DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share information)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
ASSETS
|
|
(unaudited)
|
|
|
Land
|
|
$
|
1,011,875
|
|
|
$
|
1,009,905
|
|
Buildings and improvements
|
|
3,032,314
|
|
|
2,886,859
|
|
Intangible lease assets
|
|
78,369
|
|
|
84,420
|
|
Construction in progress
|
|
100,180
|
|
|
159,397
|
|
Total investment in properties
|
|
4,222,738
|
|
|
4,140,581
|
|
Less accumulated depreciation and amortization
|
|
(783,879
|
)
|
|
(742,980
|
)
|
Net investment in properties
|
|
3,438,859
|
|
|
3,397,601
|
|
Investments in and advances to unconsolidated joint ventures
|
|
88,175
|
|
|
82,635
|
|
Net investment in real estate
|
|
3,527,034
|
|
|
3,480,236
|
|
Cash and cash equivalents
|
|
33,403
|
|
|
18,412
|
|
Restricted cash
|
|
50,470
|
|
|
31,187
|
|
Straight-line rent and other receivables, net of allowance for doubtful
accounts of $416 and $335, respectively
|
|
71,992
|
|
|
60,357
|
|
Other assets, net
|
|
15,207
|
|
|
15,964
|
|
Assets held for sale
|
|
—
|
|
|
26,199
|
|
Total assets
|
|
$
|
3,698,106
|
|
|
$
|
3,632,355
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
96,201
|
|
|
$
|
108,788
|
|
Distributions payable
|
|
27,381
|
|
|
26,938
|
|
Tenant prepaids and security deposits
|
|
30,890
|
|
|
29,663
|
|
Other liabilities
|
|
38,556
|
|
|
18,398
|
|
Intangible lease liabilities, net
|
|
20,230
|
|
|
22,070
|
|
Line of credit
|
|
133,000
|
|
|
70,000
|
|
Senior unsecured notes
|
|
1,226,874
|
|
|
1,276,097
|
|
Mortgage notes
|
|
206,219
|
|
|
210,375
|
|
Liabilities related to assets held for sale
|
|
—
|
|
|
869
|
|
Total liabilities
|
|
1,779,351
|
|
|
1,763,198
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none
outstanding
|
|
—
|
|
|
—
|
|
Shares-in-trust, $0.01 par value, 100,000,000 shares authorized, none
outstanding
|
|
—
|
|
|
—
|
|
Common stock, $0.01 par value, 500,000,000 shares authorized 89,921,284
and 88,313,891 shares issued and outstanding as of June 30, 2016
and December 31, 2015, respectively
|
|
899
|
|
|
883
|
|
Additional paid-in capital
|
|
2,822,705
|
|
|
2,766,193
|
|
Distributions in excess of earnings
|
|
(986,185
|
)
|
|
(992,010
|
)
|
Accumulated other comprehensive loss
|
|
(29,172
|
)
|
|
(23,082
|
)
|
Total stockholders’ equity
|
|
1,808,247
|
|
|
1,751,984
|
|
Noncontrolling interests
|
|
110,508
|
|
|
117,173
|
|
Total equity
|
|
1,918,755
|
|
|
1,869,157
|
|
Total liabilities and equity
|
|
$
|
3,698,106
|
|
|
$
|
3,632,355
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited, in thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
95,597
|
|
|
$
|
88,115
|
|
|
$
|
189,574
|
|
|
$
|
176,177
|
|
Institutional capital management and other fees
|
|
305
|
|
|
423
|
|
|
698
|
|
|
801
|
|
Total revenues
|
|
95,902
|
|
|
88,538
|
|
|
190,272
|
|
|
176,978
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
Rental expenses
|
|
8,986
|
|
|
8,408
|
|
|
19,035
|
|
|
18,556
|
|
Real estate taxes
|
|
15,054
|
|
|
13,521
|
|
|
29,655
|
|
|
28,026
|
|
Real estate related depreciation and amortization
|
|
39,901
|
|
|
38,449
|
|
|
79,971
|
|
|
77,445
|
|
General and administrative
|
|
7,358
|
|
|
9,856
|
|
|
13,620
|
|
|
17,192
|
|
Casualty loss
|
|
162
|
|
|
—
|
|
|
162
|
|
|
—
|
|
Total operating expenses
|
|
71,461
|
|
|
70,234
|
|
|
142,443
|
|
|
141,219
|
|
Operating income
|
|
24,441
|
|
|
18,304
|
|
|
47,829
|
|
|
35,759
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
Development profit, net of taxes
|
|
—
|
|
|
2,627
|
|
|
—
|
|
|
2,627
|
|
Equity in earnings of unconsolidated joint
ventures, net
|
|
935
|
|
|
1,036
|
|
|
1,819
|
|
|
1,843
|
|
Gain on dispositions of real estate interests
|
|
12,955
|
|
|
14,932
|
|
|
43,052
|
|
|
41,086
|
|
Interest expense
|
|
(15,635
|
)
|
|
(13,609
|
)
|
|
(32,057
|
)
|
|
(27,513
|
)
|
Interest and other income (expense)
|
|
48
|
|
|
(11
|
)
|
|
563
|
|
|
(29
|
)
|
Income tax expense and other taxes
|
|
(172
|
)
|
|
(278
|
)
|
|
(288
|
)
|
|
(471
|
)
|
Consolidated net income
of DCT Industrial Trust Inc.
|
|
22,572
|
|
|
23,001
|
|
|
60,918
|
|
|
53,302
|
|
Net income attributable to noncontrolling
interests
|
|
(1,154
|
)
|
|
(4,704
|
)
|
|
(3,109
|
)
|
|
(6,260
|
)
|
Net income attributable to common
stockholders
|
|
21,418
|
|
|
18,297
|
|
|
57,809
|
|
|
47,042
|
|
Distributed and undistributed earnings allocated
to participating securities
|
|
(106
|
)
|
|
(201
|
)
|
|
(334
|
)
|
|
(344
|
)
|
Adjusted net income attributable
to common stockholders
|
|
$
|
21,312
|
|
|
$
|
18,096
|
|
|
$
|
57,475
|
|
|
$
|
46,698
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.21
|
|
|
$
|
0.65
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
|
$
|
0.64
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
Basic
|
|
89,748
|
|
|
88,187
|
|
|
89,066
|
|
|
88,139
|
|
Diluted
|
|
90,184
|
|
|
88,486
|
|
|
89,490
|
|
|
88,453
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per common share
|
|
$
|
0.29
|
|
|
$
|
0.28
|
|
|
$
|
0.58
|
|
|
$
|
0.56
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Consolidated net income
of DCT Industrial Trust Inc.
|
|
$
|
22,572
|
|
|
$
|
23,001
|
|
|
$
|
60,918
|
|
|
$
|
53,302
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Net derivative gain (loss) on cash flow
hedging instruments
|
|
(3,437
|
)
|
|
58
|
|
|
(9,866
|
)
|
|
(455
|
)
|
Net reclassification adjustment on cash flow
hedging instruments
|
|
1,670
|
|
|
1,158
|
|
|
3,412
|
|
|
2,311
|
|
Other comprehensive income (loss)
|
|
(1,767
|
)
|
|
1,216
|
|
|
(6,454
|
)
|
|
1,856
|
|
Comprehensive income
|
|
20,805
|
|
|
24,217
|
|
|
54,464
|
|
|
55,158
|
|
Comprehensive income attributable
to noncontrolling interests
|
|
(1,107
|
)
|
|
(4,843
|
)
|
|
(2,745
|
)
|
|
(6,354
|
)
|
Comprehensive income attributable
to common stockholders
|
|
$
|
19,698
|
|
|
$
|
19,374
|
|
|
$
|
51,719
|
|
|
$
|
48,804
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Distributions
in Excess
of Earnings
|
|
Accumulated Other Comprehen-
sive Loss
|
|
Non-controlling
Interests
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
1,869,157
|
|
|
88,314
|
|
|
$
|
883
|
|
|
$
|
2,766,193
|
|
|
$
|
(992,010
|
)
|
|
$
|
(23,082
|
)
|
|
$
|
117,173
|
|
Net income
|
|
60,918
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57,809
|
|
|
—
|
|
|
3,109
|
|
Other comprehensive loss
|
|
(6,454
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,090
|
)
|
|
(364
|
)
|
Issuance of common stock, net
of offering costs
|
|
48,451
|
|
|
1,233
|
|
|
12
|
|
|
48,439
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of common stock, stock-based compensation plans
|
|
(482
|
)
|
|
53
|
|
|
1
|
|
|
(483
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of stock-based compensation
|
|
3,364
|
|
|
—
|
|
|
—
|
|
|
830
|
|
|
—
|
|
|
—
|
|
|
2,534
|
|
Distributions to common stockholders and noncontrolling interests
|
|
(55,161
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51,984
|
)
|
|
—
|
|
|
(3,177
|
)
|
Capital contributions from noncontrolling interests
|
|
99
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
99
|
|
Redemptions of noncontrolling interests
|
|
(1,137
|
)
|
|
321
|
|
|
3
|
|
|
7,726
|
|
|
—
|
|
|
—
|
|
|
(8,866
|
)
|
Balance at June 30, 2016
|
|
$
|
1,918,755
|
|
|
89,921
|
|
|
$
|
899
|
|
|
$
|
2,822,705
|
|
|
$
|
(986,185
|
)
|
|
$
|
(29,172
|
)
|
|
$
|
110,508
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Consolidated net income of DCT Industrial Trust Inc.
|
|
$
|
60,918
|
|
|
$
|
53,302
|
|
Adjustments to reconcile consolidated net income of DCT Industrial Trust Inc.
to net cash provided by operating activities:
|
|
|
|
|
|
|
Real estate related depreciation and amortization
|
|
79,971
|
|
|
77,445
|
|
Gain on dispositions of real estate interests
|
|
(43,052
|
)
|
|
(41,086
|
)
|
Distributions of earnings from unconsolidated joint ventures
|
|
2,775
|
|
|
2,827
|
|
Equity in earnings of unconsolidated joint ventures, net
|
|
(1,819
|
)
|
|
(1,843
|
)
|
Stock-based compensation
|
|
2,740
|
|
|
2,540
|
|
Casualty loss
|
|
162
|
|
|
—
|
|
Straight-line rent
|
|
(11,158
|
)
|
|
(3,402
|
)
|
Other
|
|
2,910
|
|
|
(1
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Other receivables and other assets
|
|
(2,039
|
)
|
|
10,668
|
|
Accounts payable, accrued expenses and other liabilities
|
|
5,720
|
|
|
(316
|
)
|
Net cash provided by operating activities
|
|
97,128
|
|
|
100,134
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Real estate acquisitions
|
|
(8,698
|
)
|
|
(143,465
|
)
|
Capital expenditures and development activities
|
|
(152,111
|
)
|
|
(97,639
|
)
|
Proceeds from dispositions of real estate investments
|
|
106,144
|
|
|
136,188
|
|
Investments in unconsolidated joint ventures
|
|
(7,942
|
)
|
|
(840
|
)
|
Proceeds from casualties and involuntary conversion
|
|
600
|
|
|
—
|
|
Distributions of investments in unconsolidated joint ventures
|
|
653
|
|
|
1,014
|
|
Change in restricted cash
|
|
(19,788
|
)
|
|
(2,501
|
)
|
Other investing activities
|
|
(2,973
|
)
|
|
(940
|
)
|
Net cash used in investing activities
|
|
(84,115
|
)
|
|
(108,183
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from senior unsecured revolving line of credit
|
|
113,000
|
|
|
166,000
|
|
Repayments of senior unsecured revolving line of credit
|
|
(50,000
|
)
|
|
(54,000
|
)
|
Repayments of senior unsecured notes
|
|
(50,000
|
)
|
|
(40,000
|
)
|
Principal payments on mortgage notes
|
|
(3,309
|
)
|
|
(4,112
|
)
|
Net settlement on issuance of stock-based compensation awards
|
|
(482
|
)
|
|
(425
|
)
|
Proceeds from issuance of common stock
|
|
49,223
|
|
|
—
|
|
Offering costs for issuance of common stock and OP Units
|
|
(772
|
)
|
|
—
|
|
Redemption of noncontrolling interests
|
|
(1,137
|
)
|
|
(941
|
)
|
Dividends to common stockholders
|
|
(51,497
|
)
|
|
(49,387
|
)
|
Distributions to noncontrolling interests
|
|
(3,221
|
)
|
|
(2,985
|
)
|
Contributions from noncontrolling interests
|
|
99
|
|
|
—
|
|
Other financing activity
|
|
74
|
|
|
(2,818
|
)
|
Net cash provided by financing activities
|
|
1,978
|
|
|
11,332
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
14,991
|
|
|
3,283
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
18,412
|
|
|
19,631
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
33,403
|
|
|
$
|
22,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
Cash paid for interest, net of capitalized interest
|
|
$
|
28,783
|
|
|
$
|
25,848
|
|
Supplemental Disclosures of Non-Cash Activities
|
|
|
|
|
|
|
Retirement of fully depreciated and amortized assets
|
|
$
|
18,131
|
|
|
$
|
13,159
|
|
Redemptions of OP Units settled in shares of common stock
|
|
$
|
7,729
|
|
|
$
|
2,350
|
|
Assumption of mortgage notes in connection with real estate acquired
|
|
$
|
—
|
|
|
$
|
22,958
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except unit information)
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
ASSETS
|
|
(unaudited)
|
|
|
Land
|
|
$
|
1,011,875
|
|
|
$
|
1,009,905
|
|
Buildings and improvements
|
|
3,032,314
|
|
|
2,886,859
|
|
Intangible lease assets
|
|
78,369
|
|
|
84,420
|
|
Construction in progress
|
|
100,180
|
|
|
159,397
|
|
Total investment in properties
|
|
4,222,738
|
|
|
4,140,581
|
|
Less accumulated depreciation and amortization
|
|
(783,879
|
)
|
|
(742,980
|
)
|
Net investment in properties
|
|
3,438,859
|
|
|
3,397,601
|
|
Investments in and advances to unconsolidated joint ventures
|
|
88,175
|
|
|
82,635
|
|
Net investment in real estate
|
|
3,527,034
|
|
|
3,480,236
|
|
Cash and cash equivalents
|
|
33,403
|
|
|
18,412
|
|
Restricted cash
|
|
50,470
|
|
|
31,187
|
|
Straight-line rent and other receivables, net of allowance
for doubtful accounts of $416 and $335, respectively
|
|
71,992
|
|
|
60,357
|
|
Other assets, net
|
|
15,207
|
|
|
15,964
|
|
Assets held for sale
|
|
—
|
|
|
26,199
|
|
Total assets
|
|
$
|
3,698,106
|
|
|
$
|
3,632,355
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
96,201
|
|
|
$
|
108,788
|
|
Distributions payable
|
|
27,381
|
|
|
26,938
|
|
Tenant prepaids and security deposits
|
|
30,890
|
|
|
29,663
|
|
Other liabilities
|
|
38,556
|
|
|
18,398
|
|
Intangible lease liabilities, net
|
|
20,230
|
|
|
22,070
|
|
Line of credit
|
|
133,000
|
|
|
70,000
|
|
Senior unsecured notes
|
|
1,226,874
|
|
|
1,276,097
|
|
Mortgage notes
|
|
206,219
|
|
|
210,375
|
|
Liabilities related to assets held for sale
|
|
—
|
|
|
869
|
|
Total liabilities
|
|
1,779,351
|
|
|
1,763,198
|
|
|
|
|
|
|
Partners' Capital:
|
|
|
|
|
|
|
General Partner:
|
|
|
|
|
|
|
OP Units, 938,789 and 923,532 issued and outstanding
as of June 30, 2016 and December 31, 2015, respectively
|
|
19,367
|
|
|
18,806
|
|
Limited Partners:
|
|
|
|
|
|
|
OP Units, 92,940,110 and 91,429,694 issued and outstanding
as of June 30, 2016 and December 31, 2015, respectively
|
|
1,917,345
|
|
|
1,861,809
|
|
Accumulated other comprehensive loss
|
|
(30,455
|
)
|
|
(24,137
|
)
|
Total partners' capital
|
|
1,906,257
|
|
|
1,856,478
|
|
Noncontrolling interests
|
|
12,498
|
|
|
12,679
|
|
Total capital
|
|
1,918,755
|
|
|
1,869,157
|
|
Total liabilities and capital
|
|
$
|
3,698,106
|
|
|
$
|
3,632,355
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited, in thousands, except per unit information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
95,597
|
|
|
$
|
88,115
|
|
|
$
|
189,574
|
|
|
$
|
176,177
|
|
Institutional capital management and other fees
|
|
305
|
|
|
423
|
|
|
698
|
|
|
801
|
|
Total revenues
|
|
95,902
|
|
|
88,538
|
|
|
190,272
|
|
|
176,978
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
Rental expenses
|
|
8,986
|
|
|
8,408
|
|
|
19,035
|
|
|
18,556
|
|
Real estate taxes
|
|
15,054
|
|
|
13,521
|
|
|
29,655
|
|
|
28,026
|
|
Real estate related depreciation and amortization
|
|
39,901
|
|
|
38,449
|
|
|
79,971
|
|
|
77,445
|
|
General and administrative
|
|
7,358
|
|
|
9,856
|
|
|
13,620
|
|
|
17,192
|
|
Casualty loss
|
|
162
|
|
|
—
|
|
|
162
|
|
|
—
|
|
Total operating expenses
|
|
71,461
|
|
|
70,234
|
|
|
142,443
|
|
|
141,219
|
|
Operating income
|
|
24,441
|
|
|
18,304
|
|
|
47,829
|
|
|
35,759
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
Development profit, net of taxes
|
|
—
|
|
|
2,627
|
|
|
—
|
|
|
2,627
|
|
Equity in earnings of unconsolidated joint ventures, net
|
|
935
|
|
|
1,036
|
|
|
1,819
|
|
|
1,843
|
|
Gain on dispositions of real estate interests
|
|
12,955
|
|
|
14,932
|
|
|
43,052
|
|
|
41,086
|
|
Interest expense
|
|
(15,635
|
)
|
|
(13,609
|
)
|
|
(32,057
|
)
|
|
(27,513
|
)
|
Interest and other income (expense)
|
|
48
|
|
|
(11
|
)
|
|
563
|
|
|
(29
|
)
|
Income tax expense and other taxes
|
|
(172
|
)
|
|
(278
|
)
|
|
(288
|
)
|
|
(471
|
)
|
Consolidated net income of DCT Industrial
Operating Partnership LP
|
|
22,572
|
|
|
23,001
|
|
|
60,918
|
|
|
53,302
|
|
Net income attributable to noncontrolling
interests
|
|
(212
|
)
|
|
(3,824
|
)
|
|
(423
|
)
|
|
(3,977
|
)
|
Net income attributable to OP Unitholders
|
|
22,360
|
|
|
19,177
|
|
|
60,495
|
|
|
49,325
|
|
Distributed and undistributed earnings allocated
to participating securities
|
|
(106
|
)
|
|
(201
|
)
|
|
(334
|
)
|
|
(344
|
)
|
Adjusted net income attributable
to OP Unitholders
|
|
$
|
22,254
|
|
|
$
|
18,976
|
|
|
$
|
60,161
|
|
|
$
|
48,981
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS PER OP UNIT:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.21
|
|
|
$
|
0.65
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
|
$
|
0.64
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE OP UNITS OUTSTANDING:
|
|
|
|
|
Basic
|
|
93,787
|
|
|
92,443
|
|
|
93,204
|
|
|
92,417
|
|
Diluted
|
|
94,223
|
|
|
92,742
|
|
|
93,628
|
|
|
92,731
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per OP Unit
|
|
$
|
0.29
|
|
|
$
|
0.28
|
|
|
$
|
0.58
|
|
|
$
|
0.56
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Consolidated net income of DCT Industrial
Operating Partnership LP
|
|
$
|
22,572
|
|
|
$
|
23,001
|
|
|
$
|
60,918
|
|
|
$
|
53,302
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Net derivative gain (loss) on cash flow
hedging instruments
|
|
(3,437
|
)
|
|
58
|
|
|
(9,866
|
)
|
|
(455
|
)
|
Net reclassification adjustment on cash flow
hedging instruments
|
|
1,670
|
|
|
1,158
|
|
|
3,412
|
|
|
2,311
|
|
Other comprehensive income (loss)
|
|
(1,767
|
)
|
|
1,216
|
|
|
(6,454
|
)
|
|
1,856
|
|
Comprehensive income
|
|
20,805
|
|
|
24,217
|
|
|
54,464
|
|
|
55,158
|
|
Comprehensive income attributable
to noncontrolling interests
|
|
(172
|
)
|
|
(3,894
|
)
|
|
(287
|
)
|
|
(3,994
|
)
|
Comprehensive income attributable
to OP Unitholders
|
|
$
|
20,633
|
|
|
$
|
20,323
|
|
|
$
|
54,177
|
|
|
$
|
51,164
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Statement of Changes in Capital
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
General Partner
|
|
Limited Partners
|
|
Accumulated Other
Comprehensive Loss
|
|
Non-controlling Interests
|
|
|
|
OP Units
|
|
OP Units
|
|
|
|
|
|
Units
|
|
Amount
|
|
Units
|
|
Amount
|
|
|
Balance at December 31, 2015
|
|
$
|
1,869,157
|
|
|
924
|
|
|
$
|
18,806
|
|
|
91,429
|
|
|
$
|
1,861,809
|
|
|
$
|
(24,137
|
)
|
|
$
|
12,679
|
|
Net income
|
|
60,918
|
|
|
—
|
|
|
605
|
|
|
—
|
|
|
59,890
|
|
|
—
|
|
|
423
|
|
Other comprehensive loss
|
|
(6,454
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,318
|
)
|
|
(136
|
)
|
Issuance of OP Units, net of selling costs
|
|
48,451
|
|
|
—
|
|
|
—
|
|
|
1,233
|
|
|
48,451
|
|
|
—
|
|
|
—
|
|
Issuance of OP Units, share-based
compensation plans
|
|
(482
|
)
|
|
—
|
|
|
—
|
|
|
321
|
|
|
(482
|
)
|
|
—
|
|
|
—
|
|
Amortization of share-based compensation
|
|
3,364
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,364
|
|
|
—
|
|
|
—
|
|
Distributions to OP Unitholders
and noncontrolling interests
|
|
(55,161
|
)
|
|
—
|
|
|
(546
|
)
|
|
—
|
|
|
(54,048
|
)
|
|
—
|
|
|
(567
|
)
|
Capital contributions from
noncontrolling interests
|
|
99
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
99
|
|
Redemption of limited partner OP Units, net
|
|
(1,137
|
)
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
(1,137
|
)
|
|
—
|
|
|
—
|
|
Conversion of limited partner OP Units
to OP Units of general partner
|
|
—
|
|
|
15
|
|
|
502
|
|
|
(15
|
)
|
|
(502
|
)
|
|
—
|
|
|
—
|
|
Balance at June 30, 2016
|
|
$
|
1,918,755
|
|
|
939
|
|
|
$
|
19,367
|
|
|
92,940
|
|
|
$
|
1,917,345
|
|
|
$
|
(30,455
|
)
|
|
$
|
12,498
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL OPERATING PARTNERSHIP LP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Consolidated net income of DCT Industrial Operating Partnership LP
|
|
$
|
60,918
|
|
|
$
|
53,302
|
|
Adjustments to reconcile consolidated net income of DCT Industrial Operating
Partnership LP to net cash provided by operating activities:
|
|
|
|
|
|
|
Real estate related depreciation and amortization
|
|
79,971
|
|
|
77,445
|
|
Gain on dispositions of real estate interests
|
|
(43,052
|
)
|
|
(41,086
|
)
|
Distributions of earnings from unconsolidated joint ventures
|
|
2,775
|
|
|
2,827
|
|
Equity in earnings of unconsolidated joint ventures, net
|
|
(1,819
|
)
|
|
(1,843
|
)
|
Share-based compensation
|
|
2,740
|
|
|
2,540
|
|
Casualty loss
|
|
162
|
|
|
—
|
|
Straight-line rent
|
|
(11,158
|
)
|
|
(3,402
|
)
|
Other
|
|
2,910
|
|
|
(1
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Other receivables and other assets
|
|
(2,039
|
)
|
|
10,668
|
|
Accounts payable, accrued expenses and other liabilities
|
|
5,720
|
|
|
(316
|
)
|
Net cash provided by operating activities
|
|
97,128
|
|
|
100,134
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Real estate acquisitions
|
|
(8,698
|
)
|
|
(143,465
|
)
|
Capital expenditures and development activities
|
|
(152,111
|
)
|
|
(97,639
|
)
|
Proceeds from dispositions of real estate investments
|
|
106,144
|
|
|
136,188
|
|
Investments in unconsolidated joint ventures
|
|
(7,942
|
)
|
|
(840
|
)
|
Proceeds from casualties and involuntary conversion
|
|
600
|
|
|
—
|
|
Distributions of investments in unconsolidated joint ventures
|
|
653
|
|
|
1,014
|
|
Change in restricted cash
|
|
(19,788
|
)
|
|
(2,501
|
)
|
Other investing activities
|
|
(2,973
|
)
|
|
(940
|
)
|
Net cash used in investing activities
|
|
(84,115
|
)
|
|
(108,183
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds from senior unsecured revolving line of credit
|
|
113,000
|
|
|
166,000
|
|
Repayments of senior unsecured revolving line of credit
|
|
(50,000
|
)
|
|
(54,000
|
)
|
Repayments of senior unsecured notes
|
|
(50,000
|
)
|
|
(40,000
|
)
|
Principal payments on mortgage notes
|
|
(3,309
|
)
|
|
(4,112
|
)
|
Net settlement on issuance of share-based compensation awards
|
|
(482
|
)
|
|
(425
|
)
|
Proceeds from the issuance of OP Units in exchange for contributions from the REIT, net
|
|
48,451
|
|
|
—
|
|
OP Unit redemptions
|
|
(1,137
|
)
|
|
(941
|
)
|
Distributions paid on OP Units
|
|
(54,151
|
)
|
|
(52,035
|
)
|
Distributions to noncontrolling interests
|
|
(567
|
)
|
|
(337
|
)
|
Contributions from noncontrolling interests
|
|
99
|
|
|
—
|
|
Other financing activity
|
|
74
|
|
|
(2,818
|
)
|
Net cash provided by financing activities
|
|
1,978
|
|
|
11,332
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
14,991
|
|
|
3,283
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
18,412
|
|
|
19,631
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
33,403
|
|
|
$
|
22,914
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest
|
|
$
|
28,783
|
|
|
$
|
25,848
|
|
Supplemental Disclosures of Non-Cash Activities
|
|
|
|
|
|
|
Retirement of fully depreciated and amortized assets
|
|
$
|
18,131
|
|
|
$
|
13,159
|
|
Assumption of mortgage notes in connection with real estate acquired
|
|
$
|
—
|
|
|
$
|
22,958
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
DCT INDUSTRIAL TRUST INC. AND SUBSIDIARIES
DCT INDUSTRIAL OPERATING PARTERNSHIP LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Organization
DCT Industrial Trust Inc. is a leading industrial real estate company specializing in the acquisition, development, leasing and management of bulk distribution and light industrial properties located in high-volume distribution markets in the United States. As used herein, the terms “Company,” “we,” “our” and “us” refer to DCT Industrial Trust Inc. and its subsidiaries, including its operating partnership, DCT Industrial Operating Partnership LP. When we use the term “DCT” or “DCT Industrial,” we are referring to DCT Industrial Trust Inc. by itself, and not including any of its subsidiaries, and when we use the term the “Operating Partnership,” we are referring to DCT Industrial Operating Partnership LP by itself, and not including any of its subsidiaries.
DCT was formed as a Maryland corporation in April 2002 and has elected to be treated as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We are structured as an umbrella partnership REIT under which substantially all of our current and future business is, and will be, conducted through a majority owned and controlled subsidiary, DCT Industrial Operating Partnership LP, a Delaware limited partnership, for which DCT is the sole general partner. DCT owns properties through the Operating Partnership and its subsidiaries. As of
June 30, 2016
, DCT owned approximately
95.8%
of the outstanding equity interests in the Operating Partnership.
As of
June 30, 2016
, the Company owned interests in approximately
72.0 million
square feet of properties leased to approximately
900
customers, including:
|
|
•
|
63.4 million
square feet comprising
392
consolidated operating properties that were
95.6%
occupied;
|
|
|
•
|
7.5 million
square feet comprising
23
unconsolidated properties that were
97.6%
occupied and which we operated on behalf of
three
institutional capital management partners;
|
|
|
•
|
0.8 million
square feet comprising
four
consolidated properties under redevelopment; and
|
|
|
•
|
0.2 million
square feet comprising
two
consolidated properties in development.
|
In addition, the Company has
10
projects under construction, including
one
project in our unconsolidated Stirling Capital Investment joint venture, and several projects in pre-development. See “Note 3 – Investment in Properties" for further details.
Note 2 – Summary of Significant Accounting Policies
Interim Financial Information
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Consolidated Financial Statements include all adjustments, consisting of normal recurring items, necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with our audited Consolidated Financial Statements as of
December 31, 2015
and related notes thereto included in our Form 10-K filed on February 19, 2016.
Basis of Presentation and Principles of Consolidation
The accompanying Consolidated Financial Statements include the financial position, results of operations and cash flows of the Company, the Operating Partnership, their wholly-owned qualified REIT subsidiaries and taxable REIT subsidiaries, and their consolidated joint ventures in which they have a controlling interest.
Equity interests in the Operating Partnership held by entities other than DCT are classified within partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in DCT’s financial statements. Equity interests in entities consolidated into the Operating Partnership that are held by third parties are reflected in our accompanying balance sheets as noncontrolling interests. We also have noncontrolling partnership interests in unconsolidated institutional capital management and other joint ventures, which are accounted for under the equity method. All significant intercompany transactions and balances have been eliminated in consolidation.
We hold interests in both consolidated and unconsolidated joint ventures for the purposes of operating and developing industrial real estate. All joint ventures over which we have financial and operating control, and variable interest entities (“VIEs”) in which we have determined that we are the primary beneficiary, are included in the Consolidated Financial Statements. We use the equity method of accounting for joint ventures over which we do not have a controlling interest or where we do not exercise significant control over major operating and management decisions but where we exercise significant influence and include our share of earnings or losses of these joint ventures in our consolidated results of operations.
We analyze our joint ventures in accordance with GAAP to determine whether they are VIEs and, if so, whether we are the primary beneficiary. Our judgment with respect to our level of influence or control over an entity and whether we are the primary beneficiary of a VIE involves consideration of various factors including the form of our ownership interest, our representation on the entity’s board of directors, the size of our investment (including loans), our obligation or right to absorb its losses or receive its benefits and our ability to participate in major decisions.
If a joint venture does not meet the characteristics of a VIE, we apply the voting interest model to determine whether the entity should be consolidated. Our ability to assess our influence or control over an entity affects the presentation of these investments in the Consolidated Financial Statements and our financial position and results of operations.
We concluded our Operating Partnership meets the criteria of a VIE as the Operating Partnership’s limited partners do not have the right to remove the general partner and do not have substantive participating rights in the operations of the Operating Partnership. Under the Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Partnership Agreement”), DCT is the primary beneficiary of the Operating Partnership as we have the obligation to absorb losses and receive benefits, and the power to control substantially all of the activities which most significantly impact the economic performance of the Operating Partnership. Accordingly, the Operating Partnership is consolidated within DCT’s financial statements.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
At the inception of a new lease arrangement, including new leases that arise from amendments, we assess the terms and conditions to determine the proper lease classification. A lease arrangement is classified as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee, (ii) lessee has a bargain purchase option during or at the end of the lease term, (iii) the lease term is equal to 75% or more of the underlying property’s economic life, or (iv) the present value of future minimum lease payments (excluding executory costs) are equal to 90% or more of the excess estimated fair value of the leased building. Generally our leases do not meet any of the criteria above and accordingly are classified as operating leases. We record rental revenues on a straight-line basis under which contractual rent increases are recognized evenly over the lease term. Certain properties have leases that provide for tenant occupancy during periods where no rent is due or where minimum rent payments change during the term of the lease. Accordingly, receivables from tenants that we expect to collect over the remaining lease term are recorded on the balance sheet as straight-line rent receivables. When we acquire a property, the terms of existing leases are considered to commence as of the acquisition date for the purposes of this calculation. The total increase to “Rental revenues” due to straight-line rent adjustments was approximately
$5.7 million
and
$11.2 million
for the
three and six months ended June 30, 2016
, respectively, and approximately
$1.8 million
and
$3.4 million
for the
three and six months ended June 30, 2015
, respectively.
If the lease provides for tenant improvements, we determine whether the tenant improvements are owned by the tenant or us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the leased asset until the tenant improvements are substantially complete. When we are the owner of the tenant improvements, any tenant improvements funded by the tenant are treated as lease payments which are deferred and amortized into income over the lease term. When the tenant is the owner of the tenant improvements, we record any tenant improvement allowance funded as a lease incentive and amortize it as a reduction of revenue over the lease term. Tenant recovery income includes reimbursements due from tenants pursuant to their leases for real estate taxes, insurance, repairs and maintenance and other recoverable property operating expenses and is recognized as “Rental revenues” during the period the related expenses are incurred. The reimbursements are recognized and presented on a gross basis, as the Company is generally the primary obligor and, with respect to purchasing goods and services from third party suppliers, has discretion in selecting the supplier and bears the associated credit risk. Tenant recovery income recognized as “Rental revenues” was approximately
$22.3 million
and
$44.5 million
for the
three and six months ended June 30, 2016
, respectively, and approximately
$20.5 million
and
$42.2 million
for the
three and six months ended June 30, 2015
, respectively.
We maintain an allowance for estimated losses that may result from the inability of our customers to make required payments. If a customer fails to make contractual payments beyond any allowance, we may recognize additional bad debt expense in future periods equal to the net outstanding balances. In connection with property acquisitions qualifying as business combinations, we may acquire leases with rental rates above or below the market rental rates. Such differences are recorded as an intangible lease asset or liability and amortized to “Rental revenues” over the reasonably assured term of the related leases. We consider a reasonably assured term to be the measurement period equal to the remaining non-cancelable term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. The unamortized balances of these assets and liabilities associated with the early termination of leases are fully amortized to their respective revenue line items in our Consolidated Statements of Operations on a straight-line basis over the estimated remaining contractual lease term. The total net impact to “Rental revenues” due to the amortization of above and below market rents was an increase of approximately
$0.8 million
and
$1.5 million
in each corresponding period for the three and six months ended June 30, 2016 and 2015.
Early lease termination fees are recorded in “Rental revenues” on a straight-line basis over the estimated remaining contractual lease term or upon collection if collectability is not assured. The total net impact to “Rental revenues” due to early lease termination fees was approximately
$0.6 million
and
$0.7 million
for the
three and six months ended June 30, 2016
, respectively, and approximately
$0.5 million
and
$1.2 million
for the
three and six months ended June 30, 2015
, respectively.
We earn revenues from asset management fees, acquisition fees, property management fees and fees for other services pursuant to joint venture and other third-party agreements. These are included in our Consolidated Statements of Operations in “Institutional capital management and other fees.” We recognize revenues from asset management fees, acquisition fees, property management fees and fees for other services when the related fees are earned and are realized or realizable.
We develop certain properties for specific buyers, called build-to-suit projects. We make certain judgments based on the specific terms of each project as to the amount and timing of recognition of profits from the project. Projects are generally accounted for using the percentage of completion method or full accrual method. Profits under the percentage of completion method are based on our estimates of the percentage of completion of individual contracts, commencing when the work performed under the contracts reaches a point where the final costs can be estimated with reasonable accuracy. The percentage of completion estimates are based on a comparison of the contract expenditures incurred to the estimated final costs. Changes in job performance, job conditions and estimated profitability may result in revisions to the costs and income and are recognized in the period in which the revisions are determined. If the sale recognition criteria for using the percentage of completion or full accrual methods are not met, we apply another recognition method provided by GAAP, such as the installment or cost recovery methods. The profit recognized from these projects is reported net of estimated taxes, when applicable, and is included in “Development profit, net of taxes” in our Consolidated Statements of Operations.
New Accounting Standards
In May 2014, the Financial Accounting Standards Boards (“FASB”) issued an accounting standards update (“ASU”) that requires companies to recognize revenue from contracts with customers based upon the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. The FASB has subsequently issued additional ASUs that improve guidance and provide clarification to the new standard. The guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years beginning after December 15, 2016. The Company is in the process of evaluating the impact this guidance will have on our Consolidated Financial Statements.
In February 2015, the FASB issued an ASU that modifies the evaluation of whether limited partnerships and similar legal entities are VIEs, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. The guidance is effective for fiscal years beginning after December 15, 2015. We adopted this standard effective January 1, 2016. We concluded the Operating Partnership meets the criteria of a VIE and DCT is the primary beneficiary. Accordingly, we continue to consolidate the Operating Partnership. As the Operating Partnership was previously consolidated, the adoption of the ASU did not result in any changes to our conclusions regarding consolidation or deconsolidation of entities.
In February 2016, the FASB issued an ASU that modifies existing accounting standards for lease accounting. The new standard requires a lessee to record an asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. The new standard requires lessors to account for leases using an approach that is substantially the same as existing guidance for sales-type leases, direct financing leases and operating leases. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted for fiscal years beginning after December 15, 2016. The standard requires a modified retrospective transition approach for all capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with an option to use certain transition relief. The Company expects this guidance to impact our Consolidated Financial Statements and is in the process of evaluating whether the effect will be material.
In March 2016, the FASB issued an ASU that simplifies the accounting for share-based payment transactions, including income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The adoption of this guidance will not have a significant impact on the Company’s Consolidated Financial Statements.
Note 3 – Investment in Properties
Our consolidated investment in properties consists of operating properties, properties under development, properties in pre-development, redevelopment properties and land held for future development or other purposes. The historical cost of our investment in properties was (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Operating properties
|
|
$
|
3,992,644
|
|
|
$
|
3,791,721
|
|
Properties under development
|
|
128,247
|
|
|
242,906
|
|
Properties in pre-development
|
|
33,184
|
|
|
41,313
|
|
Properties under redevelopment
|
|
60,965
|
|
|
56,943
|
|
Land held
|
|
7,698
|
|
|
7,698
|
|
Total investment in properties
|
|
4,222,738
|
|
|
4,140,581
|
|
Less accumulated depreciation and amortization
|
|
(783,879
|
)
|
|
(742,980
|
)
|
Net investment in properties
|
|
$
|
3,438,859
|
|
|
$
|
3,397,601
|
|
Development Activity
Our properties under development include the following:
|
|
•
|
Two
buildings totaling
0.2 million
square feet that are currently in lease-up as shell-complete activities have been completed as of
June 30, 2016
, including
one
building totaling
0.1 million
square feet that was shell-complete upon acquisition. These properties are
52.8%
leased based on weighted average square feet; and
|
|
|
•
|
Ten
projects are under construction, including
one
project in our unconsolidated Stirling Capital Investment joint venture, totaling
2.6 million
square feet.
|
During the
six months ended June 30, 2016
, we acquired
40.6
acres of
land in the Baltimore/Washington D.C. and Dallas markets
for approximately
$8.3 million
that is held for future development.
Disposition Activity
During the
six months ended June 30, 2016
, we sold
11
consolidated operating properties totaling
2.0 million
square feet from our
Chicago, Houston, Louisville and Northern California markets
to third-parties for gross proceeds of approximately
$108.6 million
. We recognized gains of approximately
$43.1 million
on the disposition of these
11
properties.
Intangible Lease Assets and Liabilities
Aggregate amortization expense for intangible lease assets recognized in connection with property acquisitions (excluding assets and liabilities related to above and below market rents; see “Note 2 – Summary of Significant Accounting Policies” for additional information) was approximately
$3.0 million
and
$6.2 million
for the
three and six months ended June 30, 2016
, respectively, and approximately
$3.7 million
and
$7.6 million
for the
three and six months ended June 30, 2015
, respectively. Our intangible lease assets and liabilities included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Other intangible lease assets
|
|
$
|
74,423
|
|
|
$
|
(36,909
|
)
|
|
$
|
37,514
|
|
|
$
|
79,718
|
|
|
$
|
(35,993
|
)
|
|
$
|
43,725
|
|
Above market rent
|
|
$
|
3,946
|
|
|
$
|
(1,886
|
)
|
|
$
|
2,060
|
|
|
$
|
4,702
|
|
|
$
|
(2,280
|
)
|
|
$
|
2,422
|
|
Below market rent
|
|
$
|
(30,459
|
)
|
|
$
|
10,229
|
|
|
$
|
(20,230
|
)
|
|
$
|
(31,565
|
)
|
|
$
|
9,495
|
|
|
$
|
(22,070
|
)
|
Note 4 – Investments in and Advances to Unconsolidated Joint Ventures
We enter into joint ventures primarily for purposes of operating and developing industrial real estate. Our investments in these joint ventures are included in “Investments in and advances to unconsolidated joint ventures” in our Consolidated Balance Sheets.
The following table summarizes our unconsolidated joint ventures (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
Investments in and Advances to as of
|
|
|
Ownership Percentage
|
|
Number of Buildings
|
|
June 30,
2016
|
|
December 31,
2015
|
Unconsolidated Joint Ventures
|
|
|
|
|
Institutional Joint Ventures:
|
|
|
|
|
|
|
|
|
|
DCT/SPF Industrial Operating LLC
|
|
20.0
|
%
|
|
13
|
|
|
$
|
37,854
|
|
|
$
|
38,153
|
|
TRT-DCT Venture III
|
|
10.0
|
%
|
|
4
|
|
|
1,977
|
|
|
1,972
|
|
Total Institutional Joint Ventures
|
|
|
|
|
17
|
|
|
39,831
|
|
|
40,125
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stirling Capital Investments (SCLA)
(1)
|
|
50.0
|
%
|
|
6
|
|
|
48,344
|
|
|
42,510
|
|
Total
|
|
|
|
|
23
|
|
|
$
|
88,175
|
|
|
$
|
82,635
|
|
|
|
(1)
|
Although we contributed
100%
of the initial cash equity capital required by the venture, after return of certain preferential distributions on capital invested, profits and losses are generally split
50
/
50
.
|
Guarantees
There are no lines of credit or side agreements related to, or between, our unconsolidated joint ventures and us, and there are no derivative financial instruments between our unconsolidated joint ventures and us. In addition, we do not believe we have any material exposure to financial guarantees.
Note 5 – Financial Instruments and Hedging Activities
Fair Value of Financial Instruments
As of
June 30, 2016
and
December 31, 2015
, the fair values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximated their carrying values due to the short-term nature of settlement of these instruments. The fair values of other financial instruments subject to fair value disclosures were determined based on available market information and valuation methodologies we believe to be appropriate estimates for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. Our estimates may differ from the actual amounts that we could realize upon disposition. The following table summarizes these financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
|
Carrying
Amounts
|
|
Estimated
Fair Value
|
|
Carrying
Amounts
|
|
Estimated
Fair Value
|
Borrowings
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured revolving credit facility
|
|
$
|
133,000
|
|
|
$
|
133,000
|
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
Fixed rate debt
(2)
|
|
$
|
1,214,523
|
|
|
$
|
1,292,937
|
|
|
$
|
1,268,596
|
|
|
$
|
1,310,388
|
|
Variable rate debt
|
|
$
|
225,000
|
|
|
$
|
222,954
|
|
|
$
|
225,000
|
|
|
$
|
222,649
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap asset (liability)
(3)
|
|
$
|
(9,455
|
)
|
|
$
|
(9,455
|
)
|
|
$
|
219
|
|
|
$
|
219
|
|
|
|
(1)
|
The fair values of our borrowings were estimated using a discounted cash flow methodology. Credit spreads and market interest rates used to determine the fair value of these instruments are based on unobservable Level 3 inputs which management has determined to be its best estimate of current market values.
|
|
|
(2)
|
The carrying amount of our fixed rate debt includes premiums and discounts and excludes deferred loan costs.
|
|
|
(3)
|
The fair value of our interest rate swap is determined using the market standard methodology of netting the discounted future fixed cash flows and the discounted expected variable cash flows based on an expectation of future interest rates derived from Level 2 observable market interest rate curves. We also incorporate a credit valuation adjustment, which is derived using unobservable Level 3 inputs, to appropriately reflect both our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement. The asset or liability is included in “Other assets, net” or “Other liabilities,” respectively, in our Consolidated Balance Sheets.
|
The following table presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The table also displays gains and losses due to changes in fair value, including both realized and unrealized, recognized in the Consolidated Statements of Operations for Level 3 assets and liabilities. When assets and liabilities are transferred between levels, we recognize the transfer at the beginning of the period. There were no transfers between levels during the
six months ended June 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
During the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
Level 3 Assets (Liabilities):
|
|
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
Beginning balance at January 1
|
|
$
|
219
|
|
|
$
|
(167
|
)
|
Net unrealized loss included in accumulated other comprehensive loss
|
|
(9,575
|
)
|
|
(37
|
)
|
Realized gain (loss) recognized in interest expense
|
|
(99
|
)
|
|
74
|
|
Ending balance at June 30
|
|
$
|
(9,455
|
)
|
|
$
|
(130
|
)
|
Hedging Activities
To manage interest rate risk for variable rate debt and issuances of fixed rate debt, we primarily use treasury locks and interest rate swaps as part of our cash flow hedging 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. Such derivatives have been used to hedge the variability in existing and future interest expense associated with existing variable rate borrowings and forecasted issuances of debt, which may include the issuances of new debt, as well as refinancing of existing debt upon maturity.
Accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the designation of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.
For derivatives designated as “cash flow” hedges, the effective portion of the changes in the fair value of the derivative is initially reported in “Other comprehensive income (“OCI”)” in our Consolidated Statements of Comprehensive Income (i.e., not included in earnings) and subsequently reclassified into earnings when the hedged transaction affects earnings or the hedging relationship is no longer effective at which time the ineffective portion of the derivative’s changes in fair value is recognized directly into earnings. We assess the effectiveness of each hedging relationship whenever financial statements are issued or earnings are reported and at least every three months. We do not use derivatives for trading or speculative purposes.
During
June 2013
, certain of our consolidated ventures entered into
two
pay-fixed, receive-floating interest rate swaps to hedge the variability of future cash flows attributable to changes in the 1 month LIBOR rates. The pay-fixed, receive-floating interest rate swaps have an effective date of
June 2013
and a maturity date of
June 2023
. These interest rates swaps effectively fix the interest rate on the related debt instruments at
4.72%
. As of
June 30, 2016
and
December 31, 2015
, we had borrowings payable subject to these pay-fixed, receive-floating interest rate swaps with aggregate principal balances of approximately
$6.7 million
and
$6.8 million
, respectively.
During
December 2015
, we entered into a pay-fixed, receive-floating interest rate swap to hedge the variability of future cash flows attributable to changes in the 1 month LIBOR rates on our
$200.0 million
unsecured term loan. The pay-fixed, receive-floating interest rate swap has an effective date of
December 2015
and a maturity date of
December 2022
. The interest rate swap effectively fixes the interest rate on the related debt instrument at
3.31%
, however, there is no floor on the variable interest rate of the swap whereas the current variable-rate debt is subject to a
0.0%
floor. In the event that US LIBOR is negative, the Company will make payments to the hedge counterparty equal to the spread between US LIBOR and zero. During the
six months ended June 30, 2016
, we recorded approximately
$1.4 million
of hedge ineffectiveness in earnings attributable to a zero percent floor mismatch in the hedging relationships (i.e., there is no floor on the variable interest rate of the swap whereas the current variable-rate debt from which the hedged forecasted transactions are expected to flow is subject to a zero percent floor on the USD-LIBOR component of the interest rate). As of
June 30, 2016
and
December 31, 2015
, we had borrowings payable subject to this pay-fixed, receive-floating interest rate swap with aggregate principal balances of approximately
$200.0 million
.
The following table presents the effect of our derivative financial instruments on our accompanying Consolidated Financial Statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) recognized in OCI for
effective portion of derivatives
|
|
$
|
(3,437
|
)
|
|
$
|
58
|
|
|
$
|
(9,866
|
)
|
|
$
|
(455
|
)
|
Amount of loss reclassified from accumulated
OCI for effective portion of derivatives into
interest expense and equity in earnings of
unconsolidated joint ventures, net
|
|
$
|
(1,670
|
)
|
|
$
|
(1,158
|
)
|
|
$
|
(3,412
|
)
|
|
$
|
(2,311
|
)
|
Amount of loss recognized in interest expense
(ineffective portion and amount excluded from
effectiveness testing)
|
|
$
|
(357
|
)
|
|
$
|
—
|
|
|
$
|
(1,420
|
)
|
|
$
|
—
|
|
Amounts reported in “Accumulated other comprehensive loss” related to derivatives will be amortized to “Interest expense” as interest payments are made on our current debt and anticipated debt issuances. During the next 12 months, we estimate that approximately
$6.7 million
will be reclassified from “Accumulated other comprehensive loss” to “Interest expense” resulting in an increase in interest expense.
Note 6 – Outstanding Indebtedness
As of
June 30, 2016
, our outstanding indebtedness of approximately
$1.6 billion
consisted of mortgage notes, senior unsecured notes and bank unsecured credit facilities, excluding approximately
$35.4 million
representing our proportionate share of debt associated with unconsolidated joint ventures. As of
December 31, 2015
, our outstanding indebtedness of approximately
$1.6 billion
consisted of mortgage notes, senior unsecured notes and bank unsecured credit facilities, excluding approximately
$35.7 million
representing our proportionate share of debt associated with unconsolidated joint ventures.
As of
June 30, 2016
, the gross book value of our consolidated properties was approximately
$4.2 billion
and the gross book value of all properties securing our mortgage debt was approximately
$0.6 billion
. As of
December 31, 2015
, the gross book value of our consolidated properties was approximately
$4.1 billion
and the gross book value of all properties securing our mortgage debt was approximately
$0.6 billion
. Our debt has various covenants with which we were in compliance as of
June 30, 2016
and
December 31, 2015
.
Line of Credit
As of
June 30, 2016
, we had
$133.0 million
outstanding and
$263.5 million
available under our
$400.0 million
senior unsecured revolving credit facility, net of
one
letter of credit totaling
$3.5 million
. As of
December 31, 2015
, we had
$70.0 million
outstanding and
$326.5 million
available under our
$400.0 million
senior unsecured revolving credit facility, net of
one
letter of credit totaling
$3.5 million
.
Guarantee of Debt
DCT has guaranteed the Operating Partnership’s obligations with respect to the senior unsecured notes and the bank unsecured credit facilities.
Note 7 – Noncontrolling Interests
DCT
Noncontrolling interests are the portion of equity, or net assets, in a subsidiary not attributable, directly or indirectly, to a parent. Noncontrolling interests of DCT primarily represent limited partnership interests in the Operating Partnership and equity interests held by third party partners in consolidated real estate investments, including related parties as discussed in “Note 9 – Related Party Transactions.”
Operating Partnership
Equity interests in the Operating Partnership held by third-parties and LTIP Units, as defined in “Note 8 – Stockholders’ Equity of DCT and Partners’ Capital of the Operating Partnership,” are classified as permanent equity of the Operating Partnership and as noncontrolling interests of DCT in the Consolidated Balance Sheets
.
Note 8 – Stockholders’ Equity of DCT and Partners’ Capital of the Operating Partnership
DCT
Common Stock
As of
June 30, 2016
, approximately
89.9 million
shares of common stock were issued and outstanding.
On September 10, 2015, we registered a continuous equity offering program to replace our continuous equity offering program previously registered on May 29, 2013. Pursuant to this offering, we may sell up to
five million
shares of common stock from time-to-time through
September 10, 2018
in “at-the-market” offerings or certain other transactions. During the
six months ended June 30, 2016
, we issued approximately
1.2 million
shares through the continuous equity offering program, at an average price of
$39.93
per share for proceeds of approximately
$48.5 million
, net of offering expenses. We used the proceeds for general corporate purposes, including funding developments and redevelopments and repaying debt. As of
June 30, 2016
, approximately
3.8 million
shares remain available to be issued under the current offering. We did not issue any shares under the current or previously registered offering programs during
2015
.
During the
six months ended June 30, 2016
and
2015
, we issued approximately
53,000
and
87,000
shares of common stock in each corresponding period related to vested shares of restricted stock, phantom shares and stock option exercises.
Operating Partnership
OP Units
For each share of common stock issued by DCT, the Operating Partnership issues a corresponding OP Unit to DCT in exchange for the contribution of the proceeds from the stock issuances.
As of
June 30, 2016
and
December 31, 2015
, DCT owned approximately
95.8%
and
95.6%
, respectively, of the outstanding equity interests in the Operating Partnership. The remaining common partnership interests in the Operating Partnership were owned by executives of the Company and non-affiliated limited partners.
DCT holds its interests through both general and limited partner units. The Partnership Agreement stipulates that the general partner shall at all times own a minimum of
1.0%
of all outstanding OP Units. As a result, each reporting period certain of DCT’s limited partner units are converted to general partner units to satisfy this requirement as illustrated in the Consolidated Statement of Changes in Capital.
Limited partners have the right to require the Company to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the Partnership Agreement), provided that such OP Units have been outstanding for at least one year. The Company may, in its sole discretion, purchase the OP Units by paying
to the limited partner either the Cash Amount or the REIT Shares Amount (generally one share of DCT’s common stock for each OP Unit), as defined in the Partnership Agreement.
During the
six months ended June 30, 2016
and
2015
, approximately
0.3 million
and
0.1 million
OP Units were redeemed for approximately
$0.6 million
and
$0.9 million
in cash and approximately
0.3 million
and
0.1 million
shares of DCT common stock, respectively. The OP Unit redemptions exclude LTIP Unit redemptions, see "LTIP Units" below for a summary of LTIP Unit redemptions.
As of
June 30, 2016
and
December 31, 2015
, approximately
4.0 million
OP Units were issued, outstanding and held by entities other than DCT in each corresponding period, including approximately
0.7 million
and
0.6 million
vested LTIP Units issued under our Long-Term Incentive Plan, respectively.
As of
June 30, 2016
and
December 31, 2015
, the aggregate redemption value of the then-outstanding OP Units held by entities other than DCT was approximately
$190.1 million
and
$150.9 million
based on the
$48.04
and
$37.37
per share closing price of DCT’s common stock on
June 30, 2016
and
December 31, 2015
, respectively.
Equity-Based Compensation
On October 10, 2006, the Company established the Long-Term Incentive Plan, as amended, to grant restricted stock, stock options and other awards to our personnel and directors, as defined in the plan. Awards granted under this plan are measured at fair value on the grant date and amortized to compensation expense on a straight-line basis over the service period during which the awards fully vest. Such expense is included in “General and administrative” expense in our Consolidated Statements of Operations.
Restricted Stock
Holders of restricted stock have voting rights and rights to receive dividends. Restricted stock may not be sold, assigned, transferred, pledged or otherwise disposed of and is subject to a risk of forfeiture prior to the expiration of the applicable vesting period. Restricted stock is recorded at fair value on the date of grant and amortized to compensation expense on a straight-line basis over the service period during which term the stock fully vests. Restricted stock generally vests ratably over a period of
four
or
five
years, depending on the grant. During the
six months ended June 30, 2016
, we granted approximately
0.1 million
shares of restricted stock to certain officers and employees at the weighted average fair market value of
$36.20
per share.
LTIP Units
Pursuant to the Long-Term Incentive Plan, as amended, the Company may grant limited partnership interests in the Operating Partnership called LTIP Units. Vested LTIP Units may be redeemed by the Company in cash or DCT common stock, at the discretion of the Company, on a one-for-one basis with common shares, subject to certain restrictions of the Partnership Agreement. LTIP Units receive distributions equally along with common shares. LTIP Units are valued by reference to the value of DCT’s common stock and generally vest ratably over a period of
four
to
five
years, depending on the grant. LTIP Unit equity compensation is amortized into expense over the service period during which the units vest.
During the
six months ended June 30, 2016
, approximately
0.2 million
LTIP Units were granted to certain senior executives, which vest over a
four
year period with a total fair value of approximately
$6.3 million
at the date of grant as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of
23%
and risk-free interest rate of
1.28%
. During the
six months ended June 30, 2016
, there were approximately
69,000
vested LTIP Units converted into approximately
69,000
common shares and approximately
13,000
LTIP Units were redeemed for approximately
$0.5 million
in cash. As of
June 30, 2016
, approximately
1.2 million
LTIP Units were outstanding of which approximately
0.7 million
were vested.
During the
six months ended June 30, 2015
, approximately
0.2 million
LTIP Units were granted to certain senior executives, which vest over a
four
year period with a total fair value of approximately
$7.3 million
at the date of grant as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a weighted average volatility factor of
26%
and a weighted average risk-free interest rate of
1.28%
. During the
six months ended June 30, 2015
, approximately
5,000
vested LTIP Units were converted into approximately
5,000
common shares. As of
June 30, 2015
, approximately
1.1 million
LTIP Units were outstanding of which approximately
0.6 million
were vested.
Note 9 – Related Party Transactions
Southern California Consolidated Ventures
We entered into
four
agreements,
two
in December 2010 and
two
in January 2011, whereby we acquired a weighted average ownership interest, based on square feet, of approximately
48.4%
in
five
bulk industrial buildings located in the Southern California market. Entities controlled by a former executive have a weighted average ownership in these properties of approximately
43.7%
, based on square feet, and the remaining
7.9%
is held by a third-party. Each venture partner will earn returns in accordance with their ownership interests. We have controlling rights including management of the operations of the properties and we have consolidated the properties in accordance with GAAP. The total acquisition price of
$46.3 million
was determined to be at fair value.
Note 10 – Earnings per Share/Unit
We use the two-class method of computing net earnings per common share/unit which is an earnings allocation formula that determines net earnings per share/unit for common stock/unit and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Under the two-class method, net earnings per common share/unit are computed by dividing the sum of distributed earnings to common stockholders/OP Unitholders and undistributed earnings allocated to common stockholders/OP Unitholders by the weighted average number of common shares/units outstanding for the period.
A participating security is defined by GAAP as an unvested share-based payment award containing non-forfeitable rights to dividends and must be included in the computation of earnings per share/unit pursuant to the two-class method. Nonvested restricted stock and LTIP Units are considered participating securities as these share-based awards contain non-forfeitable rights to dividends irrespective of whether the awards ultimately vest or expire.
DCT
The following table presents the computation of basic and diluted net earnings per common share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Earnings per Common Share – Basic and Diluted
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
21,418
|
|
|
$
|
18,297
|
|
|
$
|
57,809
|
|
|
$
|
47,042
|
|
Less: Distributed and undistributed earnings
allocated to participating securities
|
|
(106
|
)
|
|
(201
|
)
|
|
(334
|
)
|
|
(344
|
)
|
Numerator for adjusted net income attributable to
common stockholders
|
|
$
|
21,312
|
|
|
$
|
18,096
|
|
|
$
|
57,475
|
|
|
$
|
46,698
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding – basic
|
|
89,748
|
|
|
88,187
|
|
|
89,066
|
|
|
88,139
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock options and phantom stock
|
|
436
|
|
|
299
|
|
|
424
|
|
|
314
|
|
Weighted average common shares
outstanding – diluted
|
|
90,184
|
|
|
88,486
|
|
|
89,490
|
|
|
88,453
|
|
|
|
|
|
|
|
|
|
|
Net Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.21
|
|
|
$
|
0.65
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
|
$
|
0.64
|
|
|
$
|
0.53
|
|
Operating Partnership
The following table presents the computation of basic and diluted net earnings per common unit (in thousands, except per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Earnings per OP Unit – Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to OP Unitholders
|
|
$
|
22,360
|
|
|
$
|
19,177
|
|
|
$
|
60,495
|
|
|
$
|
49,325
|
|
Less: Distributed and undistributed earnings
allocated to participating securities
|
|
(106
|
)
|
|
(201
|
)
|
|
(334
|
)
|
|
(344
|
)
|
Numerator for adjusted net income attributable
to OP Unitholders
|
|
$
|
22,254
|
|
|
$
|
18,976
|
|
|
$
|
60,161
|
|
|
$
|
48,981
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
Weighted average OP Units outstanding – basic
|
|
93,787
|
|
|
92,443
|
|
|
93,204
|
|
|
92,417
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock options and phantom stock
|
|
436
|
|
|
299
|
|
|
424
|
|
|
314
|
|
Weighted average OP Units outstanding – diluted
|
|
94,223
|
|
|
92,742
|
|
|
93,628
|
|
|
92,731
|
|
|
|
|
|
|
|
|
|
|
Net Earnings per OP Unit:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.24
|
|
|
$
|
0.21
|
|
|
$
|
0.65
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
|
$
|
0.64
|
|
|
$
|
0.53
|
|
DCT and the Operating Partnership
Potentially Dilutive Shares
For the
three and six months ended June 30, 2016
, DCT excluded from diluted earnings per share the weighted average common share equivalents related to
4.0 million
and
4.1 million
OP Units, respectively, because their effect would be anti-dilutive. During the same periods ended
June 30, 2015
, DCT excluded from diluted earnings per share the weighted average common share equivalents related to
4.3 million
OP Units because their effect would be anti-dilutive.
Note 11 – Segment Information
The Company’s segments are based on our internal reporting of operating results used to assess performance based on our properties’ geographical markets. Our markets are aggregated into
three
reportable regions or segments, East, Central and West, which are based on the geographical locations of our properties. Management considers rental revenues and property net operating income aggregated by segment to be the appropriate way to analyze performance.
The following table presents our total assets, net of accumulated depreciation and amortization, by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
Segments:
|
|
|
|
|
|
East assets
|
|
$
|
1,067,569
|
|
|
$
|
1,034,869
|
|
Central assets
|
|
1,061,076
|
|
|
1,092,315
|
|
West assets
|
|
1,389,240
|
|
|
1,365,471
|
|
Total segment net assets
|
|
3,517,885
|
|
|
3,492,655
|
|
Non-segment assets:
|
|
|
|
|
|
|
Non-segment cash and cash equivalents
|
|
31,466
|
|
|
15,860
|
|
Other non-segment assets
(1)
|
|
148,755
|
|
|
123,840
|
|
Total assets
|
|
$
|
3,698,106
|
|
|
$
|
3,632,355
|
|
|
|
(1)
|
Other non-segment assets primarily consist of investments in and advances to unconsolidated joint ventures, restricted cash, other receivables and other assets.
|
The following table presents the rental revenues of our segments and a reconciliation of our segment rental revenues to our reported consolidated total revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
East
|
|
$
|
29,171
|
|
|
$
|
25,845
|
|
|
$
|
58,798
|
|
|
$
|
53,297
|
|
Central
|
|
32,266
|
|
|
33,233
|
|
|
63,060
|
|
|
65,916
|
|
West
|
|
34,160
|
|
|
29,037
|
|
|
67,716
|
|
|
56,964
|
|
Rental revenues
|
|
95,597
|
|
|
88,115
|
|
|
189,574
|
|
|
176,177
|
|
Institutional capital management and other fees
|
|
305
|
|
|
423
|
|
|
698
|
|
|
801
|
|
Total revenues
|
|
$
|
95,902
|
|
|
$
|
88,538
|
|
|
$
|
190,272
|
|
|
$
|
176,978
|
|
The following table presents property net operating income (“NOI”) of our segments and a reconciliation of our property NOI to our reported “Net income attributable to common stockholders” (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
East
|
|
$
|
22,773
|
|
|
$
|
19,900
|
|
|
$
|
44,846
|
|
|
$
|
39,570
|
|
Central
|
|
22,528
|
|
|
24,045
|
|
|
43,741
|
|
|
46,321
|
|
West
|
|
26,256
|
|
|
22,241
|
|
|
52,297
|
|
|
43,704
|
|
Property NOI
(1)
|
|
71,557
|
|
|
66,186
|
|
|
140,884
|
|
|
129,595
|
|
Institutional capital management and other fees
|
|
305
|
|
|
423
|
|
|
698
|
|
|
801
|
|
Gain on dispositions of real estate interests
|
|
12,955
|
|
|
14,932
|
|
|
43,052
|
|
|
41,086
|
|
Real estate related depreciation and amortization
|
|
(39,901
|
)
|
|
(38,449
|
)
|
|
(79,971
|
)
|
|
(77,445
|
)
|
Casualty loss
|
|
(162
|
)
|
|
—
|
|
|
(162
|
)
|
|
—
|
|
Development profit, net of taxes
|
|
—
|
|
|
2,627
|
|
|
—
|
|
|
2,627
|
|
General and administrative expense
|
|
(7,358
|
)
|
|
(9,856
|
)
|
|
(13,620
|
)
|
|
(17,192
|
)
|
Equity in earnings of unconsolidated
joint ventures, net
|
|
935
|
|
|
1,036
|
|
|
1,819
|
|
|
1,843
|
|
Interest expense
|
|
(15,635
|
)
|
|
(13,609
|
)
|
|
(32,057
|
)
|
|
(27,513
|
)
|
Interest and other income (expense)
|
|
48
|
|
|
(11
|
)
|
|
563
|
|
|
(29
|
)
|
Income tax expense and other taxes
|
|
(172
|
)
|
|
(278
|
)
|
|
(288
|
)
|
|
(471
|
)
|
Net income attributable to noncontrolling
interests of the Operating Partnership
|
|
(212
|
)
|
|
(3,824
|
)
|
|
(423
|
)
|
|
(3,977
|
)
|
Net income attributable to OP Unitholders
|
|
22,360
|
|
|
19,177
|
|
|
60,495
|
|
|
49,325
|
|
Net income attributable to noncontrolling
interests of DCT Industrial Trust Inc.
|
|
(942
|
)
|
|
(880
|
)
|
|
(2,686
|
)
|
|
(2,283
|
)
|
Net income attributable to common stockholders
|
|
$
|
21,418
|
|
|
$
|
18,297
|
|
|
$
|
57,809
|
|
|
$
|
47,042
|
|
|
|
(1)
|
Property net operating income (“property NOI”) is defined as rental revenues, which includes expense reimbursements, less rental expenses and real estate taxes, and excludes institutional capital management fees, depreciation, amortization, casualty and involuntary conversion gain (loss), impairment, general and administrative expenses, equity in earnings (loss) of unconsolidated joint ventures, interest expense, interest and other income and income tax expense and other taxes. We consider property NOI to be an appropriate supplemental performance measure because property 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 amortization, depreciation, impairment, interest expense, interest and other income, income tax expense and other taxes and general and administrative expenses. However, property NOI should not be viewed as an alternative measure of our financial performance since it excludes expenses which could materially impact our results of operations. Further, our property NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating property NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance.
|
Note 12 – Subsequent Events
GAAP requires an entity to disclose events that occur after the balance sheet date but before financial statements are issued or are available to be issued (“subsequent events”) as well as the date through which an entity has evaluated subsequent events. There are two types of subsequent events. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, (“recognized subsequent events”). The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date (“nonrecognized subsequent events”). No significant recognized or nonrecognized subsequent events were noted.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
We make statements in this report that are considered “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are usually identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, we can give no assurance that the plans, intentions, expectations or strategies will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation:
|
|
•
|
national, international, regional and local economic conditions;
|
|
|
•
|
the general level of interest rates and the availability of capital;
|
|
|
•
|
the competitive environment in which we operate;
|
|
|
•
|
real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets;
|
|
|
•
|
decreased rental rates or increasing vacancy rates;
|
|
|
•
|
defaults on or non-renewal of leases by tenants;
|
|
|
•
|
acquisition and development risks, including failure of such acquisitions and development projects to perform in accordance with projections;
|
|
|
•
|
the timing of acquisitions, dispositions and development;
|
|
|
•
|
natural disasters such as fires, floods, tornadoes, hurricanes and earthquakes;
|
|
|
•
|
the terms of governmental regulations that affect us and interpretations of those regulations, including the costs of compliance with those regulations, changes in real estate and zoning laws and increases in real property tax rates;
|
|
|
•
|
financing risks, including the risk that our cash flows from operations may be insufficient to meet required payments of principal, interest and other commitments;
|
|
|
•
|
lack of or insufficient amounts of insurance;
|
|
|
•
|
litigation, including costs associated with prosecuting or defending claims and any adverse outcomes;
|
|
|
•
|
the consequences of future terrorist attacks or civil unrest;
|
|
|
•
|
environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us; and
|
|
|
•
|
other risks and uncertainties detailed in the section entitled “Risk Factors.”
|
In addition, our current and continuing qualification as a real estate investment trust, or REIT, involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, or the Code, and depends on our ability to meet the various requirements imposed by the Code through actual operating results, distribution levels and diversity of stock ownership.
We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The reader should carefully review our financial statements and the notes thereto, as well as the section entitled “Risk Factors” in this report.
Overview
DCT Industrial Trust Inc. is a leading industrial real estate company specializing in the acquisition, development, leasing and management of bulk distribution and light industrial properties located in high-volume distribution markets in the United States. As used herein, the terms “Company,” “we,” “our” and “us” refer to DCT Industrial Trust Inc. and its subsidiaries, including its operating partnership, DCT Industrial Operating Partnership LP. When we use the term “DCT” or “DCT Industrial,” we are referring to DCT Industrial Trust Inc. by itself, and not including any of its subsidiaries, and when we use the term the “Operating Partnership,” we are referring to DCT Industrial Operating Partnership LP by itself, and not including any of its subsidiaries.
DCT was formed as a Maryland corporation in April 2002 and has elected to be treated as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We are structured as an umbrella partnership REIT under which substantially all of our current and future business is, and will be, conducted through a majority owned and controlled subsidiary, DCT Industrial Operating Partnership LP, a Delaware limited partnership, for which DCT is the sole general partner. DCT owns properties through the Operating Partnership and its subsidiaries. As of
June 30, 2016
, DCT owned approximately
95.8%
of the outstanding equity interests in the Operating Partnership.
As of
June 30, 2016
, the Company owned interests in approximately
72.0 million
square feet of properties leased to approximately
900
customers, including:
|
|
•
|
63.4 million
square feet comprising
392
consolidated operating properties that were
95.6%
occupied;
|
|
|
•
|
7.5 million
square feet comprising
23
unconsolidated properties that were
97.6%
occupied and which we operated on behalf of
three
institutional capital management partners;
|
|
|
•
|
0.8 million
square feet comprising
four
consolidated properties under redevelopment; and
|
|
|
•
|
0.2 million
square feet comprising
two
consolidated properties in development.
|
In addition, the Company has
10
projects under construction, including
one
project in our unconsolidated Stirling Capital Investment joint venture, and several projects in pre-development. See “Notes to Consolidated Financial Statements Note 3 – Investment in Properties” for further details related to our development activity.
Our primary business objectives are to maximize long-term growth in Funds From Operations, or FFO, as defined on page 46, net asset value of our portfolio and total shareholder returns. In our pursuit of these long-term objectives, we seek to:
|
|
•
|
maximize cash flows from existing properties;
|
|
|
•
|
deploy capital into quality acquisitions and development opportunities which meet our asset, location and financial criteria; and
|
|
|
•
|
recycle capital by selling assets that no longer fit our investment criteria and reinvesting the proceeds into higher growth opportunities
|
Outlook
We seek to maximize long-term earnings growth per share and shareholder value primarily through increasing occupancy, rents and operating income at existing properties and developing and acquiring high-quality properties with attractive operating income and value growth prospects. Fundamentals for industrial real estate continue to improve in response to general improvement in the economy as well as trends that particularly favor industrial assets, including the growth of e-commerce. We expect moderate economic growth to continue through 2016, which should result in continued positive demand for warehouse space as companies expand and upgrade their distribution and production platforms.
In response to positive net absorption and lower market vacancy levels, rental rates are increasing in most of our markets. Rental concessions, such as free rent, have declined in recent years and remain at historically low levels. Consistent with recent experience and based on current market conditions, we expect average net effective rental rates on new leases signed during the remainder of 2016 to be higher than the rates on expiring leases.
New development, including speculative development, is present in most markets in response to strong tenant demand for high-quality space. However, construction remains below current levels of net absorption in most markets and below historical peak levels. We expect that the operating environment will continue to be favorable for lessors given our favorable outlook for market occupancy levels and rental rate growth.
We expect our same store net operating income to be higher in 2016 than it was in 2015, primarily as a result of higher occupancy in 2016 and the impact of increasing rental rates on leases signed in 2016 compared to expiring leases.
In terms of capital investment, we will pursue the selective development of new buildings and the opportunistic acquisition of buildings in markets where we perceive demand and market rental rates will provide attractive financial returns.
We anticipate continuing to selectively dispose of non-strategic assets to fund our investment in new development and acquisitions in an effort to enhance long-term growth in net asset value, earnings and cash flows as well as to enhance the overall quality of our portfolio.
We anticipate having sufficient liquidity to fund our operating expenses, including costs to maintain our properties and distributions, though we may finance investments, including acquisitions and developments, with the issuance of new common shares, proceeds from asset sales or through additional borrowings. Please see “Liquidity and Capital Resources” for additional discussion.
Inflation
The U.S. economy has experienced low inflation over the past several years and as a result, inflation has not had a significant impact on our business. Moreover, most of our leases require the customers to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. In addition, most of our leases expire within five years which enables us to replace existing leases with new leases at then-existing market rates. While slowing global growth has the potential to dampen demand for distribution space, we have not yet seen any indications of this reduced demand.
Summary of Significant Transactions and Activities During
2016
Significant transactions for the
six months ended June 30, 2016
|
|
•
|
As of
June 30, 2016
, construction was shell-complete on
two
buildings totaling
0.2 million
square feet in the Miami and Seattle markets. During the
six months ended June 30, 2016
, we stabilized
11
buildings totaling
3.7 million
square feet.
|
|
|
•
|
Additionally, during the
six months ended June 30, 2016
, we acquired
40.6 acres
of
land in the Baltimore/Washington D.C. and Dallas markets
for approximately
$8.3 million
that is held for future development.
|
The table below reflects a summary of development activities as of
June 30, 2016
, (in thousands, except acres and number of buildings):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project
|
|
Market
|
|
Acres
|
|
Number
of
Buildings
|
|
Square Feet
|
|
Percent-age Owned
(1)
|
|
Cumulative Costs at 6/30/2016
|
|
Projected Investment
|
|
Completion Date
(2)
|
|
Percent-age Leased
(3)
|
Consolidated Development Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Projects in Lease Up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCT Fife Distribution Center North
|
|
Seattle
|
|
9
|
|
1
|
|
152
|
|
100
|
%
|
|
$
|
12,086
|
|
|
$
|
12,976
|
|
|
Q1-2016
|
|
56
|
%
|
|
|
Sub Total
|
|
9
|
|
1
|
|
152
|
|
100
|
%
|
|
$
|
12,086
|
|
|
$
|
12,976
|
|
|
|
|
56
|
%
|
Under Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCT North Satellite Distribution Center
|
|
Atlanta
|
|
47
|
|
1
|
|
549
|
|
100
|
%
|
|
$
|
10,138
|
|
|
$
|
29,544
|
|
|
Q1-2017
|
|
0
|
%
|
DCT Central Avenue
|
|
Chicago
|
|
54
|
|
1
|
|
190
|
|
100
|
%
|
|
25,710
|
|
|
61,287
|
|
|
Q1-2017
|
|
100
|
%
|
DCT North Avenue Distribution Center
|
|
Chicago
|
|
20
|
|
1
|
|
350
|
|
100
|
%
|
|
25,040
|
|
|
28,344
|
|
|
Q3-2016
|
|
100
|
%
|
DCT Stockyards Industrial Center
|
|
Chicago
|
|
10
|
|
1
|
|
167
|
|
100
|
%
|
|
3,762
|
|
|
15,139
|
|
|
Q4-2016
|
|
0
|
%
|
DCT Freeport West
|
|
Dallas
|
|
7
|
|
1
|
|
108
|
|
100
|
%
|
|
8,055
|
|
|
9,329
|
|
|
Q3-2016
|
|
67
|
%
|
DCT Waters Ridge
|
|
Dallas
|
|
18
|
|
1
|
|
347
|
|
100
|
%
|
|
13,293
|
|
|
18,618
|
|
|
Q3-2016
|
|
0
|
%
|
DCT Commerce Center Phase II Building C
|
|
Miami
|
|
8
|
|
1
|
|
136
|
|
100
|
%
|
|
7,883
|
|
|
15,373
|
|
|
Q4-2016
|
|
0
|
%
|
DCT Airport Distribution Center Building D
|
|
Orlando
|
|
6
|
|
1
|
|
95
|
|
100
|
%
|
|
4,686
|
|
|
7,148
|
|
|
Q3-2016
|
|
0
|
%
|
DCT White River Corporate Center Phase II North
|
|
Seattle
|
|
13
|
|
1
|
|
251
|
|
100
|
%
|
|
10,689
|
|
|
21,772
|
|
|
Q4-2016
|
|
0
|
%
|
Building 13B
(5)
|
|
So. California
|
|
22
|
|
1
|
|
445
|
|
50
|
%
|
(6)
|
10,386
|
|
|
19,960
|
|
|
Q3-2016
|
|
100
|
%
|
|
|
Sub Total
|
|
205
|
|
10
|
|
2,638
|
|
92
|
%
|
|
$
|
119,642
|
|
|
$
|
226,514
|
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
(4)
|
|
214
|
|
11
|
|
2,790
|
|
92
|
%
|
|
$
|
131,728
|
|
|
$
|
239,490
|
|
|
|
|
41
|
%
|
|
|
(1)
|
Percentage owned is based on equity ownership weighted by square feet.
|
|
|
(2)
|
The completion date represents the date of building shell-completion or estimated date of shell-completion.
|
|
|
(3)
|
Percentage leased is computed as of the date the financial statements were available to be issued.
|
|
|
(4)
|
During November 2015, DCT acquired one building totaling 54,000 square feet in Miami that was shell-complete. The building is classified as a property under development and is not included in the table above.
|
|
|
(5)
|
During January 2016, DCT commenced construction on Building 13B, a 445,000 square foot building located in our SCLA unconsolidated joint venture. The cumulative costs of
$10.4 million
are excluded from “Properties under development” in our Consolidated Balance Sheets as of
June 30, 2016
.
|
|
|
(6)
|
Although we contributed 100% of the initial cash equity capital required by the venture, after return of certain preferential distributions on capital invested, profits and losses are generally split 50/50
.
|
•
Dispositions
|
|
•
|
During the
six months ended June 30, 2016
, we sold
11
consolidated operating properties totaling
2.0 million
square feet from our
Chicago, Houston, Louisville and Northern California markets
to third-parties for gross proceeds of approximately
$108.6 million
.
|
•
Debt Activity
|
|
•
|
As of
June 30, 2016
, we had
$133.0 million
outstanding and
$263.5 million
available under our
$400.0 million
senior unsecured revolving credit facility, net of
one
letter of credit totaling
$3.5 million
.
|
•
Equity Activity
|
|
•
|
On September 10, 2015, we registered a continuous equity offering program, to replace our continuous equity offering program previously registered on May 29, 2013. During the
six months ended June 30, 2016
, we issued approximately
1.2 million
shares through the continuous equity offering program, at an average price of
$39.93
per share for proceeds of approximately
$48.5 million
, net of offering expenses. The proceeds from the sale of shares were contributed to the Operating Partnership for an equal number of OP units in the Operating Partnership and were used for general corporate purposes, including funding developments and redevelopments and repaying debt. As of
June 30, 2016
, approximately
3.8 million
shares remain available to be issued under the current offering.
|
•
Leasing Activity
The following table provides a summary of our leasing activity for the
six months ended June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Leases
Signed
|
|
Square
Feet
Signed
(1)
|
|
Net Effective
Rent Per
Square Foot
(2)
|
|
GAAP
Basis Rent
Growth
(3)
|
|
Weighted
Average
Lease Term
(4)
|
|
Turnover
Costs Per
Square Foot
(5)
|
SECOND QUARTER 2016
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in months)
|
|
|
New
|
|
30
|
|
|
1,316
|
|
|
N/A
|
|
|
22.5
|
%
|
|
68
|
|
|
$
|
4.99
|
|
Renewal
|
|
41
|
|
|
2,496
|
|
|
N/A
|
|
|
12.1
|
%
|
|
50
|
|
|
1.27
|
|
Development and redevelopment
|
|
7
|
|
|
591
|
|
|
N/A
|
|
|
N/A
|
|
|
68
|
|
|
N/A
|
|
Total/Weighted Average
|
|
78
|
|
|
4,403
|
|
|
$
|
5.25
|
|
|
15.3
|
%
|
|
58
|
|
|
$
|
2.56
|
|
Weighted Average Retention
(6)
|
|
75.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Leases
Signed
|
|
Square
Feet
Signed
(1)
|
|
Net Effective
Rent Per
Square Foot
(2)
|
|
GAAP
Basis Rent
Growth
(3)
|
|
Weighted
Average
Lease Term
(4)
|
|
Turnover
Costs Per
Square Foot
(5)
|
YEAR TO DATE 2016
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in months)
|
|
|
New
|
|
55
|
|
|
3,482
|
|
|
N/A
|
|
|
14.5
|
%
|
|
70
|
|
|
$
|
4.80
|
|
Renewal
|
|
74
|
|
|
4,380
|
|
|
N/A
|
|
|
21.7
|
%
|
|
57
|
|
|
1.77
|
|
Development and redevelopment
|
|
12
|
|
|
865
|
|
|
N/A
|
|
|
N/A
|
|
|
78
|
|
|
N/A
|
|
Total/Weighted Average
|
|
141
|
|
|
8,727
|
|
|
$
|
5.22
|
|
|
18.8
|
%
|
|
65
|
|
|
$
|
3.11
|
|
Weighted Average Retention
(6)
|
|
68.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes short-term leases that do not contain standard market provisions.
|
|
|
(2)
|
Net effective rent is the average monthly base rental income over the term of the lease, calculated in accordance with GAAP.
|
|
|
(3)
|
GAAP basis rent growth is the percentage change in monthly net effective rent of the comparable lease. New leases where there were no prior comparable leases or materially different lease structures are excluded.
|
|
|
(4)
|
Assumes no exercise of lease renewal options, if any.
|
|
|
(5)
|
Turnover costs are comprised of the costs incurred or capitalized for improvements of vacant and renewal spaces, as well as the commissions paid and costs capitalized for leasing transactions. Turnover costs per square foot represent the total turnover costs expected to be incurred on the leases signed during the period and does not reflect actual expenditures for the period.
|
|
|
(6)
|
Represents the percentage of customers renewing their respective leases weighted by average square feet.
|
During the
six months ended June 30, 2016
, we signed a total of 141 leases comprising 8.7 million square feet of which 57 leases totaling 4.7 million square feet included concessions of $7.3 million primarily related to free rent periods.
Customer Diversification
As of
June 30, 2016
, there were no customers that occupied more than
2.8%
of our consolidated properties based on annualized base rent. The following table presents our 10 largest customers, based on annualized base rent as of
June 30, 2016
, who occupy a combined 9.8 million square feet or 15.2% of our consolidated properties.
|
|
|
|
|
|
Customer
|
|
Percentage
of Annualized
Base Rent
|
|
Amazon.com, Inc.
|
|
2.8
|
%
|
|
Distributions Alternatives, Inc.
|
|
2.1
|
%
|
|
Ozburn-Hessey Logistics, LLC
|
|
1.6
|
%
|
|
The J. M. Smucker Company
|
|
1.5
|
%
|
|
Schenker, Inc.
|
|
1.2
|
%
|
|
The Clorox Company
|
|
1.1
|
%
|
|
United Parcel Service, Inc.
|
|
1.0
|
%
|
|
The Glidden Company
|
|
1.0
|
%
|
|
YRC, LLC
|
|
1.0
|
%
|
|
Kellogg Company
|
|
0.9
|
%
|
|
Total
|
|
14.2
|
%
|
|
Although base rent is supported by long-term lease contracts, customers who file bankruptcy generally have the legal right to reject any or all of their leases. In the event that a customer with a significant number of leases in our properties files bankruptcy and cancels its leases we could experience a reduction in our revenues and an increase in allowance for doubtful accounts receivable.
We frequently monitor the financial condition of our customers. We communicate often with those customers whom have been late on payments or filed bankruptcy. We are not currently aware of any significant financial difficulties of any tenants that would cause a material reduction in our revenues, and no customer represents more than
2.8%
of our annual base rent.
Results of Operations
Summary of the
three and six months ended June 30, 2016
compared to the same period ended
June 30, 2015
We are a leading industrial real estate company specializing in the acquisition, development, leasing and management of bulk distribution and light industrial properties located in high-volume distribution markets in the United States. As of
June 30, 2016
, the Company owned interests in or had under development approximately
72.0 million
square feet of properties leased to approximately
900
customers, including
7.5 million
square feet managed on behalf of
three
institutional capital management joint venture partners. Also as of
June 30, 2016
, we consolidated
392
operating properties,
two
development properties and
four
redevelopment properties. As of
June 30, 2015
, we consolidated 398 operating properties, 11 development properties and four redevelopment properties.
Comparison of the
three months ended June 30, 2016
compared to the same period ended
June 30, 2015
The following table presents the changes in rental revenues, rental expenses and real estate taxes, property net operating income, other revenue and other income, and other expenses for the three months ended
June 30, 2016
compared to the three months ended
June 30, 2015
. Our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods. Developed properties are generally included in same store properties once they are initially stabilized. We generally consider buildings stabilized when occupancy reaches 90%. Non-same store operating properties include properties not meeting the same store criteria and exclude development and redevelopment properties. For the
three months ended June 30, 2016
, we had 363 properties classified as same store comprising
55.8 million
square feet and 35 classified as non-same store consisting of properties that did not meet our same store definition, which includes 29 operating properties and six development and redevelopment properties. A discussion of these changes follows in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
$ Change
|
|
Percent Change
|
Rental Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
$
|
83,667
|
|
|
$
|
81,507
|
|
|
$
|
2,160
|
|
|
2.7
|
%
|
Non-same store operating properties
|
|
11,535
|
|
|
6,210
|
|
|
5,325
|
|
|
85.7
|
%
|
Development and redevelopment
|
|
395
|
|
|
398
|
|
|
(3
|
)
|
|
(0.8
|
)%
|
Total rental revenues
|
|
95,597
|
|
|
88,115
|
|
|
7,482
|
|
|
8.5
|
%
|
Rental Expenses and Real Estate Taxes
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
21,472
|
|
|
20,208
|
|
|
1,264
|
|
|
6.3
|
%
|
Non-same store operating properties
|
|
2,439
|
|
|
1,593
|
|
|
846
|
|
|
53.1
|
%
|
Development and redevelopment
|
|
129
|
|
|
128
|
|
|
1
|
|
|
0.8
|
%
|
Total rental expenses and real estate taxes
|
|
24,040
|
|
|
21,929
|
|
|
2,111
|
|
|
9.6
|
%
|
Property Net Operating Income
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
62,195
|
|
|
61,299
|
|
|
896
|
|
|
1.5
|
%
|
Non-same store operating properties
|
|
9,096
|
|
|
4,617
|
|
|
4,479
|
|
|
97.0
|
%
|
Development and redevelopment
|
|
266
|
|
|
270
|
|
|
(4
|
)
|
|
(1.5
|
)%
|
Total property net operating income
|
|
71,557
|
|
|
66,186
|
|
|
5,371
|
|
|
8.1
|
%
|
Other Revenue and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional capital management and other fees
|
|
305
|
|
|
423
|
|
|
(118
|
)
|
|
(27.9
|
)%
|
Casualty loss
|
|
(162
|
)
|
|
—
|
|
|
(162
|
)
|
|
100.0
|
%
|
Development profit, net of taxes
|
|
—
|
|
|
2,627
|
|
|
(2,627
|
)
|
|
(100.0
|
)%
|
Equity in earnings of unconsolidated joint ventures, net
|
|
935
|
|
|
1,036
|
|
|
(101
|
)
|
|
(9.7
|
)%
|
Gain on dispositions of real estate interests
|
|
12,955
|
|
|
14,932
|
|
|
(1,977
|
)
|
|
(13.2
|
)%
|
Interest and other income (expense)
|
|
48
|
|
|
(11
|
)
|
|
59
|
|
|
536.4
|
%
|
Total other revenue and other income
|
|
14,081
|
|
|
19,007
|
|
|
(4,926
|
)
|
|
(25.9
|
)%
|
Other Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate related depreciation and amortization
|
|
39,901
|
|
|
38,449
|
|
|
1,452
|
|
|
3.8
|
%
|
Interest expense
|
|
15,635
|
|
|
13,609
|
|
|
2,026
|
|
|
14.9
|
%
|
General and administrative
|
|
7,358
|
|
|
9,856
|
|
|
(2,498
|
)
|
|
(25.3
|
)%
|
Income tax expense and other taxes
|
|
172
|
|
|
278
|
|
|
(106
|
)
|
|
(38.1
|
)%
|
Total other expenses
|
|
63,066
|
|
|
62,192
|
|
|
874
|
|
|
1.4
|
%
|
Net income attributable to noncontrolling interests
of the Operating Partnership
|
|
(212
|
)
|
|
(3,824
|
)
|
|
3,612
|
|
|
94.5
|
%
|
Net income attributable to OP Unitholders
|
|
22,360
|
|
|
19,177
|
|
|
3,183
|
|
|
16.6
|
%
|
Net income attributable to noncontrolling interests
of DCT Industrial Trust Inc.
|
|
(942
|
)
|
|
(880
|
)
|
|
(62
|
)
|
|
(7.0
|
)%
|
Net income attributable to common stockholders
|
|
$
|
21,418
|
|
|
$
|
18,297
|
|
|
$
|
3,121
|
|
|
17.1
|
%
|
|
|
(1)
|
Property net operating income (“NOI”) is defined as rental revenues, which includes expense reimbursements, less rental expenses and real estate taxes, and excludes institutional capital management fees, depreciation, amortization, casualty and involuntary conversion gain (loss), impairment, general and administrative expenses, equity in earnings (loss) of unconsolidated joint ventures, interest expense, interest and other income and income tax expense and other taxes. We consider property NOI to be an appropriate supplemental performance measure because property 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 amortization, depreciation, impairment, interest expense, interest and other income, income tax expense and other taxes and general and administrative expenses. However, property NOI should not be viewed as an alternative measure of our financial performance since it excludes expenses which could materially impact our results of operations. Further, our property NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating property NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. For a reconciliation of our NOI to our reported “Net income attributable to common stockholders” see “Notes to Consolidated Financial Statements, Note 11 – Segment Information.”
|
Rental Revenues
Rental revenues, which are comprised of base rent, straight-line rent, amortization of above and below market rent intangibles, tenant recovery income, other rental income and early lease termination fees,
increased
by
$7.5 million
for the three months ended
June 30, 2016
compared to the same period in
2015
, primarily due to the following:
|
|
•
|
$5.3 million
increase
in total revenue in our non-same store portfolio, of which $10.1 million is attributed to six operating property acquisitions and 23 development and redevelopment properties placed into operation since April 1, 2015, offset in part by a $4.8 million decrease attributed to 35 consolidated property dispositions since April 1, 2015.
|
|
|
•
|
$2.2 million
increase
in total revenue in our same store portfolio primarily due to the following:
|
|
|
•
|
$1.8 million increase in base rent and $0.8 million increase in operating expense recoveries primarily resulting from increased rental rates; which was partially offset by
|
|
|
•
|
$0.4 million decrease in miscellaneous income from tenants primarily due to higher move-out repairs in 2015 compared to the same period in 2016.
|
The following table presents the various components of our consolidated rental revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
$ Change
|
Base rent
|
|
$
|
65,685
|
|
|
$
|
63,612
|
|
|
$
|
2,073
|
|
Straight-line rent
|
|
5,694
|
|
|
1,799
|
|
|
3,895
|
|
Amortization of above and below market rent intangibles
|
|
769
|
|
|
760
|
|
|
9
|
|
Tenant recovery income
|
|
22,269
|
|
|
20,465
|
|
|
1,804
|
|
Other
|
|
608
|
|
|
952
|
|
|
(344
|
)
|
Revenues related to early lease terminations
|
|
572
|
|
|
527
|
|
|
45
|
|
Total rental revenues
|
|
$
|
95,597
|
|
|
$
|
88,115
|
|
|
$
|
7,482
|
|
Rental Expenses and Real Estate Taxes
Rental expenses and real estate taxes
increased
by
$2.1 million
for the three months ended
June 30, 2016
compared to the same period in
2015
, primarily due to the following:
|
|
•
|
$1.3 million
increase
in rental expenses and real estate taxes period over period in our same store portfolio primarily due to an increase in property taxes in our Houston market and other rental expenses; and
|
|
|
•
|
$0.8 million
increase
in rental expenses and real estate taxes related to our non-same store properties primarily due to an increase in property taxes from developments and redevelopments placed into operation since April 1, 2015, and other rental expenses.
|
Other Revenue and Other Income
Total other revenue and other income
decreased
$4.9 million
for the three months ended
June 30, 2016
as compared to the same period in
2015
, primarily due to the following:
|
|
•
|
$2.6 million
decrease
in development profit, net of taxes related to the completion and sales of 8th & Vineyard C, 8th & Vineyard D and 8th & Vineyard E to third-parties during 2015 with no corresponding activity during 2016;
|
|
|
•
|
$2.0 million
decrease
in gain on dispositions of real estate interests primarily related to gains of
$13.0 million
recognized on the disposition of
seven
properties in the Chicago and Northern California markets during 2016, compared to gains of
$14.9 million
recognized on the disposition of seven properties in the Atlanta market during 2015;
|
|
|
•
|
$0.2 million
increase in casualty losses primarily related to the write-off of assets from three casualty events in our Northern California and Phoenix markets; and
|
|
|
•
|
$0.1 million
decrease
in equity in earnings of unconsolidated joint ventures, net primarily related to decreased interest expense resulting from TRT-DCT Venture III’s repayment of an $8.1 million mortgage note in October 2015.
|
Other Expenses
Other expenses
increased
$0.9 million
for the three months ended
June 30, 2016
as compared to the same period in
2015
, primarily due to the following:
|
|
•
|
$2.0 million
increase
in interest expense due to the following:
|
|
|
•
|
$1.5 million decrease in capitalized interest primarily related to the cessation of capitalization on developments placed into operation and a lower weighted average effective interest rate during 2016 compared to the same period in 2015;
|
|
|
•
|
$0.4 million of hedge ineffectiveness recognized during 2016 related to our $200.0 million 2015 term note hedge; and
|
|
|
•
|
$0.1 million increase due to increased average outstanding indebtedness of approximately $98.7 million during 2016 compared to the same period in 2015, partially offset by lower weighted average effective interest rate during 2016 compared to the same period in 2015.
|
|
|
•
|
$1.5 million
increase
in depreciation and amortization expense resulting from a $4.7 million increase related to real estate acquisitions, developments and redevelopments placed in operation and capital additions; partially offset by $1.8 million related to real estate dispositions and $1.4 million related to same store tenant improvements and intangible lease assets that were fully amortized subsequent to June 30, 2015; which was partially offset by
|
|
|
•
|
$2.5 million
decrease
in general and administrative expense due to the following:
|
|
|
•
|
$3.4 million decrease resulting from an expense in 2015 related to criminal fraud and the associated legal expenses incurred in relation to the investigation of the incident; partially offset by
|
|
|
•
|
$0.7 million increase in personnel costs; and
|
|
|
•
|
$0.1 million increase due to lower capitalized overhead during 2016 as a result of fewer development activities compared to the same period in 2015.
|
Comparison of the
six months ended June 30, 2016
compared to the same period ended
June 30, 2015
The following table presents the changes in rental revenues, rental expenses and real estate taxes, property net operating income, other revenue and other income, and other expenses for the
six months ended June 30, 2016
compared to the
six months ended June 30, 2015
. Our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods. Developed properties are generally included in same store properties once they are initially stabilized. We generally consider buildings stabilized when occupancy reaches 90%. Non-same store operating properties include properties not meeting the same store criteria and exclude development and redevelopment properties. For the
six months ended June 30, 2016
we had 349 properties classified as same store comprising
53.5 million
square feet and 49 classified as non-same store consisting of properties that did not meet our same store definition, which includes 43 operating properties and six development and redevelopment properties. A discussion of these changes follows in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
$ Change
|
|
Percent Change
|
Rental Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
$
|
159,196
|
|
|
$
|
154,907
|
|
|
$
|
4,289
|
|
|
2.8
|
%
|
Non-same store operating properties
|
|
29,559
|
|
|
20,362
|
|
|
9,197
|
|
|
45.2
|
%
|
Development and redevelopment
|
|
819
|
|
|
908
|
|
|
(89
|
)
|
|
(9.8
|
)%
|
Total rental revenues
|
|
189,574
|
|
|
176,177
|
|
|
13,397
|
|
|
7.6
|
%
|
Rental Expenses and Real Estate Taxes
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
41,330
|
|
|
40,575
|
|
|
755
|
|
|
1.9
|
%
|
Non-same store operating properties
|
|
7,089
|
|
|
5,892
|
|
|
1,197
|
|
|
20.3
|
%
|
Development and redevelopment
|
|
271
|
|
|
115
|
|
|
156
|
|
|
135.7
|
%
|
Total rental expenses and real estate taxes
|
|
48,690
|
|
|
46,582
|
|
|
2,108
|
|
|
4.5
|
%
|
Property Net Operating Income
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store
|
|
117,866
|
|
|
114,332
|
|
|
3,534
|
|
|
3.1
|
%
|
Non-same store operating properties
|
|
22,470
|
|
|
14,470
|
|
|
8,000
|
|
|
55.3
|
%
|
Development and redevelopment
|
|
548
|
|
|
793
|
|
|
(245
|
)
|
|
(30.9
|
)%
|
Total property net operating income
|
|
140,884
|
|
|
129,595
|
|
|
11,289
|
|
|
8.7
|
%
|
Other Revenue and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional capital management and other fees
|
|
698
|
|
|
801
|
|
|
(103
|
)
|
|
(12.9
|
)%
|
Casualty loss
|
|
(162
|
)
|
|
—
|
|
|
(162
|
)
|
|
100.0
|
%
|
Development profit, net of taxes
|
|
—
|
|
|
2,627
|
|
|
(2,627
|
)
|
|
(100.0
|
)%
|
Equity in earnings of unconsolidated joint ventures, net
|
|
1,819
|
|
|
1,843
|
|
|
(24
|
)
|
|
(1.3
|
)%
|
Gain on dispositions of real estate interests
|
|
43,052
|
|
|
41,086
|
|
|
1,966
|
|
|
4.8
|
%
|
Interest and other income (expense)
|
|
563
|
|
|
(29
|
)
|
|
592
|
|
|
2,041.4
|
%
|
Total other revenue and other income
|
|
45,970
|
|
|
46,328
|
|
|
(358
|
)
|
|
(0.8
|
)%
|
Other Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate related depreciation and amortization
|
|
79,971
|
|
|
77,445
|
|
|
2,526
|
|
|
3.3
|
%
|
Interest expense
|
|
32,057
|
|
|
27,513
|
|
|
4,544
|
|
|
16.5
|
%
|
General and administrative
|
|
13,620
|
|
|
17,192
|
|
|
(3,572
|
)
|
|
(20.8
|
)%
|
Income tax expense and other taxes
|
|
288
|
|
|
471
|
|
|
(183
|
)
|
|
(38.9
|
)%
|
Total other expenses
|
|
125,936
|
|
|
122,621
|
|
|
3,315
|
|
|
2.7
|
%
|
Net income attributable to noncontrolling interests
of the Operating Partnership
|
|
(423
|
)
|
|
(3,977
|
)
|
|
3,554
|
|
|
89.4
|
%
|
Net income attributable to OP Unitholders
|
|
60,495
|
|
|
49,325
|
|
|
11,170
|
|
|
22.6
|
%
|
Net income attributable to noncontrolling interests
of DCT Industrial Trust Inc.
|
|
(2,686
|
)
|
|
(2,283
|
)
|
|
(403
|
)
|
|
(17.7
|
)%
|
Net income attributable to common stockholders
|
|
$
|
57,809
|
|
|
$
|
47,042
|
|
|
$
|
10,767
|
|
|
22.9
|
%
|
|
|
(1)
|
See definitions of property net operating income on page 33.
|
Rental Revenues
Rental revenues, which are comprised of base rent, straight-line rent, amortization of above and below market rent intangibles, tenant recovery income, other rental income and early lease termination fees,
increased
by
$13.4 million
for the
six months ended June 30, 2016
compared to the same period in
2015
, primarily due to the following:
|
|
•
|
$9.1 million
increase
in total revenue in our non-same store portfolio, of which $20.1 million is attributed to 14 operating property acquisitions, 29 development and redevelopment properties placed into operation and one operating property placed into redevelopment since January 1, 2015, offset in part by an $11.0 million decrease attributed to 41 consolidated property dispositions since January 1, 2015.
|
|
|
•
|
$4.3 million
increase
in total revenue in our same store portfolio primarily due to the following:
|
|
|
•
|
$3.0 million increase in base rent primarily resulting from increased rental rates and a 40 basis point increase in average occupancy period over period;
|
|
|
•
|
$0.7 million increase in miscellaneous income from tenants primarily due to move-out repairs; and
|
|
|
•
|
$0.6 million increase in operating expense recoveries related to higher average occupancy.
|
The following table presents the various components of our consolidated rental revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
$ Change
|
Base rent
|
|
$
|
129,586
|
|
|
$
|
126,439
|
|
|
$
|
3,147
|
|
Straight-line rent
|
|
11,158
|
|
|
3,386
|
|
|
7,772
|
|
Amortization of above and below market rent intangibles
|
|
1,480
|
|
|
1,542
|
|
|
(62
|
)
|
Tenant recovery income
|
|
44,486
|
|
|
42,211
|
|
|
2,275
|
|
Other
|
|
2,212
|
|
|
1,387
|
|
|
825
|
|
Revenues related to early lease terminations
|
|
652
|
|
|
1,212
|
|
|
(560
|
)
|
Total rental revenues
|
|
$
|
189,574
|
|
|
$
|
176,177
|
|
|
$
|
13,397
|
|
Rental Expenses and Real Estate Taxes
Rental expenses and real estate taxes
increased
$2.1 million
for the
six months ended June 30, 2016
compared to the same period in
2015
, primarily due to the following:
|
|
•
|
$0.8 million
increase
in rental expenses and real estate taxes period over period in our same store portfolio primarily due to an increase in property taxes in our Chicago and Houston markets; and
|
|
|
•
|
$1.4 million
increase
in rental expenses and real estate taxes related to our non-same store properties primarily due to a $1.6 million increase in property taxes in our Atlanta, Houston, Seattle and Southern California markets, offset in part by a $0.2 million decrease in snow removal costs and a decrease in the number of non-same store properties as a result of properties qualifying and transitioning to the same store portfolio.
|
Other Revenue and Other Income
Total other revenue and other income
decreased
$0.4 million
for the
six months ended June 30, 2016
as compared to the same period in
2015
, primarily due to the following:
|
|
•
|
$2.6 million
decrease
in development profit, net of taxes related to the completion and sales of 8th & Vineyard C, 8th & Vineyard D and 8th & Vineyard E to third-parties during 2015 with no corresponding activity during 2016; and
|
|
|
•
|
$0.2 million
increase in casualty losses primarily related to the write-off of assets from three casualty events in our Northern California and Phoenix markets during 2016 with no corresponding activity during 2015; which was partially offset by
|
|
|
•
|
$2.0 million
increase
in gain on dispositions of real estate interests primarily related to gains of
$43.1 million
recognized on the disposition of
11
properties in the
Chicago, Houston, Louisville and Northern California markets
during 2016, compared to gains of
$41.1 million
recognized on the disposition of 13 properties in the Atlanta and Memphis markets during 2015; and
|
|
|
•
|
$0.6 million
increase
in interest and other income (expense) primarily related to proceeds received in 2016 from a roof settlement related to damages at several properties located in the Houston market during 2016.
|
Other Expenses
Other expenses
increased
$3.3 million
for the
six months ended June 30, 2016
as compared to the same period in
2015
, primarily due to the following:
|
|
•
|
$4.5 million
increase
in interest expense due to the following:
|
|
|
•
|
$2.2 million decrease in capitalized interest primarily related to the cessation of capitalization on developments placed into operation and a lower weighted average effective interest rate during 2016 compared to the same period in 2015;
|
|
|
•
|
$1.4 million of hedge ineffectiveness recognized during 2016 related to our $200.0 million 2015 term note hedge; and
|
|
|
•
|
$0.9 million increase due to increased average outstanding indebtedness of approximately $123.9 million during 2016, partially offset by lower weighted average effective interest rate during 2016 compared to the same period in 2015.
|
|
|
•
|
$2.5 million
increase
in depreciation and amortization expense resulting from a $8.6 million increase related to real estate acquisitions, developments placed in operation and capital additions; partially offset by $4.4 million related to real estate dispositions and $1.7 million related to same store tenant improvements and intangible assets that were fully amortized subsequent to June 30, 2015; which was partially offset by
|
|
|
•
|
$3.6 million
decrease
in general and administrative expenses primarily related to the following:
|
|
|
•
|
$3.4 million decrease resulting from an expense in 2015 related to criminal fraud and the associated legal expenses incurred in relation to the investigation of the incident; and
|
|
|
•
|
$1.2 million decrease in acquisition costs due to lower acquisition activity; which was partially offset by
|
|
|
•
|
$0.8 million increase personnel costs; and
|
|
|
•
|
$0.2 million decrease in capitalized overhead due to fewer development activities in the first half of 2016 relative to the same period in 2015.
|
Segment Summary for the
three and six months ended June 30, 2016
compared to the same periods ended
June 30, 2015
The Company’s segments are based on our internal reporting of operating results used to assess performance based on our properties’ geographical markets. Our markets are aggregated into three reportable regions or segments, East, Central and West, which are based on the geographical locations of our properties. These regions are comprised of the markets by which management and their operating teams conduct and monitor business (see further detail on our Segments in “Notes to the Consolidated Financial Statements, Note 11 – Segment Information”). Management considers rental revenues and property net operating income aggregated by segment to be the appropriate way to analyze performance.
The following table presents the changes in our consolidated properties by segment (dollar amounts and square feet in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
Number of
buildings
|
|
Square feet
|
|
Occupancy at
period end
|
|
Segment
assets
(1)
|
|
Rental
revenues
(2)
|
|
Property net
operating
income
(3)
|
|
Rental
revenues
(2)
|
|
Property net
operating
income
(3)
|
EAST:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
115
|
|
|
21,378
|
|
|
95.9
|
%
|
|
$
|
1,067,569
|
|
|
$
|
29,171
|
|
|
$
|
22,773
|
|
|
$
|
58,798
|
|
|
$
|
44,846
|
|
2015
|
|
115
|
|
|
19,301
|
|
|
93.7
|
%
|
|
$
|
986,185
|
|
|
$
|
25,845
|
|
|
$
|
19,900
|
|
|
$
|
53,297
|
|
|
$
|
39,570
|
|
CHANGE:
|
|
—
|
|
|
2,077
|
|
|
2.2
|
%
|
|
$
|
81,384
|
|
|
$
|
3,326
|
|
|
$
|
2,873
|
|
|
$
|
5,501
|
|
|
$
|
5,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CENTRAL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
145
|
|
|
22,682
|
|
|
91.7
|
%
|
|
$
|
1,061,076
|
|
|
$
|
32,266
|
|
|
$
|
22,528
|
|
|
$
|
63,060
|
|
|
$
|
43,741
|
|
2015
|
|
164
|
|
|
26,269
|
|
|
90.0
|
%
|
|
$
|
1,097,080
|
|
|
$
|
33,233
|
|
|
$
|
24,045
|
|
|
$
|
65,916
|
|
|
$
|
46,321
|
|
CHANGE:
|
|
(19
|
)
|
|
(3,587
|
)
|
|
1.7
|
%
|
|
$
|
(36,004
|
)
|
|
$
|
(967
|
)
|
|
$
|
(1,517
|
)
|
|
$
|
(2,856
|
)
|
|
$
|
(2,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEST:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
138
|
|
|
20,404
|
|
|
96.4
|
%
|
|
$
|
1,389,240
|
|
|
$
|
34,160
|
|
|
$
|
26,256
|
|
|
$
|
67,716
|
|
|
$
|
52,297
|
|
2015
|
|
134
|
|
|
18,936
|
|
|
86.8
|
%
|
|
$
|
1,320,675
|
|
|
$
|
29,037
|
|
|
$
|
22,241
|
|
|
$
|
56,964
|
|
|
$
|
43,704
|
|
CHANGE:
|
|
4
|
|
|
1,468
|
|
|
9.6
|
%
|
|
$
|
68,565
|
|
|
$
|
5,123
|
|
|
$
|
4,015
|
|
|
$
|
10,752
|
|
|
$
|
8,593
|
|
|
|
(1)
|
Segment assets include all assets comprising operating properties included in a segment, less non-segment cash and cash equivalents, and other non-segment assets.
|
|
|
(2)
|
Segment rental revenues include revenue from operating properties and development properties.
|
|
|
(3)
|
For the definition of property net operating income, or property NOI, and a reconciliation of our property NOI to our reported “Net income attributable to common stockholders” see “Notes to Consolidated Financial Statements, Note 11 – Segment Information.”
|
The following table presents our total assets, net of accumulated depreciation and amortization, by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
$ Change
|
Segments:
|
|
|
|
|
|
|
|
|
|
East assets
|
|
$
|
1,067,569
|
|
|
$
|
1,034,869
|
|
|
$
|
32,700
|
|
Central assets
|
|
1,061,076
|
|
|
1,092,315
|
|
|
(31,239
|
)
|
West assets
|
|
1,389,240
|
|
|
1,365,471
|
|
|
23,769
|
|
Total segment net assets
|
|
3,517,885
|
|
|
3,492,655
|
|
|
25,230
|
|
Non-segment assets:
|
|
|
|
|
|
|
|
|
Non-segment cash and cash equivalents
|
|
31,466
|
|
|
15,860
|
|
|
15,606
|
|
Other non-segment assets
(1)
|
|
148,755
|
|
|
123,840
|
|
|
24,915
|
|
Total assets
|
|
$
|
3,698,106
|
|
|
$
|
3,632,355
|
|
|
$
|
65,751
|
|
|
|
(1)
|
Other non-segment assets primarily consists of investments in and advances to unconsolidated joint ventures, restricted cash, other receivables and other assets.
|
East Segment
|
|
•
|
East Segment assets
increased
by approximately
$32.7 million
in
2016
due to three development properties placed into operation since December 31, 2015.
|
|
|
•
|
East Segment property NOI
increased
approximately
$2.9 million
for the
three months ended June 30, 2016
as compared to the same period in
2015
, primarily as a result of:
|
|
|
•
|
$3.3 million
increase in NOI, of which $3.9 million increase in rental revenue is attributed to the timing of property acquisitions and completion of developments, and $0.5 million increase attributed to higher rental rates and operating expense recoveries due to increased occupancy in our same store portfolio, offset in part by $1.1 million decrease in rental revenues due to property dispositions; which was partially offset by
|
|
|
•
|
$0.4 million decrease in NOI due to increases in operating expense primarily related to increased property tax expense driven by the cessation of capitalization on developments placed into operation and property acquisitions.
|
|
|
•
|
East Segment property NOI
increased
approximately
$5.3 million
for the
six months ended June 30, 2016
as compared to the same period in
2015
, primarily as a result of:
|
|
|
•
|
$5.5 million
increase in NOI, of which $6.8 million increase in rental revenue is attributed to the timing of property acquisitions and completion of developments, and $3.0 million increase attributed to higher rental rates and operating expense recoveries due to increased occupancy in our same store portfolio, which was partially offset by $4.3 million decrease in rental revenues due to property dispositions; which was partially offset by
|
|
|
•
|
$0.2 million decrease in NOI due to increases in operating expense primarily related to increased property taxes and other rental expenses driven by developments placed into operation and property acquisitions.
|
Central Segment
|
|
•
|
Central Segment assets
decreased
by approximately
$31.2 million
in
2016
due to the disposition of 10 properties; partially offset by four development and redevelopment properties placed into operation since December 31, 2015.
|
|
|
•
|
Central Segment property NOI
decreased
approximately
$1.5 million
, for the
three months ended June 30, 2016
as compared to the same period in
2015
primarily as a result of:
|
|
|
•
|
$1.0 million
decrease in NOI, of which $3.7 million decrease in rental revenue is attributed to property dispositions, partially offset by a $2.5 million increase attributed to the timing of property acquisitions and completion of developments, and a $0.2 million increase attributed increased revenue from early lease termination fees, tenant reimbursements and operating expense recoveries in our same store portfolio; and
|
|
|
•
|
$0.5 million decrease in NOI due to increases in operating expense primarily related to increased property taxes driven by developments and redevelopments placed into operation and property acquisitions, and non-recoverable expenses during 2016.
|
|
|
•
|
Central Segment property NOI
decreased
approximately
$2.6 million
, for the
six months ended June 30, 2016
as compared to the same period in
2015
primarily as a result of:
|
|
|
•
|
$2.9 million
decrease in NOI, of which $6.7 million decrease in rental revenue is attributed to property dispositions and $1.6 million attributed to a 406 basis point decrease in average occupancy period over period primarily due to three early lease terminations at properties in our same store portfolio, partially offset by a $5.4 million increase attributed to the timing of property acquisitions and completion of developments; which was partially offset by
|
|
|
•
|
$0.3 million increase in NOI due to decreases in operating expense primarily related to snow removal costs incurred from severe winter storms during 2015 and an increase in real estate tax refunds received during 2016; partially offset by increased property taxes and bad debt expense.
|
West Segment
|
|
•
|
West Segment assets
increased
by approximately
$23.8 million
in
2016
due to three development properties placed into operation and one development property that was in lease-up; partially offset by the disposition of one property since December 31, 2015.
|
|
|
•
|
West Segment property NOI
increased
approximately
$4.0 million
for the
three months ended June 30, 2016
as compared to the same period in
2015
, primarily as a result of:
|
|
|
•
|
$5.1 million
increase in NOI, of which $3.7 million increase in rental revenue is attributed to the timing of property acquisitions and completion of developments, and $1.4 million is attributed to increased rental rates and occupancy in our same store portfolio; which was partially offset by
|
|
|
•
|
$1.1 million decrease in NOI due to increases in operating expense primarily due to increased property tax expense driven by the cessation of capitalization on developments placed into operation and property acquisitions.
|
|
|
•
|
West Segment property NOI
increased
approximately
$8.6 million
for the
six months ended June 30, 2016
as compared to the same period in
2015
, primarily as a result of:
|
|
|
•
|
$10.8 million
increase in rental revenues, of which $7.9 million is attributed to the timing of property acquisitions and completion of developments, and $2.9 million is attributed to increased rental rates and occupancy at properties in our same store portfolio; which was partially offset by
|
|
|
•
|
$2.2 million decrease in NOI due to increases in operating expense primarily due to increased property tax driven by the cessation of capitalization on developments placed into operation and property acquisitions.
|
Liquidity and Capital Resources
Overview
We currently expect that our principal sources of working capital and funding for potential capital requirements for expansions and renovation of properties, developments, acquisitions, and debt service and distributions to shareholders will include:
|
|
•
|
Cash flows from operations;
|
|
|
•
|
Proceeds from dispositions;
|
|
|
•
|
Borrowings under our senior unsecured revolving credit facility;
|
|
|
•
|
Other forms of secured or unsecured financings;
|
|
|
•
|
Offerings of common stock or other securities;
|
|
|
•
|
Current cash balances; and
|
|
|
•
|
Distributions from institutional capital management and other joint ventures.
|
Our sources of capital will be used to meet our liquidity requirements and capital commitments, including operating activities, debt service obligations, equity holder distributions, capital expenditures at our properties, development funding requirements and future acquisitions. We expect to utilize the same sources of capital to meet our short-term and long-term liquidity requirements.
Cash Flows
“Cash and cash equivalents” were
$33.4 million
and
$18.4 million
as of
June 30, 2016
and
December 31, 2015
, respectively.
Net cash provided by operating activities
decreased
$3.0 million
to
$97.1 million
during the
six months ended June 30, 2016
compared to
$100.1 million
during the same period in
2015
. This change was primarily due to an increase in property net operating income attributable to acquired properties, development and redevelopment properties placed into operation and operating performance at existing properties.
Net cash used in investing activities
decreased
$24.1 million
to
$84.1 million
during the
six months ended June 30, 2016
compared to
$108.2 million
during the same period in
2015
primarily due to the following activities:
|
|
•
|
$134.8 million decrease in cash outflows from acquisitions; partially offset by
|
|
|
•
|
$54.5 million
increase in cash outflows related to capital expenditures and development activities, as reflected in the table below;
|
|
|
•
|
$30.0 million decrease in cash inflows from dispositions;
|
|
|
•
|
$17.3 million decrease in cash inflows related to an increase in restricted cash due to timing of 1031 proceeds received from dispositions; and
|
|
|
•
|
$7.1 million increase in cash outflows related to investments in unconsolidated joint ventures due to increased contributions to our SCLA unconsolidated joint venture to fund the development of Building 13B during 2016.
|
We pursue the acquisition of buildings and land and consider selective development of new buildings in markets where we perceive that demand and market rental rates will provide attractive financial returns. The amount of cash used related to acquisitions and development and redevelopment investments will vary from period to period based on a number of factors, including, among others, current and anticipated future market conditions impacting the desirability of investments, leasing results with respect to our existing development and redevelopment projects and our ability to locate attractive opportunities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Summary of Significant Transactions and Activities During 2016 –Development Activities” for further details regarding projected investment of our current development activities as well as cumulative costs incurred as of
June 30, 2016
. Our total capital expenditures were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
$ Change
|
Development
|
|
$
|
109,086
|
|
|
$
|
58,944
|
|
|
$
|
50,142
|
|
Redevelopment
|
|
8,781
|
|
|
5,569
|
|
|
3,212
|
|
Due diligence
|
|
2,056
|
|
|
6,931
|
|
|
(4,875
|
)
|
Casualty expenditures
|
|
964
|
|
|
202
|
|
|
762
|
|
Building and land improvements
|
|
5,008
|
|
|
5,339
|
|
|
(331
|
)
|
Tenant improvements and leasing costs
|
|
22,307
|
|
|
18,285
|
|
|
4,022
|
|
Total capital expenditures and development activities
|
|
148,202
|
|
|
95,270
|
|
|
52,932
|
|
Change in accruals and other adjustments
|
|
3,909
|
|
|
2,369
|
|
|
1,540
|
|
Total cash paid for capital expenditures and development activities
|
|
$
|
152,111
|
|
|
$
|
97,639
|
|
|
$
|
54,472
|
|
We capitalize costs directly related to the development, pre-development, redevelopment or improvement of our investments in real estate. Building and land improvements comprise capital expenditures related to maintaining our consolidated operating activities. Due diligence capital improvements relate to acquired operating properties and are generally incurred within 12 months of the acquisition date.
We capitalize indirect costs such as personnel, office and administrative expenses that are directly related to our development projects, redevelopment projects and successful origination of new leases based on an estimate of the time spent on the development and leasing activities. The total of these capitalized costs was comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
$ Change
|
Development activities
|
|
$
|
2,371
|
|
|
$
|
2,022
|
|
|
$
|
349
|
|
Leasing activities
|
|
1,725
|
|
|
1,766
|
|
|
(41
|
)
|
Operating building activities
|
|
1,519
|
|
|
1,532
|
|
|
(13
|
)
|
Total capitalized indirect costs
|
|
$
|
5,615
|
|
|
$
|
5,320
|
|
|
$
|
295
|
|
In addition, we capitalize interest costs incurred associated with development and construction activities. During the
six months ended June 30, 2016
and
2015
total interest capitalized was
$5.6 million
and
$7.8 million
, respectively.
Net cash provided by financing activities
decreased
$9.3 million to
$2.0 million
during the
six months ended June 30, 2016
compared to
$11.3 million
during the same period in
2015
primarily due to the following:
|
|
•
|
$49.0 million decrease in proceeds from our senior unsecured revolving credit facility, as net borrowings of $112.0 million during 2015 exceeded our $63.0 million of net borrowings during 2016; and
|
|
|
•
|
$10.0 million decrease due to the repayment of our $50.0 million senior unsecured fixed rate note in April 2016 compared to the repayment of our $40.0 million senior unsecured note in June 2015; which was partially offset by
|
|
|
•
|
$48.5 million net increase in cash inflows due to 1.2 million shares issued in 2016 under our continuous equity offering program.
|
Common Stock
As of
June 30, 2016
, approximately
89.9 million
shares of common stock were issued and outstanding.
On September 10, 2015, we registered a continuous equity offering program, to replace our continuous equity offering program previously registered on May 29, 2013. Pursuant to this offering, we may sell up to five million shares of common stock from time-to-time through September 10, 2018 in “at-the-market” offerings or certain other transactions. During the
six months ended June 30, 2016
, we issued approximately
1.2 million
shares through the continuous equity offering program, at an average price of
$39.93
per share for proceeds of approximately
$48.5 million
, net of offering expenses. We used the proceeds for general corporate purposes, including funding developments and redevelopments and repaying debt. As of
June 30, 2016
, approximately
3.8 million
shares remain available to be issued under the current offering.
OP Units
Limited partners have the right to require the Company to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the Amended and Restated Limited Partnership Agreement of the Operating Partnership (“Partnership Agreement”)), provided that such OP Units have been outstanding for at least one year. DCT may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Shares Amount (generally one share of DCT’s common stock for each OP Unit), as defined in the Partnership Agreement.
During the
six months ended June 30, 2016
and 2015, approximately
0.3 million
and
0.1 million
OP Units were redeemed for approximately
$0.6 million
and
$0.9 million
in cash and approximately
0.3 million
and
0.1 million
shares of DCT common stock, respectively. The OP Unit redemptions exclude LTIP Unit redemptions, see "LTIP Units" in "Notes to the Consolidated Financial Statements, Note 8 – Stockholders’ Equity of DCT and Partners’ Capital of the Operating Partnership" for a summary of LTIP Unit redemptions.
As of
June 30, 2016
and
December 31, 2015
, approximately
4.0 million
OP Units were issued, outstanding and held by entities other than DCT in each corresponding period, including approximately
0.7 million
and
0.6 million
vested LTIP Units issued under our Long-Term Incentive Plan, respectively.
As of
June 30, 2016
and
December 31, 2015
, the aggregate redemption value of the then-outstanding OP Units held by entities other than DCT was approximately
$190.1 million
and
$150.9 million
based on the
$48.04
and
$37.37
per share closing price of DCT’s common stock on
June 30, 2016
and
December 31, 2015
, respectively.
Distributions
During the
three and six months ended June 30, 2016
, our board of directors declared distributions to stockholders and unitholders totaling approximately $27.4 million and $54.6 million, respectively. During the same periods in 2015, our board of directors declared distributions to stockholders and unitholders totaling approximately $26.1 million and $52.2 million, respectively. Existing cash balances, cash provided from operations, borrowings under our senior unsecured revolving credit facility and dispositions were used to pay distributions during
2016
and
2015
.
The payment of quarterly distributions is determined by our board of directors and may be adjusted at its discretion at any time. During August 2016, our board of directors declared a quarterly cash dividend of
$0.29
per share and unit, payable on October 19, 2016 to stockholders and OP Unitholders of record as of October 7, 2016.
Outstanding Indebtedness
As of
June 30, 2016
, our outstanding indebtedness of approximately
$1.6 billion
consisted of mortgage notes, senior unsecured notes and bank unsecured credit facilities, excluding approximately
$35.4 million
representing our proportionate share of non-recourse debt associated with unconsolidated joint ventures. As of
December 31, 2015
, our outstanding indebtedness of approximately
$1.6 billion
consisted of mortgage notes, senior unsecured notes and bank unsecured credit facilities, excluding approximately
$35.7 million
representing our proportionate share of non-recourse debt associated with unconsolidated joint ventures.
As of
June 30, 2016
, the gross book value of our consolidated properties was approximately
$4.2 billion
and the gross book value of all properties securing our mortgage debt was approximately
$0.6 billion
. As of
December 31, 2015
, the gross book value of our consolidated properties was approximately
$4.1 billion
and the gross book value of all properties securing our mortgage debt was approximately
$0.6 billion
. Our debt has various covenants with which we were in compliance as of
June 30, 2016
and
December 31, 2015
.
Our debt instruments require monthly, quarterly or semiannual payments of interest and mortgages generally require monthly or quarterly repayments of principal. Currently, cash flows from our operations are sufficient to satisfy these debt service requirements and we anticipate that cash flows from operations will continue to be sufficient to satisfy our debt service excluding principal maturities, which we plan to fund from refinancing and/or new debt.
Line of Credit
As of
June 30, 2016
, we had
$133.0 million
outstanding and
$263.5 million
available under our
$400.0 million
senior unsecured revolving credit facility, net of
one
letter of credit totaling
$3.5 million
. As of
December 31, 2015
, we had
$70.0 million
outstanding and
$326.5 million
available under our
$400.0 million
senior unsecured revolving credit facility, net of
one
letter of credit totaling
$3.5 million
.
The senior unsecured revolving credit facility agreement contains various covenants with which we were in compliance as of
June 30, 2016
and
December 31, 2015
.
Debt Maturities
The following table presents the scheduled maturities of our debt and regularly scheduled principal amortization, excluding unamortized premiums, discounts and deferred loan costs, as of
June 30, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Senior Unsecured Notes
|
|
Mortgage Notes
|
|
Bank Unsecured
Credit Facilities
|
|
|
Total
|
2016
|
|
$
|
49,000
|
|
|
$
|
3,413
|
|
|
$
|
—
|
|
|
|
$
|
52,413
|
|
2017
|
|
51,000
|
|
|
41,078
|
|
|
100,000
|
|
(1)
|
|
192,078
|
|
2018
|
|
81,500
|
|
|
6,747
|
|
|
—
|
|
|
|
88,247
|
|
2019
|
|
46,000
|
|
|
51,344
|
|
|
133,000
|
|
|
|
230,344
|
|
2020
|
|
50,000
|
|
|
71,933
|
|
|
125,000
|
|
(1)
|
|
246,933
|
|
Thereafter
|
|
532,500
|
|
|
29,107
|
|
|
200,000
|
|
(1)
|
|
761,607
|
|
Total
|
|
$
|
810,000
|
|
|
$
|
203,622
|
|
|
$
|
558,000
|
|
|
|
$
|
1,571,622
|
|
|
|
(1)
|
The term loan facilities are presented in “Senior unsecured notes” in our Consolidated Balance Sheets.
|
Financing Strategy
We do not have a formal policy limiting the amount of debt we incur, although we currently intend to operate so that our financial metrics are generally consistent with investment grade peers in the real estate industry. We continually evaluate our secured and unsecured leverage and among other relevant metrics, our fixed charge coverage ratio. Our charter and our bylaws do not limit the indebtedness that we may incur. We are, however, subject to certain covenants which may limit our outstanding indebtedness.
Contractual Obligations
The following table presents our contractual obligations as of
June 30, 2016
, specifically our obligations under long-term debt agreements, operating lease agreements and ground lease agreements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
Contractual Obligations
(1)
|
|
Total
|
|
Less than 1 year
|
|
1-3 Years
|
|
3-5 Years
|
|
Thereafter
|
Scheduled long-term debt maturities, including interest
(2)
|
|
$
|
1,866,302
|
|
|
$
|
298,587
|
|
|
$
|
384,051
|
|
|
$
|
451,098
|
|
|
$
|
732,566
|
|
Operating lease commitments
|
|
2,513
|
|
|
845
|
|
|
988
|
|
|
659
|
|
|
21
|
|
Ground lease commitments
(3)
|
|
11,611
|
|
|
552
|
|
|
1,102
|
|
|
1,102
|
|
|
8,855
|
|
Total
|
|
$
|
1,880,426
|
|
|
$
|
299,984
|
|
|
$
|
386,141
|
|
|
$
|
452,859
|
|
|
$
|
741,442
|
|
|
|
(1)
|
From time-to-time in the normal course of our business, we enter into various contracts with third parties that may obligate us to make payments, such as maintenance agreements at our properties. Such contracts, in the aggregate, do not represent material obligations, are typically short-term and cancellable within 90 days and are not included in the table above. Also, excluded from the total are our estimated construction costs to complete development and redevelopment projects of approximately
$120.7 million
.
|
|
|
(2)
|
Variable interest rate payments are estimated based on the LIBOR rate at
June 30, 2016
.
|
|
|
(3)
|
Three of our buildings comprising 0.7 million square feet reside on 38 acres of land which is leased from an airport authority.
|
Off-Balance Sheet Arrangements
As of
June 30, 2016
and
2015
, respectively, we had no off-balance sheet arrangements, other than those disclosed under contractual obligations, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors, other than items discussed herein.
As of
June 30, 2016
, our proportionate share of the total construction loans of our unconsolidated development joint ventures was
$35.4 million
, which is scheduled to mature during 2017. Our proportionate share of the total construction loans, including undrawn amounts, of our unconsolidated development joint ventures includes 50.0% of the construction loans associated with the SCLA joint venture which are non-recourse to the venture partners.
Indebtedness and Other Off-Balance Sheet Arrangements
There are no lines of credit or side agreements related to, or between, our unconsolidated joint ventures and us, and there are no other derivative financial instruments between our unconsolidated joint ventures and us. In addition, we believe we have no material exposure to financial guarantees, except as discussed above.
We may elect to fund additional capital to a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans, although such funding is not required contractually or otherwise. As of
June 30, 2016
, our proportionate share of non-recourse debt associated with unconsolidated joint ventures is
$35.4 million
. The maturities of our proportionate share of the non-recourse debt are summarized in the table below (in thousands):
|
|
|
|
|
|
Year
|
|
DCT’s Proportionate Share
of Secured Non-Recourse Debt
in Unconsolidated Joint Ventures
|
2016
|
|
$
|
—
|
|
2017
|
|
35,441
|
|
2018
|
|
—
|
|
2019
|
|
—
|
|
2020
|
|
—
|
|
Thereafter
|
|
—
|
|
Total
|
|
$
|
35,441
|
|
Funds From Operations
DCT Industrial believes that net income (loss) attributable to common stockholders, as defined by GAAP, is the most appropriate earnings measure. However, DCT Industrial considers funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), to be a useful supplemental, non-GAAP measure of DCT Industrial’s operating performance. NAREIT developed FFO as a relative measure of performance of an equity REIT in order to recognize that the value of income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is generally defined as net income attributable to common stockholders, calculated in accordance with GAAP, plus real estate-related depreciation and amortization, less gains from dispositions of operating real estate held for investment purposes, plus impairment losses on depreciable real estate and impairments of in substance real estate investments in investees that are driven by measurable decreases in the fair value of the depreciable real estate held by the unconsolidated joint ventures and adjustments to derive DCT Industrial’s pro rata share of FFO of unconsolidated joint ventures. We exclude gains and losses on business combinations and include the gains or losses from dispositions of properties which were acquired or developed with the intention to sell or contribute to an investment fund in our definition of FFO. Although the NAREIT definition of FFO predates the guidance for accounting for gains and losses on business combinations, we believe that excluding such gains and losses is consistent with the key objective of FFO as a performance measure. We also present FFO, as adjusted, which excludes hedge ineffectiveness, certain severance costs, acquisition costs, debt modification costs and impairment losses on properties which are not depreciable. We believe that FFO excluding hedge ineffectiveness, certain severance costs, acquisition costs, debt modification costs and impairment losses on non-depreciable real estate is useful supplemental information regarding our operating performance as it provides a more meaningful and consistent comparison of our operating performance and allows investors to more easily compare our operating results. Readers should note that FFO captures neither the changes in the value of DCT Industrial’s properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of DCT Industrial’s properties, all of which have real economic effect and could materially impact DCT Industrial’s results from operations. NAREIT’s definition of FFO is subject to interpretation, and modifications to the NAREIT definition of FFO are common. Accordingly, DCT Industrial’s FFO may not be comparable to other REITs’ FFO and FFO should be considered only as a supplement to net income (loss) as a measure of DCT Industrial’s performance.
The following table presents the calculation of our FFO reconciled from “Net income attributable to common stockholders” (unaudited, amounts in thousands, except per share and unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Reconciliation of net income attributable to common stockholders and unitholders to FFO:
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
21,418
|
|
|
$
|
18,297
|
|
|
$
|
57,809
|
|
|
$
|
47,042
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Real estate related depreciation and amortization
|
|
39,901
|
|
|
38,449
|
|
|
79,971
|
|
|
77,445
|
|
Equity in earnings of unconsolidated joint ventures, net
|
|
(935
|
)
|
|
(1,036
|
)
|
|
(1,819
|
)
|
|
(1,843
|
)
|
Equity in FFO of unconsolidated joint ventures
|
|
2,451
|
|
|
2,575
|
|
|
4,818
|
|
|
4,983
|
|
Gain on dispositions of real estate interests
|
|
(12,955
|
)
|
|
(14,932
|
)
|
|
(43,052
|
)
|
|
(41,086
|
)
|
Gain on dispositions of non-depreciable real estate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
Noncontrolling interest in the above adjustments
|
|
(1,411
|
)
|
|
(1,336
|
)
|
|
(2,097
|
)
|
|
(2,189
|
)
|
FFO attributable to unitholders
|
|
2,182
|
|
|
2,028
|
|
|
4,443
|
|
|
4,095
|
|
FFO attributable to common stockholders and unitholders – basic and diluted
|
|
50,651
|
|
|
44,045
|
|
|
100,073
|
|
|
88,465
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs
|
|
72
|
|
|
170
|
|
|
92
|
|
|
1,484
|
|
Hedge ineffectiveness (non-cash)
|
|
357
|
|
|
—
|
|
|
1,420
|
|
|
—
|
|
FFO, as adjusted, attributable to common stockholders
and unitholders – basic and diluted
|
|
$
|
51,080
|
|
|
$
|
44,215
|
|
|
$
|
101,585
|
|
|
$
|
89,949
|
|
|
|
|
|
|
|
|
|
|
FFO per common share and unit – basic
|
|
$
|
0.54
|
|
|
$
|
0.47
|
|
|
$
|
1.07
|
|
|
$
|
0.95
|
|
FFO per common share and unit – diluted
|
|
$
|
0.53
|
|
|
$
|
0.47
|
|
|
$
|
1.06
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
FFO, as adjusted, per common share and unit – basic
|
|
$
|
0.54
|
|
|
$
|
0.48
|
|
|
$
|
1.08
|
|
|
$
|
0.97
|
|
FFO, as adjusted, per common share and unit – diluted
|
|
$
|
0.54
|
|
|
$
|
0.47
|
|
|
$
|
1.08
|
|
|
$
|
0.96
|
|
FFO weighted average common shares and units outstanding:
|
|
|
|
|
|
|
|
|
|
|
Common shares for net earnings per share
|
|
89,748
|
|
|
88,187
|
|
|
89,066
|
|
|
88,139
|
|
Participating securities
|
|
592
|
|
|
626
|
|
|
550
|
|
|
599
|
|
Units
|
|
4,039
|
|
|
4,256
|
|
|
4,138
|
|
|
4,278
|
|
FFO weighted average common shares, participating securities and units outstanding – basic
|
|
94,379
|
|
|
93,069
|
|
|
93,754
|
|
|
93,016
|
|
Dilutive common stock equivalents
|
|
436
|
|
|
299
|
|
|
424
|
|
|
314
|
|
FFO weighted average common shares, participating securities and units outstanding – diluted
|
|
94,815
|
|
|
93,368
|
|
|
94,178
|
|
|
93,330
|
|