 7.22% for the last 12 months.


•	Repaid one mortgage note for $110.0 million with a weighted average interest rate of 5.51% and entered into one mortgage note borrowing for $127.0 million with an interest rate spread of 2.25% over one-month LIBOR.


•	Percentage leased of 87.8% as of March 31, 2017 (if weighted by the fair value of each segment, our portfolio was 88.0% leased as of March 31, 2017).


•	Paid weighted-average distribution of $0.0891/share.



Shareholder Returns						Key Statistics
	Q1 2017	Year-to-Date	1-Year	3-Year	Since Inception (9/30/12) - Annualized⁽⁵⁾		As of March 31, 2017
						Fair Value⁽¹⁾ of Investments	$2,280.5 million
						Number of Real Properties	55
						Number of Real Property Markets	20
						Total Square Feet	9.0 million
Distribution returns⁽³⁾⁽⁴⁾	1.18%	1.18%	5.00%	5.08%	5.18%	Number of Tenants	approximately 520
Net change in NAV, per share⁽⁴⁾	(0.63)%	(0.63)%	2.22%	2.60%	2.81%	Percentage Leased	87.8	%
Total return⁽⁴⁾⁽⁵⁾	0.55%	0.55%	7.22%	7.68%	7.99%	Debt to Fair Value of Investments	47.7	%

(1)

As determined in accordance with our Valuation Procedures, filed as Exhibit 99.1 to our 2016 Annual Report on Form 10-K. See a discussion of some of the differences between the definition of "fair value" of our real estate assets as used in our Valuation Procedures and in this document versus GAAP values in the section titled "Definitions" beginning on page 25. For a description of key assumptions used in calculating the value of our real properties as of March 31, 2017, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of our Q1 2017 Quarterly Report on Form 10-Q.


(2)	Any market for which we do not show a corresponding percentage of our total fair value comprises 1% or less of the total fair value of our real property portfolio.

(3)

Represents the compounded return realized from reinvested distributions before class specific expenses. We pay our dealer manager (1) a dealer manager fee equal to 1/365th of 0.60% of our NAV per share for Class A shares and Class W shares for each day, (2) a dealer manager fee equal to 1/365th of 0.10% of our NAV per share for Class I shares for each day and (3) for Class A shares only, a distribution fee equal to 1/365th of 0.50% of our NAV per share for Class A shares for each day.


(4)	Excludes the impact of up-front commissions paid with respect to certain Class A shares. We pay selling commissions on Class A shares sold in the primary offering of up to 3.0% of the public offering price per share, which may be higher or lower due to rounding. Selling commissions may be reduced or eliminated to or for the account of certain categories of purchasers.

(5)

Total return represents the compound annual rate of return assuming reinvestment of all dividend distributions. Past performance is not a guarantee of future results. Q4 2012 represents the first full quarter for which we have complete NAV return data. As such, we use 9/30/12 as “inception” for the purpose of calculating cumulative returns since inception. Investors in our fixed price offering prior to NAV inception are likely to have a lower total return.

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FINANCIAL HIGHLIGHTS

Amounts in thousands, except per share information and percentages.



	As of or For the Three Months Ended
Selected Operating Data (as adjusted)	March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
Total revenue	$	52,739		$	53,956		$	53,493		$	52,939		$	55,782
Gain on sale of real property	—			2,165			2,095			—			41,400
Net income	1,827			3,357			3,318			135			48,238
Net income per share	$	0.01		$	0.02		$	0.02		$	0.00		$	0.27
Weighted average number of common shares outstanding - basic	149,891			154,807			158,688			161,209			163,954
Weighted average number of common shares outstanding - diluted	161,919			166,942			170,952			173,669			176,690
Portfolio Statistics
Operating properties	55			55			55			58			57
Square feet	8,971			8,971			8,988			9,333			9,253
Percentage leased at end of period	87.8		%	91.2		%	91.5		%	90.2		%	90.2		%
Non-GAAP Supplemental Financial Measures
Real property net operating income ("NOI") ⁽¹⁾	35,065			36,523			36,821			37,070			39,226
Funds from Operations ("FFO") per share ⁽²⁾	$	0.12		$	0.13		$	0.14		$	0.12		$	0.15
Net Asset Value ("NAV")⁽³⁾
NAV per share at the end of period	$	7.52		$	7.57		$	7.48		$	7.37		$	7.36
Weighted average distributions per share	$	0.0891		$	0.0892		$	0.0892		$	0.0893		$	0.0894
Weighted average closing dividend yield - annualized	4.74		%	4.71		%	4.77		%	4.84		%	4.86		%
Weighted average total return for the period	0.55		%	2.45		%	2.59		%	1.44		%	(0.25		)%
Aggregate fund NAV at end of period	$	1,184,021		$	1,229,300		$	1,232,985		$	1,264,858		$	1,276,263
Consolidated Debt
Leverage ⁽⁴⁾	47.7		%	45.9		%	45.9		%	44.4		%	42.2		%
Weighted average stated interest rate of total borrowings	3.2		%	3.4		%	3.2		%	3.6		%	4.2		%
Secured borrowings	$	360,063		$	343,470		$	388,070		$	465,292		$	513,053
Secured borrowings as % of total borrowings	33		%	33		%	37		%	45		%	54		%
Unsecured borrowings	$	735,000		$	711,000		$	668,000		$	561,000		$	432,000
Unsecured borrowings as % of total borrowings	67		%	67		%	63		%	55		%	46		%
Fixed rate borrowings ⁽⁵⁾	$	542,593		$	653,093		$	697,785		$	835,580		$	913,053
Fixed rate borrowings as % of total borrowings	50		%	62		%	66		%	81		%	97		%
Floating rate borrowings	$	552,470		$	401,377		$	358,285		$	190,712		$	32,000
Floating rate borrowings as % of total borrowings	50		%	38		%	34		%	19		%	3		%
Total borrowings	$	1,095,063		$	1,054,470		$	1,056,070		$	1,026,292		$	945,053
Net GAAP adjustments ⁽⁶⁾	$	(6,618	)	$	(5,669	)	$	(5,360	)	$	(5,173	)	$	(5,039	)
Total borrowings (GAAP Basis)	$	1,088,445		$	1,048,801		$	1,050,710		$	1,021,119		$	940,014


(1)	NOI is a non-GAAP measure. For a reconciliation of NOI to GAAP net income, see the section titled "Results From Operations" beginning on page 12.


(2)	FFO is a non-GAAP measure. For a reconciliation of FFO to GAAP net income, see the section titled “Funds From Operations” beginning on page 10.

(3)


(4)	Leverage presented represents the total principal outstanding under our total borrowings divided by the fair value of our real property and debt investments.


(5)	Fixed rate borrowings presented includes floating rate borrowings that are effectively fixed by a derivative instrument such as a swap through maturity or substantially through maturity.


(6)	Net GAAP adjustments include net deferred issuance costs and mark-to-market adjustments on assumed debt. These items are included in mortgage notes and unsecured borrowings in our condensed consolidated balance sheets in accordance with GAAP.

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NET ASSET VALUE

The following table sets forth the components of NAV for the Portfolio as of the end of each of the five quarters ending March 31, 2017, as determined in accordance with our valuation procedures. For information about the valuation procedures and key assumptions used in these calculations, please refer to our Annual Report on Form 10-K or Quarterly Report on Form 10-Q for the applicable period. As used below, “Fund Interests” means our Class E shares, Class A shares, Class W shares, and Class I shares, along with the OP Units held by third parties, and “Aggregate Fund NAV” means the NAV of all of the Fund Interests (amounts in thousands except per share information).



	As of
	March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
Real properties:
Office	$	1,186,100		$	1,187,600		$	1,185,850		$	1,192,700		$	1,184,385
Industrial	81,050			81,750			80,850			85,550			85,650
Retail	1,013,300			1,012,850			1,020,750			1,020,050			951,700
Total real properties	2,280,450			2,282,200			2,287,450			2,298,300			2,221,735
Debt-related investments	15,076			15,209			15,340			15,469			15,596
Total investments	2,295,526			2,297,409			2,302,790			2,313,769			2,237,331
Cash and other assets, net of other liabilities	(13,843		)	(10,051		)	(10,109		)	(19,238		)	(12,695		)
Debt obligations	(1,095,063		)	(1,054,470		)	(1,056,070		)	(1,026,292		)	(945,053		)
Outside investors' interests	(2,599		)	(3,588		)	(3,626		)	(3,381		)	(3,320		)
Aggregate Fund NAV	$	1,184,021		$	1,229,300		$	1,232,985		$	1,264,858		$	1,276,263
Total Fund Interests outstanding	157,409			162,396			164,930			171,525			173,445
NAV per Fund Interest	$	7.52		$	7.57		$	7.48		$	7.37		$	7.36

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NET ASSET VALUE (continued)

The following table sets forth the quarterly changes to the components of NAV for the Portfolio, for each of the most recent four quarters and for the twelve month period ended March 31, 2017 (amounts in thousands, except per share information):



	Three Months Ended
	March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			Previous Four Quarters
NAV as of beginning of period	$	1,229,300		$	1,232,985		$	1,264,858		$	1,276,263		$	1,276,263
Fund level changes to NAV
Realized/unrealized (losses) gains on net assets	(9,067		)	12,163			13,206			(3,990		)	12,312
Income accrual	19,564			22,407			23,078			26,083			91,132
Dividend accrual	(14,448		)	(14,901		)	(15,275		)	(15,525		)	(60,149		)
Advisory fee	(3,468		)	(3,624		)	(3,665		)	(3,657		)	(14,414		)
Performance based fee	(1		)	(94		)	—			—			(95		)
Class specific changes to NAV
Dealer Manager fee	(112		)	(107		)	(99		)	(89		)	(407		)
Distribution fee	(19		)	(18		)	(18		)	(17		)	(72		)
NAV as of end of period before share/unit sale/redemption activity	$	1,221,749		$	1,248,811		$	1,282,085		$	1,279,068		$	1,304,570
Dollar/unit sale/redemption activity
Amount sold	11,210			44,371			7,850			46,228			109,659
Amount redeemed	(48,938		)	(63,882		)	(56,950		)	(60,438		)	(230,208		)
NAV as of end of period	$	1,184,021		$	1,229,300		$	1,232,985		$	1,264,858		$	1,184,021
Shares outstanding beginning of period	162,396			164,930			171,525			173,445			173,445
Shares/units sold	1,484			5,925			1,061			6,265			14,735
Shares/units redeemed	(6,471		)	(8,459		)	(7,656		)	(8,185		)	(30,771		)
Shares outstanding end of period	157,409			162,396			164,930			171,525			157,409
NAV per share as of beginning of period	$	7.57		$	7.48		$	7.37		$	7.36		$	7.36
Change in NAV per share	(0.05		)	0.09			0.11			0.01			0.16
NAV per share as of end of period	$	7.52		$	7.57		$	7.48		$	7.37		$	7.52

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PORTFOLIO PROFILE

As of March 31, 2017, our real property investments were geographically diversified across 20 markets throughout the United States. The following table presents information about the fair value of our real property portfolio as of March 31, 2017 and about the operating results for the three and trailing twelve months ended March 31, 2017 (dollar and square footage amount in thousands).



	Office			Industrial			Retail			Total
As of March 31, 2017:
Number of investments	16			5			34			55
Square footage	3,400			1,782			3,789			8,971
Percentage leased at period end	83.1		%	83.8		%	94.0		%	87.8		%
Fair value ⁽¹⁾	$	1,186,100		$	81,050		$	1,013,300		$	2,280,450
% of total Fair Value	52.0		%	3.6		%	44.4		%	100.0		%
For the three months ended March 31, 2017:
Rental revenue	$	29,439		$	1,571		$	21,498		$	52,508
NOI ⁽²⁾	18,298			1,003			15,764			35,065
% of total NOI	52.1		%	2.9		%	45.0		%	100.0		%
NOI - cash basis ⁽³⁾	$	18,673		$	1,003		$	14,952		$	34,628
For the trailing twelve months ended March 31, 2017:
Rental revenue	$	122,251		$	5,933		$	84,007		$	212,191
NOI ⁽²⁾	79,316			4,057			62,106			145,479
% of total NOI	54.5		%	2.8		%	42.7		%	100.0		%
NOI - cash basis ⁽³⁾	$	83,091		$	4,173		$	58,551		$	145,815

(1)


(2)	NOI is a non-GAAP measure. For a reconciliation of NOI to GAAP net income, see the section titled "Results From Operations" beginning on page 12.


(3)	NOI - cash basis is a non-GAAP measure. For a reconciliation of NOI - Cash Basis to NOI and to GAAP net income, see the section titled "Results From Operations" beginning on page 12.

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BALANCE SHEETS

The following table presents our consolidated balance sheets, as adjusted, as of the end of each of the five quarters ended March 31, 2017 (dollar amounts in thousands):



	As of
	March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
ASSETS
Investments in real property	$	2,207,409		$	2,204,322		$	2,201,127		$	2,240,520		$	2,164,290
Accumulated depreciation and amortization	(511,532		)	(492,911		)	(473,211		)	(469,341		)	(448,994		)
Total net investments in real property	1,695,877			1,711,411			1,727,916			1,771,179			1,715,296
Debt-related investments, net	15,076			15,209			15,340			15,469			15,596
Total net investments	1,710,953			1,726,620			1,743,256			1,786,648			1,730,892
Cash and cash equivalents	10,894			13,864			34,403			17,088			11,675
Restricted cash	8,765			7,282			7,836			17,219			16,281
Other assets, net	36,947			35,962			36,166			33,344			35,625
Total Assets	$	1,767,559		$	1,783,728		$	1,821,661		$	1,854,299		$	1,794,473
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes	$	357,565		$	342,247		$	386,861		$	464,564		$	512,753
Unsecured borrowings	730,880			706,554			663,849			556,555			427,261
Intangible lease liabilities, net	58,119			59,545			61,357			62,909			62,339
Other liabilities	62,635			67,291			81,968			85,371			67,247
Total Liabilities	1,209,199			1,175,637			1,194,035			1,169,399			1,069,600
Equity:
Stockholders' equity:
Common stock	1,458			1,506			1,531			1,595			1,613
Additional paid-in capital	1,324,200			1,361,638			1,383,191			1,430,673			1,449,364
Distributions in excess of earnings	(851,636		)	(839,896		)	(829,162		)	(817,920		)	(803,594		)
Accumulated other comprehensive loss	(4,926		)	(6,905		)	(20,166		)	(22,848		)	(19,429		)
Total stockholders' equity	469,096			516,343			535,394			591,500			627,954
Noncontrolling interests	89,264			91,748			92,232			93,400			96,919
Total Equity	558,360			608,091			627,626			684,900			724,873
Total Liabilities and Equity	$	1,767,559		$	1,783,728		$	1,821,661		$	1,854,299		$	1,794,473

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STATEMENTS OF INCOME

The following table presents our condensed consolidated statements of operations, as adjusted, for each of the five quarters ended March 31, 2017 (amounts in thousands, except per share data):



	Three Months Ended
	March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
REVENUE:
Rental revenue	$	52,508		$	53,723		$	53,258		$	52,702		$	55,544
Debt-related income	231			233			235			237			238
Total Revenue	52,739			53,956			53,493			52,939			55,782
EXPENSES:
Rental expense	17,443			17,200			16,437			15,632			16,318
Real estate depreciation and amortization expense	17,936			20,083			19,989			20,198			19,835
General and administrative expenses	2,250			2,257			2,234			2,338			2,621
Advisory fees, related party	3,490			3,740			3,681			3,671			3,765
Acquisition-related expenses	—			6			136			474			51
Impairment of real estate property	—			—			2,090			—			587
Total Operating Expenses	41,119			43,286			44,567			42,313			43,177
Other Income (Expenses):
Interest and other (expense) income	(109		)	(90		)	2,308			(69		)	58
Interest expense	(9,684		)	(9,388		)	(10,011		)	(10,422		)	(10,961		)
Gain on extinguishment of debt and financing commitments	—			—			—			—			5,136
Gain on sale of real property	—			2,165			2,095			—			41,400
Net Income	1,827			3,357			3,318			135			48,238
Net income attributable to noncontrolling interests	(166		)	(245		)	(353		)	(18		)	(4,456		)
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	1,661		$	3,112		$	2,965		$	117		$	43,782
NET INCOME PER BASIC AND DILUTED COMMON SHARE	$	0.01		$	0.02		$	0.02		$	0.00		$	0.27
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic	149,891			154,807			158,688			161,209			163,954
Diluted	161,919			166,942			170,952			173,669			176,690
Weighted average distributions declared per common share	$	0.0891		$	0.0892		$	0.0892		$	0.0893		$	0.0894

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FUNDS FROM OPERATIONS

NAREIT-Defined Funds From Operations (“FFO”) is a non-GAAP measure. The following tables present a reconciliation of FFO to GAAP net income (loss) attributable to common stockholders for each of the five quarters ended March 31, 2017 (amounts in thousands except for per share amounts and percentages):



	Three Months Ended
	March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
Reconciliation of net earnings to FFO:
Net income attributable to common stockholders	$	1,661		$	3,112		$	2,965		$	117		$	43,782
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense	17,936			20,083			19,989			20,198			19,835
Gain on sale of real property	—			(2,165		)	(2,095		)	—			(41,400		)
Impairment of real estate property	—			—			2,090			—			587
Noncontrolling interests' share of adjustments	(1,361		)	(1,331		)	(1,366		)	(1,481		)	1,376
FFO attributable to common shares-basic	18,236			19,699			21,583			18,834			24,180
FFO attributable to dilutive OP units	1,463			1,544			1,668			1,456			1,878
FFO attributable to common shares-diluted	$	19,699		$	21,243		$	23,251		$	20,290		$	26,058
FFO per share-basic and diluted	$	0.12		$	0.13		$	0.14		$	0.12		$	0.15
FFO payout ratio	73		%	70		%	66		%	76		%	61		%
Weighted average number of shares outstanding
Basic	149,891			154,807			158,688			161,209			163,954
Diluted	161,919			166,942			170,952			173,669			176,690

Page | 10

FUNDS FROM OPERATIONS (continued)

The following table presents certain other supplemental information for each of the five quarters ended March 31, 2017 (amounts in thousands):



	Three Months Ended
	March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
Other Supplemental Information
Capital expenditures summary:
Recurring capital expenditures ⁽¹⁾	$	2,801		$	8,039		$	4,165		$	8,212		$	6,280
Non-recurring capital expenditures	469			1,078			748			694			988
Total capital expenditures	3,270			9,117			4,913			8,906			7,268
Other non-cash adjustments:
Straight-line rent decrease to rental revenue	117			522			296			205			240
Amortization of above- and below- market rent (increase) decrease to rental revenue	(559		)	143			(127		)	(283		)	(268		)
Amortization of loan costs and hedges - increase to interest expense	1,032			873			909			910			1,058
Amortization of mark-to-market adjustments on borrowings - decrease to interest expense	(33		)	(33		)	(32		)	(32		)	(581		)
Total other non-cash adjustments	$	557		$	1,505		$	1,046		$	800		$	449


(1)	Recurring capital expenditures include lease incentives. Unlike other capital expenditures, we record lease incentives as other assets in our balance sheet and we classify payments for lease incentives as cash used in operating activities in our statement of cash flows.

Page | 11

RESULTS FROM OPERATIONS

Net operating income (“NOI”) and NOI - cash basis are non-GAAP measures. See page 13 for a reconciliation of GAAP net income attributable to common stockholders to NOI and NOI - cash basis. The following tables present revenue and NOI of our three operating segments for each of the five quarters ending March 31, 2017. Our same store portfolio includes all operating properties owned for the entirety of all periods presented and totals 54 properties, comprising approximately 8.9 million square feet or 99.1% of our total portfolio when measured by square feet (amounts in thousands):



	Three Months Ended
	March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		March 31, 2016
Revenue:
Same store real property:
Office ⁽¹⁾	$	29,439	$	30,743	$	31,207	$	30,983	$	30,781
Industrial	1,562		1,391		1,417		1,487		1,662
Retail	20,141		20,459		19,544		19,583		19,626
Total same store real property revenue	51,142		52,593		52,168		52,053		52,069
2016/2017 Acquisitions/Dispositions	1,366		1,130		1,090		649		3,475
Total	$	52,508	$	53,723	$	53,258	$	52,702	$	55,544
NOI:
Same store real property:
Office ⁽¹⁾	$	18,307	$	19,591	$	20,665	$	21,020	$	20,813
Industrial	993		991		953		1,101		1,260
Retail	14,939		15,250		14,351		14,680		14,510
Total same store real property NOI	34,239		35,832		35,969		36,801		36,583
2016/2017 Acquisitions/Dispositions	826		691		852		269		2,643
Total	$	35,065	$	36,523	$	36,821	$	37,070	$	39,226
NOI - cash basis:
Same store real property:
Office ⁽¹⁾	$	18,681	$	21,102	$	21,711	$	21,864	$	21,479
Industrial	995		1,019		1,030		1,111		1,264
Retail	14,205		14,450		13,489		13,765		13,709
Total same store real property NOI - cash basis	33,881		36,571		36,230		36,740		36,452
2016/2017 Acquisitions/Dispositions	747		624		765		257		2,752
Total	$	34,628	$	37,195	$	36,995	$	36,997	$	39,204

(1)

In January 2017, our lease with Sybase Inc. ("Sybase"), our second largest tenant based on annualized base rent as of December 31, 2016, was terminated which had an adverse impact on our results from operations for the three months ended March 31, 2017. Please see the table below for revenue, NOI and NOI - cash basis for our same store office portfolio excluding Sybase for each of the five quarters ending March 31, 2017.



	Three Months Ended
	March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		March 31, 2016
Same store office portfolio excluding Sybase:
Revenue	$	27,879	$	27,416	$	27,678	$	27,451	$	27,249
NOI	17,357		16,525		17,154		17,542		17,292
NOI - cash basis	17,352		16,689		17,055		17,246		16,816

Page | 12

Page | 13

RESULTS FROM OPERATIONS (continued)

The following tables present a reconciliation of GAAP net income attributable to common stockholders to NOI and NOI - Cash Basis of our three operating segments for each of the five quarters ending March 31, 2017 (amounts in thousands):



	Three Months Ended
	March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016
Net income attributable to common stockholders	$	1,661		$	3,112		$	2,965		$	117		$	43,782
Debt-related income	(231		)	(233		)	(235		)	(237		)	(238		)
Real estate depreciation and amortization expense	17,936			20,083			19,989			20,198			19,835
General and administrative expenses	2,250			2,257			2,234			2,338			2,621
Advisory fees, related party	3,490			3,740			3,681			3,671			3,765
Acquisition-related expenses	—			6			136			474			51
Impairment of real estate property	—			—			2,090			—			587
Interest and other expense (income)	109			90			(2,308		)	69			(58		)
Interest expense	9,684			9,388			10,011			10,422			10,961
Gain on extinguishment of debt and financing commitments	—			—			—			—			(5,136		)
Gain on sale of real property	—			(2,165		)	(2,095		)	—			(41,400		)
Net income attributable to noncontrolling interests	166			245			353			18			4,456
NOI	$	35,065		$	36,523		$	36,821		$	37,070		$	39,226
Net amortization of above- and below-market lease assets and liabilities, and other non-cash adjustments to rental revenue	(554		)	150			(122		)	(278		)	(262		)
Straight line rent	117			522			296			205			240
NOI - cash basis	$	34,628		$	37,195		$	36,995		$	36,997		$	39,204

The following tables present details regarding our capital expenditures for each of the five quarters ending March 31, 2017 (amounts in thousands):



	Three Months Ended
	March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		March 31, 2016
Recurring capital expenditures:
Land and building improvements	$	1,108	$	5,740	$	1,949	$	1,729	$	1,294
Tenant improvements	1,046		1,267		1,680		1,459		4,100
Leasing costs ⁽¹⁾	647		1,032		536		5,024		886
Total recurring capital expenditures	$	2,801	$	8,039	$	4,165	$	8,212	$	6,280
Non-recurring capital expenditures:
Land and building improvements	$	292	$	782	$	553	$	374	$	304
Tenant improvements	93		165		111		256		529
Leasing costs	84		131		84		64		155
Total non-recurring capital expenditures	$	469	$	1,078	$	748	$	694	$	988


(1)	Recurring leasing costs include lease incentives. Unlike other capital expenditures, we record lease incentives as other assets in our balance sheet and we classify payments for lease incentives as cash used in operating activities in our statement of cash flows.

Page | 14

FINANCE & CAPITAL

The following table describes certain information about our capital structure. Amounts reported as financing capital represent the total principal outstanding under our total borrowings. Amounts reported as equity capital are presented based on the NAV as of March 31, 2017 (shares and dollar amounts other than price per share / unit in thousands).



FINANCING:	As of March 31, 2017
Mortgage notes	$	360,063
Unsecured line of credit	260,000
Unsecured term loans	475,000
Total Financing ⁽¹⁾	$	1,095,063



EQUITY:	Shares / Units	Percentage of Aggregate Shares and Units Outstanding		NAV Per Share / Unit		Value
Class E Common Stock	106,837	67.9	%	$	7.52	$	803,618
Class A Common Stock	2,034	1.3	%	7.52		15,300
Class W Common Stock	2,415	1.5	%	7.52		18,166
Class I Common Stock ⁽²⁾	34,200	21.7	%	7.52		257,250
Class E OP Units	11,923	7.6	%	7.52		89,687
Total/Weighted Average	157,409	100.0	%	$	7.52	$	1,184,021
Joint venture partners' noncontrolling interests						2,599
Total Equity						1,186,620
TOTAL CAPITALIZATION						$	2,281,683


(1)	For a reconciliation of the total outstanding principal balance under our total borrowings to total borrowings on a GAAP basis see page 15.

(2) Amounts reported do not include approximately 288,000 restricted stock units granted to the Advisor that remain unvested as of March 31, 2017.

Page | 15

FINANCE & CAPITAL (continued)

The following table presents a summary of our borrowings as of March 31, 2017 (dollar amounts in thousands):



	Outstanding Principal Balance			Weighted Average Stated Interest Rate	Fair Value of Real Properties Securing Borrowings ⁽¹⁾
Fixed-rate mortgages ⁽²⁾	$	180,563		4.6%	$	347,800
Floating-rate mortgages ⁽³⁾	179,500			2.9%	354,200
Total secured borrowings	360,063			3.8%	702,000
Line of credit ⁽⁴⁾	260,000			2.5%	N/A
Term loans ⁽⁴⁾	475,000			3.2%	N/A
Total unsecured borrowings	735,000			3.0%	N/A
Total borrowings	$	1,095,063		3.2%	N/A
Less: net debt issuance costs	(7,211		)
Add: mark-to-market adjustment on assumed debt	593
Total borrowings (GAAP basis)	$	1,088,445

(1)

Fair value of real properties was determined in accordance with our Valuation Procedures, filed as Exhibit 99.1 to our 2016 Annual Report on Form 10-K. See a discussion of some of the differences between the definition of "fair value" of our real estate assets as used in our Valuation Procedures and in this document versus GAAP values in the section titled "Definitions" beginning on page 25. For a description of key assumptions used in calculating the value of our real properties as of March 31, 2017, please refer to "Market for Registant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" in Part II, Item 5 of our 2016 Annual Report on Form 10-K.


(2)	As of March 31, 2017, fixed-rate mortgages included one floating rate mortgage note subject to an interest rate spread of 1.60% over one-month LIBOR, which we have effectively fixed using an interest rate swap at 3.051% for the term of the borrowing.


(3)	As of March 31, 2017, our floating rate mortgage notes were subject to a weighted average interest rate spread of 2.07% over one-month LIBOR.


(4)	$362.0 million of our unsecured floating rate borrowings are effectively fixed by the use of fixed-for-floating rate swap instruments as of March 31, 2017. The stated interest rate disclosed above includes the impact of these swaps.

The following table presents a summary of our covenants and our actual results for each of the five quarters ended March 31, 2017, calculated in accordance with the terms of our credit facilities:



Portfolio-Level Covenants:	Covenant	March 31, 2017		December 31, 2016		September 30, 2016		June 30, 2016		March 31, 2016
Leverage	< 60%	50.8	%	47.5	%	46.5	%	44.8	%	42.9	%
Fixed Charge Coverage	> 1.50	3.3		3.3		3.0		2.7		2.6
Secured Indebtedness	< 55%	16.7	%	15.5	%	17.0	%	20.2	%	23.2	%

Unencumbered Pool Covenants:
Leverage	< 60%	50.7	%	45.5	%	41.4	%	38.8	%	34.2	%
Unsecured Interest Coverage	>2.0	5.2		6.8		7.8		6.9		6.2

Page | 16

FINANCE & CAPITAL (continued)

The following table presents a detailed analysis of our borrowings outstanding as of March 31, 2017 (dollar amounts in thousands):



Borrowings	Principal Balance			Secured / Unsecured	Maturity Date	Extension Options	% of Total Borrowings		Fixed or Floating Interest Rate	Current Interest Rate
Wareham ⁽¹⁾	$	24,400		Secured	8/8/2017	None	2.2	%	Fixed	6.13	%
Kingston	10,574			Secured	11/1/2017	None	1.0	%	Fixed	6.33	%
Sandwich	15,825			Secured	11/1/2017	None	1.4	%	Fixed	6.33	%
Total 2017	50,799						4.6	%		6.24	%
Bank of America Term Loan ⁽²⁾	275,000			Unsecured	1/31/2018	2 - 1 Year	25.0	%	Floating	2.83	%
Line of Credit ⁽²⁾	260,000			Unsecured	1/31/2019	1 - 1 Year	23.7	%	Floating	2.51	%
3 Second Street ⁽³⁾	127,000			Secured	1/10/2020	2 - 1 Year	11.6	%	Floating	3.13	%
Shenandoah	10,443			Secured	9/1/2021	None	1.0	%	Fixed	4.84	%
Wells Fargo Term Loan ⁽²⁾	200,000			Unsecured	2/27/2022	None	18.3	%	Fixed	3.79	%
Norwell	4,237			Secured	10/1/2022	None	0.4	%	Fixed	6.76	%
Preston Sherry Plaza ⁽⁴⁾	33,000			Secured	3/1/2023	None	3.0	%	Fixed	3.05	%
1300 Connecticut ⁽⁵⁾	52,500			Secured	8/5/2023	None	4.8	%	Floating	2.43	%
Greater DC Retail Center	70,000			Secured	12/1/2025	None	6.4	%	Fixed	3.80	%
Harwich	4,956			Secured	9/1/2028	None	0.5	%	Fixed	5.24	%
New Bedford	7,128			Secured	12/1/2029	None	0.7	%	Fixed	5.91	%
Total 2018 - 2029	1,044,264						95.4	%		3.09	%
Total borrowings	1,095,063						100.0	%		3.24	%
Add: mark-to-market adjustment on assumed debt	593
Less: net debt issuance costs	(7,211		)
Total Borrowings (GAAP basis)	$	1,088,445


(1)	[The Wareham borrowing was fully repaid on May 8, 2017.


(2)	$362.0 million of our term loan and line of credit borrowings are effectively fixed by the use of fixed-for-floating rate swap instruments as of March 31, 2017. The stated interest rates disclosed above include the impact of these swaps.


(3)	The 3 Second Street term loan was subject to an interest rate spread of 2.25% over one-month LIBOR as of March 31, 2017. However, in conjunction with this borrowing, we entered into an interest rate protection agreement with a LIBOR strike rate of 3.0%.


(4)	The Preston Sherry Plaza term loan was subject to an interest rate spread of 1.60% over one-month LIBOR. However, we have effectively fixed the interest rate of the borrowing using an interest rate swap at 3.051% for the term of the borrowing as of March 31, 2017.


(5)	As of March 31, 2017, the 1300 Connecticut term loan was subject to an interest rate spread of 1.65% over one-month LIBOR. However, we entered into an interest rate swap which will effectively fix the interest rate of the borrowing at 2.852% from July 1, 2018 to July 1, 2021.

Page | 17

REAL PROPERTIES

The following table describes our operating property portfolio as of March 31, 2017 (dollar and square feet amounts in thousands):



Market	Number of Properties	Gross Investment Amount		% of Gross Investment Amount		Net Rentable Square Feet	% of Total Net Rentable Square Feet		% Leased ⁽¹⁾		Secured Indebtedness ⁽²⁾
Office Properties:
Northern New Jersey	1	$	231,174	10.6	%	593	6.6	%	100.0	%	$	127,000
Austin, TX	3	155,398		7.1	%	585	6.5	%	97.9	%	—
East Bay, CA	1	145,543		6.6	%	405	4.5	%	—	%	—
San Francisco, CA	1	122,240		5.5	%	263	2.9	%	90.6	%	—
Denver, CO	1	83,292		3.9	%	258	2.9	%	77.7	%	—
South Florida	2	82,337		3.7	%	363	4.0	%	86.7	%	—
Washington, DC	1	70,569		3.2	%	126	1.4	%	99.1	%	52,500
Princeton, NJ	1	51,324		2.3	%	167	1.9	%	100.0	%	—
Philadelphia, PA	1	47,322		2.1	%	174	1.9	%	92.5	%	—
Silicon Valley, CA	1	42,685		1.9	%	143	1.6	%	100.0	%	—
Dallas, TX	1	37,964		1.7	%	155	1.7	%	92.3	%	33,000
Minneapolis/St Paul, MN	1	29,515		1.3	%	107	1.2	%	100.0	%	—
Fayetteville, AR	1	11,695		0.5	%	61	0.7	%	100.0	%	—
Total/Weighted Average Office: 13 markets with average annual rent of $31.27 per sq. ft.	16	1,111,058		50.4	%	3,400	37.8	%	83.1	%	212,500
Industrial Properties:
Dallas, TX	1	35,854		1.6	%	446	5.0	%	35.1	%	—
Central Kentucky	1	30,840		1.4	%	727	8.1	%	100.0	%	—
Louisville, KY	3	22,439		1.0	%	609	6.8	%	100.0	%	—
Total/Weighted Average Industrial: three markets with average annual rent of $3.58 per sq. ft.	5	89,133		4.0	%	1,782	19.9	%	83.8	%	—
Retail Properties:
Greater Boston	25	541,865		24.5	%	2,223	24.8	%	95.1	%	67,120
South Florida	2	106,730		4.8	%	206	2.3	%	97.6	%	10,443
Philadelphia, PA	1	105,306		4.8	%	426	4.8	%	90.6	%	—
Washington, DC	1	62,867		2.8	%	233	2.6	%	100.0	%	70,000
Northern New Jersey	1	58,994		2.7	%	223	2.5	%	93.8	%	—
Raleigh, NC	1	45,714		2.1	%	143	1.6	%	98.6	%	—
Tulsa, OK	1	34,038		1.5	%	101	1.1	%	97.7	%	—
San Antonio, TX	1	32,079		1.5	%	161	1.8	%	89.6	%	—
Jacksonville, FL	1	19,625		0.9	%	73	0.8	%	48.0	%	—
Total/Weighted Average Retail: nine markets with average annual rent of $17.75 per sq. ft.	34	1,007,218		45.6	%	3,789	42.3	%	94.0	%	147,563
Grand Total/Weighted Average	55	$	2,207,409	100.0	%	8,971	100.0	%	87.8	%	$	360,063


(1)	Based on executed leases as of March 31, 2017. If weighted by the fair value of each segment, our portfolio was 88.0% leased as of March 31, 2017.


(2)	Secured indebtedness represents the principal balance outstanding and does not include our mark-to-market adjustment on debt or net debt issuance costs.

Page | 18

LEASING ACTIVITY

The following graphs highlight our total portfolio and same store portfolio percentage leased at the end of each of the five quarters ended March 31, 2017, by segment and in total:

Page | 19

LEASING ACTIVITY (continued)

As of March 31, 2017, the weighted average remaining term of our leases was approximately 4.3 years, based on annualized base rent, and 4.6 years, based on leased square footage. The following table presents our lease expirations, by segment and in total, as of March 31, 2017 (dollars and square feet in thousands):



	Total						Office				Industrial				Retail
Year	Number of Leases Expiring	Annualized Base Rent		% of Total Annualized Base Rent		Square Feet	Number of Leases Expiring	Annualized Base Rent		Square Feet	Number of Leases Expiring	Annualized Base Rent		Square Feet	Number of Leases Expiring	Annualized Base Rent		Square Feet
2017 ⁽¹⁾	69	$	16,787	11.0	%	549	33	$	14,342	412	—	$	—	—	36	$	2,445	137
2018	117	12,685		8.3	%	536	64	8,680		344	—	—		—	53	4,005		192
2019	111	25,348		16.6	%	1,286	51	14,568		461	3	1,643		317	57	9,137		508
2020	118	24,836		16.3	%	1,231	43	10,198		405	2	324		104	73	14,314		722
2021	66	17,451		11.4	%	1,560	23	8,052		260	3	3,192		1,021	40	6,207		279
2022	55	12,356		8.1	%	679	20	5,371		198	—	—		—	35	6,985		481
2023	36	16,988		11.1	%	665	14	12,184		400	—	—		—	22	4,804		265
2024	26	5,337		3.5	%	335	7	2,153		100	—	—		—	19	3,184		235
2025	18	4,190		2.7	%	206	7	2,369		81	1	187		51	10	1,634		74
2026	17	3,224		2.1	%	182	6	1,186		31	—	—		—	11	2,038		151
Thereafter	29	13,599		8.9	%	652	5	5,043		134	—	—		—	24	8,556		518
Total	662	$	152,801	100.0	%	7,881	273	$	84,146	2,826	9	$	5,346	1,493	380	$	63,309	3,562


(1)	Includes 4 office leases and 4 retail leases with combined annualized base rent of approximately $88,000 that are on a month-to-month basis. In January 2017, our lease with Sybase Inc. ("Sybase"), our second largest tenant as of December 31, 2016 based upon annualized base rent, was terminated and is no longer included in the above table.

Page | 20

LEASING ACTIVITY (continued)

The following table presents our top 10 tenants by annualized base rent and their related industry sector, as of March 31, 2017 (dollars and square feet in thousands):



	Tenant	Locations	Industry Sector	Annualized Base Rent⁽¹⁾		% of Total Annualized Base Rent		Square Feet	% of Occupied Square Feet
1	Charles Schwab & Co, Inc. ⁽²⁾	2	Securities, Commodities, Fin. Inv./Rel. Activities	$	23,645	15.5	%	602	7.6	%
2	Stop & Shop	14	Food and Beverage Stores	14,125		9.2	%	853	10.8	%
3	Novo Nordisk	1	Chemical Manufacturing	4,627		3.0	%	167	2.1	%
4	Seton Health Care	1	Hospitals	4,339		2.8	%	156	2.0	%
5	Shaw's Supermarket	4	Food and Beverage Stores	3,944		2.6	%	240	3.0	%
6	I.A.M. National Pension Fund	1	Funds, Trusts and Other Financial Vehicles	3,114		2.0	%	63	0.8	%
7	TJX Companies	7	Clothing and Clothing Accessories Stores	3,012		2.0	%	299	3.8	%
8	Home Depot	1	Building Material and Garden Equipment and Supplies Dealers	2,469		1.6	%	102	1.3	%
9	Alliant Techsystems Inc.	1	Fabricated Metal Product Manufacturing	2,450		1.6	%	107	1.4	%
10	Hotwire	1	Administrative and Support Services	2,346		1.5	%	79	1.0	%
	Total	33		$	64,071	41.8	%	2,668	33.8	%


(1)	Annualized base rent represents the annualized monthly base rent of executed leases as of March 31, 2017.

(2)

The amount presented for Charles Schwab & Co, Inc. ("Schwab") reflects the total annualized base rent for our two leases in place with Schwab as of March 31, 2017. One of these leases, which expires in September 2017, entails the lease of all 594,000 square feet of our Harborside office property and accounts for $23.5 million or 15.3% of our annualized base rent as of March 31, 2017. We do not expect Schwab to renew this lease. Schwab has subleased 100% of Harborside to 25 sub-tenants through September 2017. We have executed leases directly with nine of these subtenants that comprise 353,000 square feet or 60% of Harborside that effectively extend their leases beyond the Schwab lease expiration. These direct leases will expire between September 2020 and September 2032.

Page | 21

The top tenant in the table on the previous page comprises 15.5% of annualized base rent as of March 31, 2017. However, due to the near-term expiration of the Schwab lease at 3 Second Street, Schwab is no longer in the top 10 tenants based on future minimum rental revenue, comprising less than 2% of our total future minimum rental revenue as of March 31, 2017. The following table presents our top 10 tenants by future minimum rental revenue and their related industry sector, as of March 31, 2017 (dollars and square feet in thousands):




	Tenant	Locations	Industry Sector	Future Minimum Rental Revenue		% of Total Future Minimum Rental Revenue		Square Feet	% of Total Portfolio Square Feet
1	Stop & Shop	14	Food and Beverage Stores	$	71,337	9.6	%	853	10.4	%
2	Mizuho Bank Ltd.	1	Credit Intermediation and Related Activities	65,322		8.8	%	107	1.3	%
3	Shaw's Supermarket	4	Food and Beverage Stores	43,278		5.8	%	240	2.9	%
4	Novo Nordisk	1	Chemical Manufacturing	30,557		4.1	%	167	2.0	%
5	Alliant Techsystems Inc.	1	Fabricated Metal Product Manufacturing	16,104		1.8	%	107	0.4	%
6	CVS	8	Ambulatory Health Care Services	15,436		2.2	%	73	1.3	%
7	Citco Fund Services	1	Funds, Trusts and Other Financial Vehicles	14,853		2.1	%	104	0.9	%
8	Walgreen Co.	2	Health and Personal Care Services	13,088		2.0	%	31	1.3	%
9	Seton Health Care	1	Hospitals	12,601		1.7	%	156	1.9	%
10	TJX Companies	7	Clothing and Clothing Accessories Stores	12,225		1.6	%	299	3.6	%
	Total	40		$	294,801	39.7	%	2,137	26.0	%

Page | 22

LEASING ACTIVITY (continued)

The following series of tables details leasing activity during the four quarters ended March 31, 2017:



Quarter	Number of Leases Signed	Gross Leasable Area ("GLA") Signed	Weighted Average Rent Per Sq. Ft.		Weighted Average Growth / Straight Line Rent		Weighted Average Lease Term (mos)	Tenant Improvements & Incentives Per Sq. Ft.		Average Free Rent (mos)
Office Comparable ⁽¹⁾
Q1 2017	8	24,088	$	23.53	40.8	%	52	$	23.84	3.3
Q4 2016	14	52,455	29.81		45.0	%	72	23.17		1.4
Q3 2016	11	71,204	32.76		22.1	%	86	13.75		0.8
Q2 2016	7	13,009	38.09		38.5	%	87	32.14		2.9
Total - twelve months	40	160,756	$	30.85	33.7	%	76	$	19.82	1.6
Industrial Comparable ⁽¹⁾
Q1 2017	2	156,896	$	3.06	13.6	%	30	$	0.35	1.7
Q4 2016	—	—	—		—	%	—	—		—
Q3 2016	—	—	—		—	%	—	—		—
Q2 2016	—	—	—		—	%	—	—		—
Total - twelve months	2	156,896	$	3.06	13.6	%	30	$	0.35	1.7
Retail Comparable ⁽¹⁾
Q1 2017	16	92,674	$	19.13	13.5	%	96	$	0.85	—
Q4 2016	14	87,871	20.48		15.8	%	56	0.73		—
Q3 2016	17	133,140	12.33		15.4	%	78	2.33		0.1
Q2 2016	7	130,120	16.22		11.5	%	97	0.33		—
Total - twelve months	54	443,805	$	16.50	14.0	%	83	$	1.12	—
Total Comparable Leasing ⁽¹⁾
Q1 2017	26	273,658	$	10.30	16.9	%	54	$	2.59	1.2
Q4 2016	28	140,326	23.97		28.2	%	62	9.12		0.5
Q3 2016	28	204,344	19.45		16.2	%	80	6.31		0.3
Q2 2016	14	143,129	18.21		15.4	%	96	3.23		0.3
Total - twelve months	96	761,457	$	16.76	18.5	%	70	$	4.91	0.7
Total Leasing
Q1 2017	38	358,544	$	10.15			54	$	4.87	1.4
Q4 2016	36	235,614	18.25				53	10.73		0.5
Q3 2016	41	336,374	17.94				67	11.14		1.0
Q2 2016	25	297,843	26.57				124	36.49		3.7
Total - twelve months	140	1,228,375	$	17.82			74	$	15.38	1.7


(1)	Comparable leases comprise leases for which prior leases were in place for the same suite within 12 months of executing a new lease. Comparable leases must have terms of at least six months and the square footage of the suite occupied by the new tenant cannot deviate by more than 50% from the size of the old lease’s suite.

Page | 23

INVESTMENT ACTIVITY

The following tables describe changes in our portfolio from December 31, 2015 through March 31, 2017 (dollars and square feet in thousands):



		Square Feet
Properties and Square Feet Activity	Number of Properties	Total		Office		Industrial		Retail
Properties owned as of
December 31, 2015	60	10,133		4,461		1,909		3,763
2016 Acquisitions	1	82		—		—		82
2016 Dispositions	(7)	(1,236	)	(1,058	)	(126	)	(52	)
Building remeasurement and other ⁽¹⁾	1	(8	)	(3	)	(1	)	(4	)
December 31, 2016	55	8,971		3,400		1,782		3,789
Q1 2017 Acquisitions	—	—		—		—		—
Q1 2017 Dispositions	—	—		—		—		—
Building remeasurement and other ⁽¹⁾	—	—		—		—		—
March 31, 2017	55	8,971		3,400		1,782		3,789


(1)	Building remeasurements reflect changes in gross leasable area due to renovations or expansions of existing properties. In the fourth quarter of 2016 we sold one building of a multi-building grocery-anchored retail property, and continue to own the remaining buildings.

Property Acquisitions

Segment

Market

Acquisition Date

Number of Properties

Contract Purchase Price

Square Feet

(dollars and square feet in thousands)

During 2016:

Suniland

Retail

South Florida

5/27/2016

66,500

We did not have any acquisitions during the three months ended March 31, 2017.

Page | 24

INVESTMENT ACTIVITY (continued)



Property Dispositions	Segment	Market	Disposition Date	Number of Properties	Contract Sales Price		Square Feet
(dollars and square feet in thousands)
During 2016
Colshire Drive	Office	Washington, DC	2/18/2016	1	$	158,400	574
40 Boulevard	Office	Chicago, IL	3/1/2016	1	9,850		107
Washington Commons	Office	Chicago, IL	3/1/2016	1	18,000		199
Rockland 360-372 Market	Retail	Greater Boston	8/5/2016	1	3,625		39
6900 Riverport	Industrial	Louisville, KY	9/2/2016	1	5,400		126
Sunset Hills	Office	Washington, DC	9/30/2016	1	18,600		178
CVS Holbrook ⁽¹⁾	Retail	Greater Boston	11/18/2016	1	6,200		13
Total for the year ended December 31, 2016				7	$	220,075	1,236


(1)	We sold CVS Holbrook, one building of a multi-building grocery-anchored retail property, and continue to own the remaining buildings.

We did not have any dispositions during the three months ended March 31, 2017.

Page | 25

DEFINITIONS

This section contains an explanation of certain non-GAAP financial measures we provide in other sections of this document, as well as the reasons why management believes these measures provide useful information to investors about the Company’s financial condition or results of operations. Additional detail can be found in the Portfolio’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as other documents filed with or furnished to the Securities and Exchange Commission from time to time.

2016 Annual Report on Form 10-K

We refer to our Annual Report on Form 10-K for the period ended December 31, 2016, filed with the Securities and Exchange Commission on March 3, 2017, as our “2016 Annual Report on Form 10-K.”

Annualized Base Rent

Annualized base rent represents the annualized monthly base rent of leases executed as of March 31, 2017.

Comparable leases

Comparable leases comprise leases for which prior leases were in place for the same suite within 12 months of executing a new lease. Comparable leases must have terms of at least six months and the square footage of the suite occupied by the new tenant cannot deviate by more than 50% from the size of the old lease’s suite.

Funds From Operations (“FFO”)

We believe that FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is a meaningful supplemental measure of our operating performance because historical cost accounting for real estate assets in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization expense. However, since real estate values have historically risen or fallen with market and other conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient. Thus, NAREIT created FFO as a supplemental measure of operating performance for real estate investment trusts that consists of net income (loss), calculated in accordance with GAAP, plus real estate-related depreciation and amortization and impairment of depreciable real estate, less gains (or losses) from dispositions of real estate held for investment purposes.

Limitations of FFO

FFO is presented herein as a supplemental financial measure and has inherent limitations. We do not use FFO as, nor should it be considered to be, an alternative to net income (loss) computed under GAAP as an indicator of our operating performance, or as an alternative to cash from operating activities computed under GAAP, or as an indicator of liquidity or our ability to fund our short or long-term cash requirements, including distributions to stockholders. Management uses FFO as an indication of our future operating performance and as a guide to making decisions about future investments. Our FFO calculation does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We caution investors against using FFO to determine a price to earnings ratio or yield relative to our NAV. We believe that net income (loss) computed under GAAP remains the primary measure of performance and that FFO is only meaningful when used in conjunction with net income (loss) computed under GAAP. Further, we believe that our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and operating performance.

Further, FFO is not comparable to the performance measure established by the Investment Program Association (the “IPA”), referred to as “modified funds from operations,” or “MFFO,” as MFFO makes further adjustments including certain mark-to-market items and adjustments for the effects of straight-line rent. As such, FFO may not be comparable to the MFFO of non-listed REITs that disclose MFFO in accordance with the IPA standard.

Page | 26

DEFINITIONS (continued)

Gross Investment Amount

The allocated gross basis of real property and debt-related investments, after certain adjustments. Gross Investment Amount for real property (i) includes the effect of intangible lease liabilities, (ii) excludes accumulated depreciation and amortization, and (iii) includes the impact of impairments. Amounts reported for debt-related investments represent our net accounting basis of the debt investments, which includes (i) unpaid principal balances, (ii) unamortized discounts, premiums, and deferred charges, and (iii) allowances for loan loss.

Net Operating Income (“NOI”) and NOI - Cash Basis

We also use NOI as a supplemental financial performance measure because NOI reflects the specific operating performance of our real properties and debt-related investments and excludes certain items that are not considered to be controllable in connection with the management of each property, such as other-than-temporary impairment, losses related to provisions for losses on debt-related investments, gains or losses on derivatives, acquisition-related expenses, gains or losses on extinguishment of debt and financing commitments, interest income, depreciation and amortization, general and administrative expenses, advisory fees, interest expense and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our operating financial performance as a whole, since it does exclude such items that 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 income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. “NOI - Cash Basis” is NOI after eliminating the effects of straight-lining of rent and the impact of above- and below-market lease amortization and other non-cash amortization adjustments to rental revenue.

Non-Recurring Capital Expenditures

We classify capital expenditures that significantly increase a property’s ability to generate additional revenues relative to our initial underwriting as non-recurring capital expenditures. Examples of such capital expenditures may include property expansions, renovations or other significant strategic upgrades. Conversely, we classify capital expenditures incurred to maintain a property’s ability to generate expected revenues as “recurring.” In addition, we also classify the following capital expenditures as non-recurring:


•	First Generation Leasing Costs: We classify capital expenditures incurred to lease spaces for which we have either (i) never had a tenant or (ii) we expected a vacancy of the leasable space within two years of acquisition as non-recurring capital expenditures.

•

Value-Add Acquisitions: We define a Value-Add Acquisition as a property that we acquire with one or more of the following characteristics: (i) existing vacancy equal to or in excess of 20%, (ii) short-term lease roll-over, typically during the first two years of ownership, that results in vacancy in excess of 20% when combined with the existing vacancy at the time of acquisition or (iii) significant capital improvement requirements in excess of 20% of the purchase price within the first two years of ownership. We classify any capital expenditures in Value-Add Acquisitions as non-recurring until the property reaches the earlier of (i) stabilization, which we define as 90% leased or (ii) five years after the date we acquire the property.


•	Other Acquisitions: For property acquisitions that do not meet the criteria to qualify as Value-Add Acquisitions, we classify all anticipated capital expenditures within the first year of ownership as non-recurring.

Q1 2017 Quarterly Report on Form 10-Q

We refer to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the Securities and Exchange Commission on May 11, 2017, as our "Q1 Quarterly Report on Form 10-Q".

Same Store Properties

In our analysis of NOI, particularly to make comparisons of NOI between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us through the end of the latest period presented as “Same Store Properties.” “Same Store Properties” therefore exclude properties placed in-service, acquired, repositioned, or in development or redevelopment after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented. Accordingly, it takes at least one year and one quarter after a property is acquired or treated as “in-service” for that property to be included in “Same Store Properties.” For the purposes of this supplement, our “Same Store Properties” include properties classified as held for sale in our annual financial statements at the end of the most recently completed period.

Valuation Procedures

We refer to our Valuation Procedures filed as Exhibit 99.1 to our 2016 Annual Report on Form 10-K as our “Valuation Procedures.”

Page | 27

Black Creek Diversified Property Fund Inc. - FORM 8-K - EX-99.2 - EXHIBIT 99.2 Q1 2017 PORTFOLIO PERFORMANCE AND OPERATIONAL REVIEW - May 11, 2017

Attached files

Black Creek Diversified Property Fund Inc. Reports