Black Creek Diversified Property Fund 10-Q 2007 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2007

or

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                     to                     .

Commission File No. 333-125338

DIVIDEND CAPITAL TOTAL REALTY TRUST INC.

(Exact name of registrant as specified in its charter)

Maryland	30-0309068
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
518 Seventeenth Street, 17th Floor
Denver, CO	80202
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (303) 228-2200

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

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

Large accelerated filer  o Accelerated filer  o Non-accelerated filer  x

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

As of April 30, 2007, 79,331,458 shares of common stock of Dividend Capital Total Realty Trust Inc., par value $0.01 per share, were outstanding.

Dividend Capital Total Realty Trust Inc.

Form 10-Q

March 31, 2007

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets
	Condensed Consolidated Statements of Operations
	Condensed Consolidated Statement of Stockholders’ Equity
	Condensed Consolidated Statements of Cash Flows
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURES

2

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

DIVIDEND CAPITAL TOTAL REALTY TRUST INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)

	As of March 31,			As of December 31,
	2007			2006
	(Unaudited)
ASSETS
Investments in real property:
Land	$	94,357		$	56,102
Building and improvements	309,382			168,936
Intangible lease assets	54,020			34,184
Accumulated depreciation and amortization	(6,244		)	(2,591		)
Total net investments in real property	451,515			256,631
Investments in real estate securities	168,579			48,179
Debt related investments	89,591			28,256
Total net investments	709,685			333,066
Cash and cash equivalents	166,273			67,317
Restricted cash	2,527			1,782
Subscriptions receivable	12,662			43,067
Other assets, net	13,804			7,739
Total Assets	$	904,951		$	452,971
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses (including $3,858 and $4,305 due to affiliates as of March 31, 2007 and December 31, 2006, respectively)	$	7,415		$	6,469
Distributions payable	8,071			2,729
Mortgage notes	132,607			84,450
Master repurchase facility	4,956			10,919
Financing obligations	65,890			39,017
Intangible lease liabilities, net	6,879			4,180
Unsettled securities purchases	16,125			8,246
Other liabilities (including $0 and $1,128 due to affiliates as of March 31, 2007 and December 31, 2006, respectively)	3,468			3,167
Total Liabilities	245,411			159,177
Minority Interests	22,951			10,249
Stockholders’ Equity:
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none outstanding	—			—
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 71,790,867 and 32,304,902 shares issued and outstanding, as of March 31, 2007 and December 31, 2006, respectively	718			323
Additional paid-in capital	645,479			286,391
Distributions in excess of earnings	(9,216		)	(4,142		)
Accumulated other comprehensive income (loss)	(392		)	973
Total Stockholders’ Equity	636,589			283,545
Total Liabilities and Stockholders’ Equity	$	904,951		$	452,971

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

DIVIDEND CAPITAL TOTAL REALTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share and footnote information)

	For the three months ended March 31,
	2007			2006
REVENUE:
Rental revenue	$	7,746		$	—
Securities income	1,873			—
Debt related income	1,259			—
Total Revenue	10,878			—
EXPENSES:
Rental expense	2,109			—
Depreciation and amortization	3,418			—
General and administrative expenses	744			63
Asset management fees, related party	1,265			—
Total Operating Expenses	7,536			63
Operating Income (Loss)	3,342			(63		)
Other Income (Expenses):
Interest income	2,538			*
Interest expense	(2,883		)	—
Income (Loss) Before Minority Interests	2,997			(63		)
Minority Interests	(12		)	62
NET INCOME (LOSS)	$	2,985		$	(1	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic	53,746			**
Diluted	53,766			**
NET INCOME (LOSS) PER COMMON SHARE
Basic	$	0.06		$	(3.12	)
Diluted	$	0.06		$	(3.12	)

* Less than $100.

** 200 shares outstanding.

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

DIVIDEND CAPITAL TOTAL REALTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the three months ended March 31, 2007
(Unaudited)
(In thousands)

									Accumulated
				Additional		Distributions in			Other			Total
	Common Stock			Paid-in		Excess of			Comprehensive			Stockholders’
	Shares	Amount		Capital		Earnings			Income (Loss)			Equity
Balances, December 31, 2006	32,305	$	323	$	286,391	$	(4,142	)	$	973		$	283,545
Comprehensive income:
Net income	—	—		—		2,985			—			2,985
Net unrealized loss from available-for-sale securities	—	—		—		—			(1,365		)	(1,365		)
Comprehensive income												1,620
Issuance of common stock, net of offering costs	39,486	395		359,085		—			—			359,480
Amortization of stock based compensation	—	—		3		—			—			3
Distributions on common stock	—	—		—		(8,059		)	—			(8,059		)
Balances, March 31, 2007	71,791	$	718	$	645,479	$	(9,216	)	$	(392	)	$	636,589

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

DIVIDEND CAPITAL TOTAL REALTY TRUST INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

	For the Three Months Ended March 31,
	2007			2006
OPERATING ACTIVITIES:
Net income (loss)	$	2,985		$	(1	)
Minority interests	12			(62		)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Real estate depreciation and amortization	3,427			—
Other depreciation and amortization	151			—
Changes in operating assets and liabilities:
Increase in restricted cash	(425		)	—
Increase in other assets	(3,858		)	—
Increase in accounts payable and accrued expenses	1,933			63
Increase in other liabilities	930			—
Net cash provided by operating activities	5,155			—
INVESTING ACTIVITIES:
Investment in real property	(195,858		)	—
Increase in deferred acquisition costs	819			—
Investment in real estate securities	(113,882		)	—
Investments in debt related investments	(61,335		)	—
Net cash used in investing activities	(370,256		)	—
FINANCING ACTIVITIES:
Mortgage note proceeds	48,157			—
Repayment of master repurchase facility	(5,963		)	—
Financing obligation proceeds	26,873			—
Increase (decrease) in restricted cash	(320		)	(1,478		)
Increase in deferred financing costs	(3,178		)	—
Proceeds from minority interest contributions	12,823			—
Proceeds from sale of common stock	425,211			1,553
Offering costs for issuance of common stock, related party	(38,259		)	—
Distributions to minority interest holders	(131		)	—
Distributions to common stockholders	(1,156		)	—
Net cash provided by financing activities	464,057			—
NET INCREASE IN CASH AND CASH EQUIVALENTS	98,956			—
CASH AND CASH EQUIVALENTS, beginning of period	67,317			2
CASH AND CASH EQUIVALENTS, end of period	$	166,273		$	2
Supplemental Disclosure of Cash Flow Information:
Amount issued pursuant to the distribution reinvestment plan	$	1,565		$	—
Cash paid for interest	$	2,410		$	—
Unsettled securities purchases	$	16,125		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

DIVIDEND CAPITAL TOTAL REALTY TRUST INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.ORGANIZATION

Dividend Capital Total Realty Trust Inc. (the “Company”) is a Maryland corporation formed on April 11, 2005 to invest in a diverse portfolio of real properties, real estate securities and debt related investments. The Company’s targeted investments include (1) direct investments in real properties, consisting of office, industrial, retail, multifamily and other properties, primarily located in North America, (2) investments in real estate securities, including securities issued by other real estate companies, commercial mortgage backed securities (“CMBS”), collateralized debt obligations (“CDOs”) and similar investments and (3) certain debt related investments, including mortgage notes secured by real estate, participations in mortgage loans, B-notes, mezzanine debt and other related investments. As used herein, “the Company,” “we” and “us” refer to Dividend Capital Total Realty Trust Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.

We operate in a manner intended to allow us to qualify as a REIT for federal income tax purposes beginning with the calendar year 2006. Our REIT status is expected to be effective in August 2007 when we file our corporate tax return for the taxable year ended December 31, 2006. The Company utilizes an UPREIT organizational structure to hold all or substantially all of its assets through its Operating Partnership (the “Operating Partnership”).

Our day-to-day activities are managed by Dividend Capital Total Advisors LLC (the “Advisor”), an affiliate, under the terms and conditions of an advisory agreement (the “Advisory Agreement”). In addition, under the terms of certain dealer manager agreements, Dividend Capital Securities LLC (the “Dealer Manager”), an affiliate, serves as the dealer manager of our public and private offerings. The Advisor and its affiliates, including the Dealer Manager, receive various forms of compensation, reimbursements and fees for services relating to our public and private offerings and for the investment and management of our real estate assets.

On April 25, 2005, the Company sold 200 shares of common stock to an affiliate of the Advisor at a price of $10 per share. The Company subsequently contributed $2,000 to the Operating Partnership and is the sole general partner.

On May 4, 2005, our Operating Partnership issued 20,000 operating partnership units (“OP Units”) to the Advisor in exchange for $200,000, representing an approximate 99% limited partnership interest. On May 4, 2005, the Operating Partnership issued 100 Special Units (see Note 14) to Dividend Capital Total Advisors Group LLC, the parent of the Advisor, in exchange for $1,000. As of March 31, 2007, the Operating Partnership was less than 0.1% owned by the Advisor and the parent of the Advisor and more than 99.9% owned by the Company. The holders of OP Units have the right to convert their OP Units into cash or, at the option of the Company, into an equal number of shares of common stock of the Company, or a combination of both, as allowed by the Operating Partnership’s agreement. The remaining rights of the holders of OP Units are limited and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the Operating Partnership’s assets.

As of March 31, 2007, we had acquired net investments of approximately $709.7 million, comprised of approximately $451.5 million in real property, $168.6 million, net of dispositions, in real estate securities, and $89.6 million in debt related investments. As of December 31, 2006, we had acquired net investments of approximately $333.1 million, comprised of approximately $256.6 million in real property, net of accumulated depreciation, $48.2 million, net of dispositions, in real estate securities, and $28.3 million in debt related investments.

2.             SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, these statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited

7

condensed consolidated financial statements include all adjustments, consisting only 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, 2006 and related notes thereto included in our annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 23, 2007.

Principles of Consolidation

Due to the Company’s control of the Operating Partnership through its sole general partnership interest and the limited rights of the limited partners, the Operating Partnership is consolidated with the Company and limited partner interests is reflected as a minority interest in the accompanying consolidated financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation.

Our consolidated financial statements also include the accounts of Dividend Capital Total Realty Trust Inc. and its consolidated subsidiaries and joint ventures through which we are the primary beneficiary under Financial Accounting Standards Board Interpretation No. 46(R), Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51 (“FIN No.  46(R)”), or we have a controlling interest. In determining whether the Company has a controlling interest in a joint venture and the requirement to consolidate the accounts of that entity, our management considers factors such as ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity in which it will absorb the majority of the entity’s expected losses, if they occur, or receive the majority of the expected residual returns, if they occur, or both.

Our management’s judgments with respect to our level of influence or control of an entity and whether we are the primary beneficiary of a variable interest entity as defined by FIN No. 46(R) involve consideration of various factors including the form of our ownership interest, the size of our investment (including loans) and our ability to participate in major policy making decisions. Our management’s ability to correctly assess its influence or control over an entity affects the presentation of these investments in our consolidated financial statements and, consequently, our financial position and specific items in our results of operations that are used by our stockholders, lenders and others in their evaluation of us.

Generally, we consolidate real estate partnerships and other entities that are not variable interest entities (as defined in FIN No. 46(R)) when we own, directly or indirectly, a majority voting interest in the entity. Our analysis of whether we consolidate real estate partnerships and other entities that are not variable interest entities is performed pursuant to various accounting pronouncements including: (1) Emerging Issues Task Force Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, (2) Accounting Research Bulletin No. 51, Consolidated Financial Statements and (3) AICPA Statement of Position 78-9, Accounting for Investments in Real Estate Ventures.

Investments in Real Property

We capitalize direct costs associated with the acquisition, development or improvement of real property, including acquisition fees paid to the Advisor. Costs associated with the pursuit of acquisitions or developments are capitalized as incurred and, if the pursuit is abandoned, these costs are expensed in the period in which the pursuit is abandoned. Costs associated with the improvement of our real property assets are also capitalized as incurred. However, costs incurred in making repairs to and for maintaining our real property which do not extend the life of our assets are expensed as incurred. The results of operations for acquired real property are included in our consolidated statements of operations from their respective acquisition dates.

Upon acquisition, the total cost of a property is allocated to land, building, building and land improvements, tenant improvements and intangible lease assets and liabilities pursuant to Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”). The allocation of the total cost to land, building, building and land improvements and tenant improvements is based on our estimate of their as-if vacant fair value based on all available information such as the replacement cost of such assets, appraisals, property condition reports, market data and other related information. Pursuant to SFAS No. 141, the difference between the fair value and the face value of debt assumed in an acquisition is recorded as a premium or discount and amortized to interest expense over the life of the debt assumed. The valuation of assumed liabilities is based on the current market rate for similar liabilities. The allocation of the total cost of a property to an intangible lease asset includes the value associated with the in-place leases which may include lost rent, leasing commissions,

8

legal and other costs. In addition, the allocation of the total cost of a property requires allocating costs to an intangible asset or liability resulting from in-place leases being above or below the market rental rates on the date of the acquisition.

For the three months ended March 31, 2007, we recognized upon acquisition gross additional intangible assets for acquired in-place leases, above market leases, and intangible liabilities for acquired below market leases, of approximately $18.7 million, $1.1 million and $2.9 million, respectively. For the year ended December 31, 2006, we recognized upon acquisition gross additional intangible assets for acquired in-place leases, above market leases, and intangible liabilities for acquired below market leases, of approximately $31.3 million, $2.9 million, and $4.4 million, respectively.

Above market lease assets are amortized as a reduction in rental revenue over the corresponding lease term. Below market lease liabilities are amortized as an increase in rental revenue over the corresponding lease term. Intangible in-place lease assets are amortized over the average term of leases for a property.  For the three months ended March 31, 2007, the Company amortized approximately $1.8 million of intangible in-place lease assets, $235,000 of above market lease assets, and $227,000 of below market lease liabilities, respectively. For the year ended December 31, 2006, the Company amortized approximately $1.3 million of intangible in-place lease assets, $270,000 of above-market lease assets, and $225,000 of below market lease liabilities, respectively. In addition, we allocate a portion of the purchase price to the estimated value of customer relationships, if any.  As of March 31, 2007 and December 31, 2006, we had not recorded any estimated value to customer relationships.

We write off any remaining intangible asset or liability balances when a tenant terminates a lease before the stated lease expiration date. There were no write-offs due to the termination of a lease during the three months ended March 31, 2007 or for the year ended December 31, 2006.

Real property assets, including land, building, building and land improvements, tenant improvements and lease commissions, and intangible lease assets and liabilities are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives as follows:

Description	Depreciable Life
Land	Not depreciated
Building	40 years
Building and land improvements	20 years
Tenant improvements	Over lease term
Lease commissions	Over lease term
Intangible in-place lease assets	Average term of leases for property
Above/below market rent assets/liabilities	Over lease term

Impairment — Investments in Real Property

We review our investments in real property individually on a quarterly basis to determine if there are indicators of impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). Indicators may include, among others, the tenant’s inability to make rent payments, operating losses or negative operating trends at the property level, notification by a tenant that it will not renew its lease, a decision to dispose of a property or adverse changes in the fair value of any of our properties. For operating properties, if indicators of impairment exist, we compare the future estimated undiscounted cash flows from the expected use of the property to its net book value to determine if impairment exists. If the sum of the future estimated undiscounted cash flows is greater than the current net book value, in accordance with SFAS No. 144, we conclude no impairment exists. If the sum of the future estimated undiscounted cash flows is lower than its current net book value, we recognize an impairment loss for the difference between the net book value of the property and its estimated fair value. To the extent we decide to sell a property, we recognize an impairment loss if the current net book value of the property exceeds its fair value less selling costs. The above analyses require us to determine whether there are indicators of impairment for individual properties, to estimate the most likely stream of cash flows from operating properties and to determine the fair value of properties that are impaired or held for sale. If our assumptions, projections or estimates regarding a property change in the future, we may have to record an impairment charge to reduce or further reduce the net book value of the property. As of March 31, 2007 and December 31, 2006, we had not recorded any impairment charges to our real properties.

9

Revenue Recognition - Real Property

We record rental revenue for the full term of each lease on a straight-line basis. Certain properties have leases that provide for customer occupancy during periods that no rent is due or where minimum rent payments increase during the term of the lease. Accordingly, we record a receivable from customers for rent that we expect to collect over the remaining lease term rather than currently, which will be recorded as straight-line rents receivable. When we acquire a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. For the three months ended March 31, 2007, the total increase to rental revenues due to straight-line rent adjustments was approximately $295,000. There was no straight-line rent adjustment during the three months ended March 31, 2006.

Tenant recovery income includes payments from tenants for real estate taxes, insurance and other property operating expenses and is recognized as rental revenue. Tenant recovery income recognized as rental revenue for the three months ended March 31, 2007 was approximately $1.6 million. No tenant recovery income was recorded during the three months ended March 31, 2006.

In connection with real property acquisitions, we may acquire leases with rental rates above and/or below the market rental rates. Such differences are recorded as an intangible asset or liability pursuant to SFAS No. 141 and amortized to rental revenues over the life of the respective leases.

Collectibility of Receivables

We evaluate the collectibility of our rent and other receivables on a regular basis based on factors including, among others, payment history, the financial strength of the borrower and any guarantors, the value of the underlying collateral, the operations and operating trends of the underlying collateral, if any, the asset type and current economic conditions. If our evaluation of these factors indicates we may not recover the full value of the receivable, we provide a reserve against the portion of the receivable that we estimate may not be recovered. This analysis requires us to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected. As of March 31, 2007 and December 31, 2006, we had reserves included in the caption Other Assets, net, of approximately $78,000 and $70,000, respectively. If our assumptions or estimates regarding the collectibility of a receivable change in the future, we may have to record a reserve to reduce or further reduce the carrying value of the receivable.

Investments in Real Estate Securities

Investments in real estate securities consist primarily of securities such as common equities, preferred equities, convertible preferred securities, CMBS, CDOs and other related securities types. Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (“SFAS No. 115”), requires the Company to classify its investments in real estate securities as either trading investments, available-for-sale investments or held-to-maturity investments. Although the Company generally intends to hold most of its investments in real estate securities until maturity, if applicable, it may, from time to time, sell any of these assets as part of its overall management of its portfolio. Accordingly, SFAS No. 115 requires the Company to classify all of its real estate securities assets as available-for-sale. All assets classified as available-for-sale are reported at estimated fair value, based on market prices from independent sources, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, referred to as other comprehensive income.

As of March 31, 2007 and December 31, 2006, all of the Company’s investments in real estate securities were classified as available-for-sale in the accompanying condensed consolidated balance sheets. As of each of these dates, the Company’s investments in real estate securities were comprised entirely of (1) preferred equity securities and (2) CMBS and CDOs. If available-for-sale securities were classified as trading securities, there could be substantially greater volatility in earnings from period to period as these investments would be marked to market and any reduction in the value of the securities versus the previous carrying value would be considered an expense in our condensed consolidated statements of operations.

In addition, management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been lower than carrying value, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Unrealized losses on real estate securities that are considered other than

10

temporary, as measured by the amount of decline in fair value attributable to other-than-temporary factors, are recognized in income and the cost basis of the real estate securities is adjusted. As of March 31, 2007 and December 31, 2006, there were no impairment losses recognized in the accompanying condensed consolidated statements of operations.

Revenue Recognition-Real Estate Securities

Discounts or premiums on our investments in securities are accreted into interest income on an effective yield or “interest” method, based upon a comparison of actual and expected cash flows, through the expected maturity date (if any) of the security. Depending on the nature of the investment, changes to expected cash flows may result in a prospective change to yield or a retrospective change which would include a catch up adjustment. Interest income with respect to non-discounted securities or loans is recognized on an accrual basis.  Upon settlement of securities, the excess (or deficiency) of net proceeds over the net carrying value of such security or loan is recognized as a gain (or loss) in the period of settlement.

Debt Related Investments

Debt related investments consist primarily of real estate related whole mortgage loans, participating mortgage loans, B-notes, mezzanine debt, bridge loans, and other debt related investment types. As of March 31, 2007, the Company’s debt related investments consisted of (1) senior participating interests in two mortgage loans, (2) three B-notes and (3) one mezzanine loan.  As of December 31, 2006, the Company’s debt related investments consisted of (1) a senior participating interests in one mortgage loan and (2) two B-notes. Debt related investments are considered held for investment, as the Company has both the intention and ability to hold these investments until maturity.  Accordingly, these assets are carried at cost, net of unamortized loan origination costs and fees, discounts, repayments, sales of partial interests in loans, and unfunded commitments unless such loan or investment is deemed to be impaired.

Specific valuation allowances are established for impaired debt related investments based on the fair value of collateral on an individual loan basis. The fair value of the underlying collateral is determined by selecting the most appropriate valuation methodology, or methodologies, among several generally available and accepted in the commercial real estate industry. The determination of the most appropriate valuation methodology is based on the key characteristics of the collateral type. These methodologies include the evaluation of operating cash flow from the property during the projected holding period, and the estimated sales value of the collateral computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, all of which are discounted at market discount rates.

If upon completion of the valuation, the fair value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. The allowance for each loan is maintained at a level we believe is adequate to absorb probable losses. As of March 31, 2007 and December 31, 2006, there were no impairment losses recognized in the accompanying condensed consolidated statements of operations.

 Revenue Recognition-Debt Related Investments

Interest income on debt related investments is recognized over the life of the investment using the effective interest method and recognized on an accrual basis. Fees received in connection with loan commitments are deferred until the loan is funded and are then recognized over the term of the loan using the effective interest method. Anticipated exit fees, whose collection is expected, are also recognized over the term of the loan as an adjustment to yield. Fees on commitments that expire unused are recognized at expiration. Fees received in exchange for the credit enhancement of another lender, either subordinate or senior to us, in the form of a guarantee are recognized over the term of that guarantee using the straight-line method.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and highly liquid investments such as money market mutual funds or investments purchased with original maturities of three months or less.  We have not realized any losses in such cash investments or accounts and believe that we are not exposed to any significant credit risk.

11

Restricted Cash

Restricted cash consists primarily of property-related escrow accounts, deposits related to potential future financing activities and cash held in operating accounts to which we have subordinate rights to another party. We have not realized any losses in such cash investments or accounts and believe that we are not exposed to any significant credit risk.

Subscriptions Receivable

Subscriptions receivable consists of subscriptions to purchase shares of our common stock through our public offering for which we had not yet received the cash proceeds as of March 31, 2007. The Company records subscriptions receivable in accordance with Emerging Issues Task Force Issue No. 85-1, Classifying Notes Received for Capital Stock, as the cash proceeds were collected subsequent to the period ended March 31, 2007.

Stock-Based Compensation

On January 12, 2006, the Company adopted a stock-based equity incentive plan (see Note 12). As of March 31, 2007 and December 31, 2006, the Company had granted 30,000 options to its independent directors pursuant to the equity incentive plan. The Company accounts for its equity incentive plan under the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“SFAS No. 123(R)”) and its related interpretations. Options granted under our equity incentive plan are valued using the Black-Scholes option-pricing model and are amortized to salary expense on a straight-line basis over the period during which the right to exercise such options fully vests. Such expense is included in general and administrative expenses in the accompanying condensed consolidated statements of operations.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income as reported in the accompanying condensed consolidated statements of stockholders’ equity consists of changes in the fair value of available-for-sale real estate securities investments.

Basic and Diluted Net Income (Loss) per Common Share

Basic net income (loss) per common share is determined by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share includes the effects of potentially issuable common stock, but only if dilutive, including the presumed exchange of OP Units.

Income Taxes

We expect to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”), as amended, beginning with the taxable year ended December 31, 2006.  Our REIT status is expected to be effective when we file our corporate tax return for the taxable year ended December 31, 2006 in August 2007. As a REIT, we generally will not be subject to federal income taxes on net income that we distribute to our stockholders. We intend to make timely distributions sufficient to satisfy the annual distribution requirements. We believe that we are organized and operate in such a manner as to qualify for treatment as a REIT and we intend to operate in the foreseeable future in such a manner so that we will qualify as a REIT for federal income tax purposes.  We may, however, be subject to certain state and local taxes.  Our taxable REIT subsidiary, DCTRT Leasing Corporation, is subject to federal, state, and local taxes.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the periods they are determined to be necessary.

12

New Accounting Pronouncements

On July 13, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and derecognition, classification of interest and penalties, accounting in interim periods, disclosure and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 on January 1, 2007 and it did not have a material impact on our financial position or results of operations.

3.INVESTMENTS IN REAL PROPERTY

During the three months ended March 31, 2007, we acquired ten real properties with a gross investment amount of approximately $198.4 million, comprising approximately 2.6 million net rentable square feet.  These assets included (1) three office properties with a total gross investment amount of approximately $58.1 million, comprising approximately 405,000 net rentable square feet, (2) six industrial properties with a total gross investment amount of approximately $107.9 million, comprising approximately 1.9 million net rentable square feet and (3) one retail property with a total gross investment amount of approximately $32.4 million, comprising approximately 330,000 net rentable square feet. These properties were acquired using a combination of (1) net proceeds from our public offering, (2) debt financings, (3) available cash and (4) minority interest equity contributions.  For all properties acquired and consolidated, the results of operations for the acquired properties are included in our condensed consolidated statements of operations from the dates of acquisition.

The table below summarizes the Company’s investments in real property as of March 31, 2007 (amounts in thousands).

13

Real Property	Market	Land		Building and Improvements			Intangible Lease Assets			Gross Investment Amount (1)
Office and Office/R&D Properties
Jay Street	Bay Area, CA	$	13,859	$	19,575		$	2,935		$	36,369
Bala Pointe	Philadelphia, PA	10,115		20,346			6,973			37,434
Lundy Avenue	Bay Area, CA	5,982		12,034			3,578			21,595
Shiloh Road	Dallas, TX	5,165		24,317			5,914			35,396
40 Boulevard	Chicago, IL	2,561		5,995			2,072			10,628
Washington Commons	Chicago, IL	8,932		12,888			4,038			25,858
Shackleford	Little Rock, AR	2,900		14,273			4,391			21,564
Total Office and Office/R&D Properties		$	49,514	$	109,428		$	29,901		$	188,844
Industrial Properties
Rickenbacker	Columbus, OH	$	1,247	$	12,667		$	644		$	14,559
Park West Q	Cincinnati, OH	1,653		7,887			1,464			11,004
Eagle Creek East	Minneapolis, MN	1,644		6,661			880			9,185
Park West L	Cincinnati, OH	902		6,841			569			8,311
Eagle Creek West	Minneapolis, MN	1,910		7,982			317			10,209
Minnesota Valley III	Minneapolis, MN	2,223		10,867			1,641			14,731
Pencader	Philadelphia, PA	2,516		5,093			311			7,920
Hanson Way Dist. Ctr	Sacramento, CA	5,544		17,257			2,605			25,406
Old Silver Spring	Central PA	1,305		4,592			232			6,129
Marine Drive	Charlotte, NC	2,037		12,958			6,121			21,115
Southfield	Atlanta, GA	1,280		4,947			449			6,676
Commerce Center	Central PA	5,939		26,912			2,022			34,872
Veterans	Chicago, IL	2,121		9,989			993			13,103
Plainfield III	Indianapolis, IN	2,101		16,972			1,414			20,487
Patriot Drive I	Dallas, TX	1,034		5,346			187			6,568
Patriot Drive II	Dallas, TX	3,166		21,730			1,306			26,202
Total Industrial Properties		$	36,622	$	178,701		$	21,155		$	236,477
Retail Properties
Bandera Road	San Antonio, TX	$	8,221	$	21,253		$	2,964		$	32,438
Total		$	94,357	$	309,382		$	54,020		$	457,759
Accumulated depreciation/ amortization (2)		$	—	$	(2,676	)	$	(3,568	)	$	(6,244	)
Total Net Book Value		$	94,357	$	306,706		$	50,452		$	451,515

(1) Amount presented does not include intangible lease liability, which in aggregate, was approximately $6.9 million as of March 31, 2007, net of accumulated amortization balance of $453,000.

(2)Accumulated amortization for intangible lease assets includes accumulated amortization balances of intangible in-place lease assets and above-market lease intangibles of approximately $3.1 million and $505,000, respectively.

4.             INVESTMENTS IN REAL ESTATE SECURITIES

During the three months ended March 31, 2007, the Company acquired real estate securities classified as available-for-sale through purchases in the open market with an aggregate cost of approximately $121.8 million. These purchases consisted of (1) preferred equity securities of various real estate operating companies and real estate investment trusts with an approximate cost of $34.1 million and (2) CMBS and CDOs with an approximate cost of $87.7 million. The cost of these purchases was paid for using net proceeds from the Company’s public offering. In addition, the Company acquired approximately $16.1 million of real estate securities that had not settled as of March 31, 2007, which have been included in our accompanying condensed consolidated balance sheets as unsettled securities purchases.

As of March 31, 2007, the fair market value of our real estate securities was approximately $168.6 million, consisting of a fair market value of approximately (1) $54.8 million for our investments in preferred equity securities and (2) $113.8 million for our investments in CMBS and CDOs. As of March 31, 2007, there was a net unrealized loss of approximately $392,000 related to our real estate securities investments, which is included in the accompanying condensed consolidated

14

statement of stockholders’ equity as other comprehensive income, consisting of (1) an unrealized gain of approximately $550,000 for our investments in preferred equity securities and (2) an unrealized loss of approximately $942,000 for our CMBS and CDOs.

Our investments in CMBS and CDOs have contractual maturities ranging from 2042 through 2047.

5.             DEBT RELATED INVESTMENTS

During the three months ended March 31, 2007, the Company acquired approximately $61.3 million in debt related investments.  These debt related investments included (1) an investment in a first mortgage loan to a commercial developer of approximately $25.8 million, (2) an investment in a B-note of approximately $15.0 million, (3) an investment in mezzanine debt of approximately $19.9 million and (4) additional borrowings under the terms of a senior participating interest in a commercial developer mortgage loan of approximately $608,000. The Company acquired these investments at an aggregate net discount of approximately $86,000, which will be amortized to debt related income over the related term of the investments.

Under the loan agreements for the mortgage loans described above, the Company has a conditional obligation to fund additional aggregate borrowings of approximately $14.9 million over the terms of the respective loans.

Note 7 describes the Company’s borrowings for which the Company had pledged debt related investments as collateral under the REPO Facility (as defined below).  The carrying values of these debt related investments as of March 31, 2007 and December 31, 2006 were approximately $7.0 million.

As of March 31, 2007, there were no impairments recorded for debt related investments.

6.MORTGAGE NOTES

The aggregate principal amount of mortgage notes as of March 31, 2007 and December 31, 2006, was approximately $132.6 million and $84.5 million, respectively.  Mortgage notes were secured by real property with an aggregate net book value of approximately $195.5 million and $128.8 million as of March 31, 2007 and December 31, 2006, respectively.  Interest on mortgage notes is payable monthly, with interest rates ranging from 5.46% to 6.65%. All mortgage notes were interest only, as of March 31, 2007.  The table below summarizes the Company’s mortgage notes as of March 31, 2007 and December 31, 2006 (dollars in thousands):

					Outstanding Balance as of
Property	Debt Issuance Date	Interest Rate		Maturity Date	March 31, 2007		December 31, 2006
Jay Street	June 2006	6.05	%	July 2016	$	23,500	$	23,500
Bala Pointe	August 2006	5.89	%(1)	August 2036	24,000		24,000
Lundy Avenue	October 2006	5.60	%	November 2016	14,250		14,250
Shiloh Road	December 2006	5.57	%	December 2016	22,700		22,700
40 Boulevard	January 2007	6.72	%(2)	January 2010	6,357		—
Washington Commons	February 2007	5.94	%	February 2012	20,300		—
Bandera Road	February 2007	5.46	%	February 2017	21,500		—
Weighted Average/Totals		5.81	%(3)		$	132,607	$	84,450

(1)Includes option to prepay full loan amount in August 2016.

(2)Interest rate is floating, with a spread of 1.40% above the one-month LIBOR.

(3)Weighted average interest rates are based upon outstanding balances and applicable interest rates as of March 31, 2007.

15

7.             MASTER REPURCHASE FACILITY

On October 26, 2006, the Company closed a master repurchase facility with JP Morgan Chase Bank, N.A. (the “REPO Facility”). The REPO Facility provides us with a borrowing capacity of $200 million and matures in October 2007. The REPO Facility bears interest at spreads of 0.05% to 2.15% over one-month LIBOR and, based on our expected investment activities, provides for advance rates that vary from 35% to 97% based upon the collateral provided under a borrowing base calculation. The lender has a consent right to the inclusion of investments in this facility, determines periodically the market value of the investments, and has the right to require additional collateral if the estimated market value of the included investments declines. We had incurred interest expense, including REPO Facility non-usage fees and the amortization of related loan costs, of approximately $248,000 for the three months ended March 31, 2007.  As of March 31, 2007 and December 31, 2006, we had aggregate borrowings of approximately $5.0 million and $10.9 million, respectively, at a weighted average spread of LIBOR plus 0.97% and 0.68%, respectively.  The one-month LIBOR as of March 31, 2007 and December 31, 2006 was 5.32%.  Pursuant to Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a Replacement of FASB Statement No. 125,  the transfer of assets under our REPO Facility does not constitute a sale due to our ability to repurchase transferred assets prior to their maturities.  As a result, these transactions are presented as secured borrowing obligations under the caption of master repurchase facility in our condensed consolidated balance sheets.

The REPO Facility requires that we pay down borrowings as principal payments on the loans and investments pledged to the REPO Facility are received.

Borrowings under the REPO Facility at March 31, 2007 were secured by the following investments (amounts in thousands):

	Carrying Value as of (1)
Investment Type	March 31, 2007		December 31, 2006
Investment in real estate securities	$	3,000	$	3,000
Debt related investments	6,974		6,974
Investments in real property	—		10,200
Total	$	9,974	$	20,174

(1)Approximates fair value.

All borrowings under our REPO Facility have maturity dates within one year of March 31, 2007.

In January 2007, we repaid a borrowing on the REPO facility of approximately $6.0 million.  This borrowing was secured by the Company’s investment in the Eagle Creek West property, which had a total gross investment amount of approximately $10.2 million.

8.             FINANCING OBLIGATIONS

The Operating Partnership is currently offering undivided tenancy-in-common interests in our properties to accredited investors in a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), which is included in financing obligations in the accompanying condensed consolidated balance sheets. We anticipate that these tenancy-in-common interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Internal Revenue Code. Additionally, the tenancy-in-common interests sold to accredited investors will be 100% leased by the Operating Partnership, and such leases will contain purchase options whereby the Operating Partnership will have the right, but not the obligation, to acquire the tenancy-in-common interests from the investors at a later point in time in exchange for limited partnership units in the Operating Partnership under Section 721 of the Internal Revenue Code.

The Operating Partnership will pay certain up-front fees and reimburse certain related expenses to our Advisor, the Dealer Manager and Dividend Capital Exchange Facilitators LLC (the “Facilitator”) for raising capital through the private placement. Our Advisor is obligated to pay all of the offering and marketing related costs associated with the private placement. However, the Operating Partnership is obligated to pay our Advisor a non-accountable expense allowance which equals 1.5% of the gross equity proceeds raised through the private placement. In addition, the Operating Partnership is obligated to pay the Dealer Manager a dealer manager fee of up to 1.5% of gross equity proceeds raised and a commission of up to 5% of gross equity proceeds raised through the private placement. The Dealer Manager may re-allow such commissions

16

and a portion of such dealer manager fee to participating broker dealers. The Operating Partnership is also obligated to pay a transaction facilitation fee to the Facilitator, an affiliate of our Advisor, of up to 2.0% of gross equity proceeds raised through the private placement.

During the three months ended March 31, 2007, we raised approximately $26.9 million from the sale of undivided tenancy-in-common interests in three properties, which is included in financing obligations in the accompanying condensed consolidated balance sheets pursuant to SFAS No. 98, Accounting for Leases (“SFAS No. 98”). We have leased the undivided interests sold to unrelated third parties, and in accordance with SFAS No. 98, rental payments made to third parties under the lease agreements are recognized as imputed interest expense using the interest method. In addition, the lease agreements each provide for a purchase option whereby the Operating Partnership may purchase each undivided tenancy-in-common interest after a certain period of time in exchange for limited Operating Partnership units.

During the three months ended March 31, 2007, we recorded imputed interest expense related to the above financing obligations of approximately $730,000.  We incurred approximately $703,000 of rental expense under various lease agreements with these third-party investors. A portion of such amounts were accounted for as an increase of the principal outstanding balance of the financing obligations and a portion was accounted for as an increase to interest expense in the accompanying condensed consolidated financial statements. The various lease agreements in place as of March 31, 2007, contain expiration dates ranging from October 2021 to March 2022.

During the three months ended March 31, 2007, the Operating Partnership incurred upfront costs of approximately $2.7 million payable to our Advisor and other affiliates for effecting these transactions which are accounted for as deferred loan costs. Such deferred loan costs are included in other assets in the condensed consolidated balance sheets and amortized to interest expense over the life of the financing obligation. If the Operating Partnership elects to exercise any purchase option as described above and issue limited Operating Partnership units, the unamortized up-front fees and expense reimbursements paid to affiliates will be recorded against minority interest of the Operating Partnership as a selling cost of the limited partnership units. If the Operating Partnership does not elect to exercise any such purchase option, we will continue to account for these transactions as a financing obligation because we will continue to sublease 100% of the properties and will therefore not meet the definition of “active use” set forth in SFAS No. 98.

As of March 31, 2007, the Operating Partnership had not exercised any purchase options to buy any tenancy-in-common interests it had previously sold.

9.HEDGING ACTIVITIES

During the three months ended March 31, 2007, the Company entered into a zero-cost collar to add stability to interest expense and manage its exposure to changes in interest rates associated with the floating rate mortgage note entered into related to the acquisition of 40 Boulevard.  At inception, the collar was not designated as part of a qualifying hedging relationship under the requirements of Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities. As a result, an $82,000 unrealized loss, equaling the entire change in value of the collar, was recorded in interest expense.  Accordingly, at March 31, 2007, the collar, with a fair value of $82,000, was included in other liabilities.  On April 1, 2007, the collar was designated in a qualifying hedging relationship as a cash flow hedge. The Company did not have any hedging activities prior to this transaction.

10.          MINORITY INTERESTS

Minority interests consisted of the following as of March 31, 2007 and December 31, 2006 (amounts in thousands):

	March 31, 2007		December 31, 2006
Joint Venture Partnership Interests	$	22,823	$	10,120
Operating Partnership Units (“OP Units”)	127		128
Operating Partnership Special Units	1		1
Total	$	22,951	$	10,249

17

Joint Venture Partnership Interests

During the three months ended March 31, 2007, the Company had entered into various joint ventures that are consolidated by the Company in the accompanying condensed consolidated financial statements.  The Company presents contributions and the equity in earnings of the respective joint venture partners as minority interests.  For the three months ended March 31, 2007, joint venture partners had contributed approximately $12.8 million in equity to these joint ventures and had received distributions from these joint ventures of approximately $131,000.  For the three months ended March 31, 2007, joint venture partners had collectively participated in approximately $11,000 of the income of their respective joint ventures. We had not entered into any joint venture partnerships as of March 31, 2006.

OP Units

On May 4, 2005, the Operating Partnership issued 20,000 OP Units to the Advisor in exchange for $200,000 representing an approximate 99.0% limited partnership interest.

As of March 31, 2007 and December 31, 2006, the Operating Partnership was less than 0.1% owned by the Advisor and the parent of the Advisor and the remaining interests were owned by the Company. OP Units are redeemable at the option of the unit holder. The Operating Partnership has the option of redeeming the OP Units for cash or for shares of common stock, or a combination of both.

Operating Partnership Special Units

On May 4, 2005, the Operating Partnership issued 100 Special Units (see Note 14) to the parent of the Advisor for consideration of $1,000. The holder of the Special Units does not participate in the profits and losses of the Operating Partnership. Amounts distributable to the holder of the Special Units will depend on operations and the amount of net sales proceeds received from real property and real estate securities dispositions or upon other events. In general, after holders of OP Units, in aggregate, have received cumulative distributions equal to their capital contributions plus a 6.5% cumulative, non-compounded annual pre-tax return on their net contributions, the holder of the Special Units and the holders of OP Units will receive 15% and 85%, respectively, of the net sales proceeds received by the Operating Partnership upon the disposition of the Operating Partnership’s assets.

11.          STOCKHOLDERS’ EQUITY

Common Stock

On May 27, 2005, we filed a registration statement with the SEC on Form S-11 in connection with an initial public offering of our common stock. The registration statement was declared effective on January 27, 2006. Pursuant to the registration statement, we are offering for sale up to $2.0 billion in shares of common stock, 75% of which are being offered to stockholders at a price of $10.00 per share, and 25% of which are being offered to participants in our distribution reinvestment plan at a price of $9.50 per share.

For the three months ended March 31, 2007, approximately 39.5 million shares of common stock were issued in connection with the public offering for net proceeds of approximately $359.5 million.  The net proceeds from the sale of these securities were transferred to our Operating Partnership on a one-for-one basis for OP Units.

The holders of our common stock are entitled to one vote per share on all matters voted on by stockholders, including election of our directors. Our articles of incorporation do not provide for cumulative voting in the election of our directors. Therefore, the holders of the majority of the outstanding shares of common stock can elect the entire board of directors.

Distributions

We accrue and pay distributions on a quarterly basis. Our board of directors declares the following quarter’s annualized distribution before the first day of the quarter. We calculate our distributions based upon daily record and distribution declaration dates so stockholders will be eligible to earn distributions immediately upon purchasing shares of our common stock or upon purchasing limited partnership units of our partnership. During the three months ended March 31, 2007, we

18

accrued distributions at annualize amount per share of $0.60, which was paid on April 16, 2007. We did not accrue or distribute any distributions during the three months ended March 31, 2006.

12.          EQUITY INCENTIVE PLAN

We have adopted an equity incentive plan which we use to attract and retain qualified independent directors, employees, advisors and consultants providing services to us who are considered essential to our long-range success by offering these individuals an opportunity to participate in our growth through awards in the form of, or based on, our common stock. On April 3, 2006, each of our then-serving independent directors, Charles B. Duke, John P. Woodberry and Daniel J. Sullivan, was automatically granted an option to purchase 10,000 shares of our common stock under the equity incentive plan with an exercise price equal to $11.00 per share. Such options vest 20% upon grant date and 20% each year for the following four years. The equity incentive plan provides that no more than 5 million shares of our common stock will be available for issuance under the equity incentive plan. No more than 200,000 shares may be made subject to stock options and stock appreciation rights under the equity incentive plan to any individual in any calendar year, and no more than 200,000 may be made subject to awards other than stock options and stock appreciation rights under the equity incentive plan to any individual in any single calendar year. The term of these options shall not exceed the earlier of ten years from the date of grant, the date of removal for cause, or three months from the director’s resignation. The exercise price for options to be issued under the equity incentive plan shall be the greater of (1) $11.00 per share or (2) the fair market value of the shares on the date they are granted.

Options granted under our equity incentive plan are amortized to salary expense on a straight-line basis over the period during which the right to exercise such options fully vests. For the three months ended March 31, 2007, we incurred approximately $3,000 of such expense, which is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. As of March 31, 2007, approximately $33,000 of such expense remained unrecognized, which reflects the unamortized portion of the value of such options issued pursuant to the equity incentive plan. No options were granted during the three months ended March 31, 2006.

13.RELATED PARTY TRANSACTIONS

Our Advisor

Our day-to-day activities are managed by our Advisor, an affiliate, under the terms and conditions of an Advisory Agreement. Our Advisor is considered to be a related party as certain indirect owners and employees of our Advisor serve as our executives. The responsibilities of our Advisor include the selection of our real property, real estate securities and debt related investments, the negotiations for these investments, the asset management of these investments and the selection of prospective joint venture partners.

We have entered into an Advisory Agreement with our Advisor pursuant to which we pay certain acquisition fees to the Advisor. For each real property acquired in the operational stage, the acquisition fee will be an amount equal to 2.0% of the purchase price of the property, until such time as we have invested an aggregate amount of $500 million in properties acquired in the operational stage, at which time the acquisition fee will be reduced to up to 1.0% for properties acquired thereafter. For each real property acquired prior to or during the development or construction stage, the acquisition fee will be an amount equal to up to 4.0% of the total project cost (which will be the amount actually paid or allocated to the purchase, development, construction or improvement of a property exclusive of acquisition fees and acquisition expenses). During the three months ended March 31, 2007, our Advisor earned approximately $3.5 million in acquisition fees, which are accounted for as part of the historical cost of the acquired properties. The Advisor did not earn any acquisition fees during the three months ended March 31, 2006.

We also pay our Advisor an asset management fee in connection with the asset and portfolio management of real property, real estate securities and debt related investments. The Advisor’s asset management fee is payable as follows:

Prior to the Dividend Coverage Ratio Date (as defined below):

For Direct Real Properties (as defined below), the asset management fee will consist of a monthly fee not to exceed one twelfth of 0.75% of the aggregate cost (before non cash reserves and depreciation) of all Direct Real Properties;

For Product Specialist Real Properties (as defined below), the asset management fee will consist of (i) a monthly fee not to exceed one twelfth of 0.50% of the aggregate cost (before non cash reserves and depreciation) of Product

19

Specialist Real Properties; and (ii) a monthly fee not to exceed 6% of the aggregate monthly net operating income derived from all Product Specialist Real Properties.

After the Dividend Coverage Ratio Date (as defined below):

For all real properties, the asset management fee will consist of: (i) a monthly fee not to exceed one twelfth of 0.50% of the aggregate cost (before non cash reserves and depreciation) of all real property assets within our portfolio; and (ii) a monthly fee not to exceed 8.0% of the aggregate monthly net operating income derived from all real property assets within our portfolio.

“Direct Real Properties”: shall mean those real properties acquired directly by us without the advice or participation of a product specialist engaged by the Advisor.

“Dividend Coverage Ratio”: shall mean, as to any given fiscal quarter, the total amount of distributions made by us in that fiscal quarter divided by the aggregate funds from operations for that fiscal quarter.

“Dividend Coverage Ratio Date”: shall be the date on which our dividend coverage ratio has been less than or equal to 1.00 for two consecutive fiscal quarters.

“Product Specialist Real Properties”: shall mean those real properties acquired by us pursuant to the advice or participation of a product specialist engaged by the Advisor pursuant to a contractual arrangement.

In addition, the asset management fee for all real property assets (acquired both prior to and after the Dividend Coverage Ratio Date) includes a fee of 1.0% of the sales price of individual real property assets upon disposition.

For securities and debt related assets, the asset management fee consists of a monthly fee equal to one twelfth of 1.0% of the aggregate value of the securities and debt related assets within our portfolio.

For the three months ended March 31, 2007, our Advisor earned approximately $1.3 million in aggregate asset management fees.  The Company did not have any assets that would have resulted in asset management fees for the three months ended March 31, 2006.

Pursuant to the Advisory Agreement, our Advisor is obligated to advance all of our organizational and offering costs subject to its right to be reimbursed for such costs by us in an amount up to 1.5% of the aggregate gross offering proceeds raised in our public offering of common stock. Such organizational and offering costs include, but are not limited to, actual legal, accounting, printing and other expenses attributable to preparing the SEC registration statements, qualification of the shares for sale in the states and filing fees incurred by our Advisor, as well as reimbursements for marketing, salaries and direct expenses of its employees while engaged in registering and marketing the shares, other than selling commissions and the dealer manager fee.

Offering costs incurred in connection with the issuance of equity securities are deducted from stockholders’ equity, and organizational costs associated with the formation of the Company are expensed as incurred and are included as part of general and administrative expenses in the accompanying condensed consolidated statements of operations.

During the three months ended March 31, 2007 and 2006, our Advisor incurred reimbursable offering costs of approximately $4.9 million and $1.6 million, respectively. In aggregate, as of March 31, 2007, the Advisor had incurred reimbursable offering costs of $16.7 million. As of March 31, 2007, we had incurred in aggregate, approximately $10.6 million in such reimbursable offering costs, which have been included as a reduction to additional paid-in capital in the accompanying condensed consolidated statement of stockholders’ equity. As of March 31, 2007, of the $10.6 million in reimbursable offering costs we incurred, approximately $681,000 had not yet been reimbursed to the Advisor, which have been included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Approximately $6.1 million of reimbursable offering costs incurred by the Advisor are not reflected in the accompanying condensed consolidated balance sheets of the Company, due to the fact that the Company is not obligated to reimburse these costs to the Advisor until the corresponding aggregate gross offering proceeds are raised in our public offering of common stock.

20

In addition to the reimbursement of organizational and offering costs, we are also obligated, subject to certain limitations, to reimburse our Advisor for certain other expenses incurred on our behalf for providing services contemplated in the Advisory Agreement, provided that the Advisor does not receive a specific fee for the activities which generate the expenses to be reimbursed. For the three months ended March 31, 2007, we incurred approximately $123,000 for these expenses which we reimbursed to the Advisor.  Such reimbursements are included as general and administrative expenses in the accompanying condensed consolidated statements of operations. During the three months ended March 31, 2006, we reimbursed the Advisor approximately $28,000 for such expenses.

The Dealer Manager

We have entered into a dealer manager agreement with the Dealer Manager pursuant to which we pay a dealer manager fee of up to 2.5% of gross offering proceeds raised pursuant to our initial public offering of common stock to the Dealer Manager as compensation for managing the offering. The Dealer Manager may re-allow a portion of such fees to broker-dealers who participate in the offering. We also pay up to a 6.0% sales commission of gross offering proceeds raised pursuant to our initial public offering of common stock. As of March 31, 2007, all sales commissions had been re-allowed to participating broker-dealers. For the three months ended March 31, 2007, we incurred fees payable to the Dealer Manager of approximately $9.8 million for dealer manager fees and approximately $21.2 million for sales commissions. Such amounts are considered a cost of raising capital and as such are included as a reduction of additional paid-in capital on the accompanying condensed consolidated balance sheets.  Of these costs, we accrued approximately $1.2 million for dealer manager fees and $1.0 million for sales commissions as of March 31, 2007, respectively.  These amounts are included in the accompanying condensed consolidated balance sheets as accounts payable and accrued expenses. During the three months ended March 31, 2006, we did not incur fees payable to the Dealer Manager.

The Facilitator

The Facilitator is responsible for the facilitation of transactions associated with the Operating Partnership’s private placement. The Facilitator is considered a related party as certain indirect owners and employees of the Facilitator serve as our executives. We have entered into an agreement with the Facilitator whereby we pay a transaction facilitation fee associated with the Operating Partnership’s private placement. We pay the Facilitator up to 1.5% of the gross equity proceeds raised through the Operating Partnership’s private placement for transaction facilitation. For the three months ended March 31, 2007, we incurred approximately $681,000 for such fees payable to the Facilitator. In accordance with SFAS No. 98, these fees, as well as the other fees associated with the Operating Partnership’s private placement, are recorded as deferred loan costs and amortized over the life of the financing obligation.  We did not incur any fees payable to the Facilitator during the three months ended March 31, 2006.

Dividend Capital Investments LLC and DCT Industrial Trust Inc.

In addition to utilizing its own management team, the Advisor actively seeks to form strategic alliances with recognized leaders in the real estate and investment management industries. These alliances are intended to allow the Advisor to leverage the organizational infrastructure of experienced real estate developers, operators and investment managers and to potentially give us access to a greater number of real property and real estate securities investment opportunities. The use of product specialists or other service providers will not eliminate or reduce the Advisor’s fiduciary duty to the Company. The Advisor retains ultimate responsibility for the performance of all of the matters entrusted to it under the Advisory Agreement.

The Advisor’s product specialists are and will be compensated through a combination of (a) reallowance of acquisition, disposition, asset management and/or other fees paid by us to the Advisor and (b) potential profit participation in connection with specific portfolio asset(s) identified by them and invested in by us. We may also enter into joint ventures, partnerships or similar arrangements with the Advisor’s product specialists for the purpose of acquiring portfolio assets and, in such cases, the product specialists may or may not make an equity capital contribution to any such arrangement.

As of March 31, 2007, our Advisor had entered into a product specialist agreement with Dividend Capital Investments LLC (“DCI”) in connection with investment management services related to our investments in real estate securities assets. Pursuant to this agreement, a portion of the asset management fee that our Advisor receives from us related to securities investments will be reallowed to DCI in exchange for services provided.

On September 1, 2006, our Advisor entered into a product specialist agreement with DCT Industrial Trust Inc. (“DCT”), previously known as Dividend Capital Trust Inc., in connection with acquisition and asset management services

21

related to our industrial real property investments. Pursuant to this agreement, a portion of the acquisition and asset management fees that our Advisor receives from us related to specific industrial real property investments will be reallowed to DCT in exchange for services provided.

In addition, on September 1, 2006, the Company, through TRT Industrial Fund I LLC, the Company’s wholly-owned subsidiary, entered into a joint venture agreement (“DCT Joint Venture I”) with DCT Industrial Fund II LLC, an indirect wholly-owned subsidiary of DCT, for the acquisition, operation and management of up to $150 million in industrial real property assets (the “Industrial Portfolio”). On March 26, 2007, we entered into an amendment to the DCT Joint Venture I. Pursuant to the terms of the amendment, DCT Joint Venture I was amended to expand the total amount of industrial properties to be acquired under the agreement from its original amount of up to $150 million to a total amount of up to approximately $208.5 million.

The term of the DCT Joint Venture I is eight years and contains certain liquidation provisions, as well as certain termination rights should either of the parties fail to perform its obligations thereunder. In connection with the DCT Joint Venture I, the Company has granted to DCT, subject to certain exceptions, exclusivity rights that will generally restrict the Company from (a) pursuing similar agreements with other industrial operating partners within the United States during the term of the DCT Joint Venture I and (b) directly acquiring or developing industrial assets within the United States during the term of the DCT Joint Venture I.

On March 27, 2007, the Company, through TRT Industrial Fund II LLC, the Company’s wholly-owned subsidiary, entered into a new joint venture (“TRT-DCT Joint Venture II”) with DCT Industrial Fund III LLC, an indirect wholly-owned subsidiary of DCT.  The TRT-DCT Joint Venture II is intended to acquire up to approximately $175 million in industrial properties by December 31, 2007 and is subject to similar terms as the DCT Joint Venture I, as discussed above.

The agreement also contains provisions for entering into one additional joint venture agreement under similar terms for the calendar years 2007 and 2008.

As of March 31, 2007, we had acquired 13 properties pursuant to the terms of the DCT Joint Venture I, seven of which were acquired by the DCT Joint Venture I, and six of which were acquired 100% by us pursuant to the terms of the DCT Joint Venture I. As of December 31, 2006, we had acquired ten properties pursuant to the DCT Joint Venture I, four of which were acquired by the joint venture between us and DCT, and six of which were acquired 100% by us. As of March 31, 2007, the DCT Joint Venture II had acquired 3 properties. The DCT Joint Venture II had not acquired any properties as of December 31, 2006.

Acquisitions pursuant to the DCT Joint Venture I and the DCT Joint Venture II made during the three months ended March 31, 2007, were generally funded from (1) equity contributions from the Company to the respective joint venture using proceeds from the Company’s public and private offerings and (2) an equity contribution from DCT to the respective joint venture. The purchase price of each asset in the Industrial Portfolio was subject to majority approval by the Company’s independent directors.

14.          SPECIAL UNITS

Dividend Capital Total Advisors Group LLC, which is the parent of the Advisor, is the holder of the Special Units. As such, Dividend Capital Total Advisors Group LLC may be entitled to receive certain cash distributions so long as the Special Units remain outstanding as well as a potential one-time payment, in the form of a promissory note, upon the redemption of the Special Units.

So long as the Special Units remain outstanding, the holder of the Special Units will receive 15.0% of the net sales proceeds received by the Operating Partnership on dispositions of its assets and dispositions of real property held by joint ventures or partnerships in which the Operating Partnership owns an interest after the other holders of OP Units, including the Company, have received, in the aggregate, cumulative distributions from operating income, sales proceeds or other sources equal to our capital contributions plus a 6.5% cumulative non-compounded annual pre-tax return on the Company’s net contributions.

In addition, the Special Units will be redeemed by the Operating Partnership, resulting in a one-time payment, in the form of a promissory note, to the holder of the Special Units, upon the earliest to occur of the following events:

22

(1)The listing of the Company’s common stock on a national or other securities exchange or The Nasdaq National Market or the receipt by our stockholders of securities that are listed on a national securities exchange or the Nasdaq National Market in exchange for our common stock (“Listing Liquidity Event”); or

(2)The termination or non-renewal of the Advisory Agreement (“Advisory Agreement Termination Event”), (a) for “cause,” as defined in the Advisory Agreement, (b) in connection with a merger, sale of assets or transaction involving the Company pursuant to which a majority of the Company’s directors then in office are replaced or removed, (c) by the Advisor for “good reason,” as defined in the Advisory Agreement, or (d) by the Company or the Operating Partnership other than for “cause.”

Upon a Listing Liquidity Event, the one-time cash payment to the holder of the Special Units will be the amount that would have been distributed with respect to the Special Units as described above if the Operating Partnership had distributed to the holders of OP Units upon liquidation an amount equal to the market value of the listed shares based upon the average closing price or, if the average closing price is not available, the average of bid and asked prices, for the 30 day period beginning 150 days after such Listing Liquidity Event. Upon an Advisory Agreement Termination Event (other than for “cause,” as defined in the Advisory Agreement), the one-time payment to the holder of the Special Units will be the amount that would have been distributed with respect to the Special Units as described above if the Operating Partnership sold all of its assets for their then fair market values (as determined by appraisal, except for cash and those assets which can be readily marked to market), paid all of its liabilities and distributed any remaining amount to the holders of OP Units in liquidation of the Operating Partnership. Upon an Advisory Agreement Termination Event for “cause,” as defined in the Advisory Agreement, the one-time cash payment to the holder of the Special Units will be $1.

Upon a Listing Liquidity Event or an Advisory Agreement Termination Event (other than for “cause”), the one time payment to the holder of the Special Units will be made in the form of a non-interest bearing promissory note that will be repaid using the entire net proceeds from each sale of the Operating Partnership’s assets in connection with or following the occurrence of the particular event. Payments may not be made under a promissory note issued in connection with an Advisory Agreement Termination Event until either (a) the closing of asset sales that result in aggregate, cumulative distributions to the holders of the OP Units, including the Company, in an amount equal to their capital contributions plus a 6.5% cumulative non-compounded annual pre-tax return on such net contributions or (b) a Listing Liquidity Event (each a “Subsequent Liquidity Event”). In addition, the amount of the promissory note issued in connection with an Advisory Agreement Termination Event will be subject to reduction as of the date of the Subsequent Liquidity Event by an amount that will ensure that, in connection with the Subsequent Liquidity Event, the holder of the promissory note does not receive in excess of 15% of the distributions that are made or are deemed to be made after holders of the OP Units, including the Company, have received or are deemed to have received aggregate, cumulative distributions equal to their capital contributions plus a 6.5% cumulative non-compounded annual pre-tax return on such net contributions.

Except as described above, the holder of the Special Units shall not be entitled to receive any redemption or other payment from the Company or the Operating Partnership including any participation in the quarterly distributions that the Company makes to its stockholders. In addition, it is possible that certain of the Company’s stockholders would receive more or less than the 6.5% cumulative non-compounded annual pre-tax return on net contributions described above prior to the commencement of distributions to the holder of the Special Units or the redemption of the Special Units.

15.          NET INCOME (LOSS) PER COMMON SHARE

Reconciliations of the numerator and denominator used to calculate basic net income (loss) per common share to the numerator and denominator used to calculate diluted net income (loss) per common share for the three months ended March 31, 2007 and 2006 are as follows (amounts in thousands, except per share and footnote amounts):

23

	For the Three Months Ended
	March 31,		March 31,
	2007		2006
Net income (loss)	$	2,985	$	(1	)
Minority interests share in net income (loss)	1		(62		)
Net income (loss)	2,986		(63		)
Weighted average shares outstanding-basic	53,746		**
Incremental weighted average shares effect of conversion of OP units	20		**
Weighted average shares outstanding-diluted	53,766		**
Net income (loss) per common share-basic	$	0.06	$	(3.12	)
Net income (loss) per common share-diluted	$	0.06	$	(3.12	)

**           200 shares outstanding.

16. INCOME TAXES

During the three months ended March 31, 2007, we believe that we were organized and operated in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes beginning with the tax year ended December 31, 2006. We intend to make our REIT election under Internal Revenue Code Section 856 beginning with the taxable year ended December 31, 2006. Our REIT status is expected to be effective when we file our corporate tax return for the taxable year ended December 31, 2006 in August 2007.  In order for a former C corporation to elect to be a REIT, it must distribute 100% of its C corporation earnings and profits and agree to be subject to federal tax at the corporate level to the extent of any subsequently recognized built-in gains within a ten year period. We did not have any built-in gains at the time of our conversion to REIT status. As a REIT, we generally will not be subject to federal income taxation at the corporate level to the extent we distribute 100% of our REIT taxable income annually, as defined in the Internal Revenue Code, to our stockholders and satisfy other requirements. To continue to qualify as a REIT for federal tax purposes, we must distribute at least 90% of our REIT taxable income annually. No material provisions have been made for federal income taxes in the accompanying condensed consolidated financial statements.

The Company had no unrecognized tax benefits as of the January 1, 2007 adoption date or as of March 31, 2007. The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of March 31, 2007. The Company has no interest or penalties relating to income taxes recognized in the statement of operations for the three months ended March 31, 2007 or in the balance sheet as of March 31, 2007.

17. COMMITMENTS AND CONTINGENCIES

We and our Operating Partnership are not presently involved in any material litigation nor, to our knowledge, is any material litigation threatened against us or our investments, other than routine litigation arising in the ordinary course of business. Management believes the costs, if any, incurred by our Operating Partnership and us related to litigation will not materially affect our financial position, operating results or liquidity.

18.          SEGMENT INFORMATION

Statement of Financial Accounting Standards No. 131, Disclosures about Segments of a Business Enterprise and Related Information (“SFAS No. 131”) establishes standards for the way that public entities report information about operating segments in their annual financial statements.  We have the following business segments: (1) investments in real property, (2) investments in real estate securities, and (3) debt related investments.  The following table sets forth components of net operating income (“NOI”) of our segments for the three months ended March 31, 2007 (amounts in

24

thousands). No information is presented for the three months ended March 31, 2006 due to our insignificant operations during that period.

	Real Property			Real Estate  Securities			Debt  Related  Investments			Total
Revenue	$	7,746		$	1,873		$	1,259		$	10,878
Operating expenses (1)	(2,109		)	—			—			(2,109		)
Asset management fees, related party (2)	(777		)	(339		)	(149		)	(1,265		)
Net operating income	$	4,860		$	1,534		$	1,110		$	7,504

(1)Represents real property operating expenses, and excludes depreciation, amortization, general and administrative expenses and interest expense.

(2)See Note 13 for discussion of asset management fees paid to our Advisor.

We consider NOI to be an appropriate supplemental performance measure because NOI reflects the operating performance of our real properties, real estate securities, and debt related investments and excludes certain items that are not considered to be controllable in connection with the management of the property such as depreciation and amortization, interest expense, interest income, and general and administrative expenses. However, NOI should not be viewed as an alternative measure of our financial performance as a whole, since it does exclude such items which could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. The following table is a reconciliation of our NOI to our reported net income (amounts in thousands):

	For the Three
	Months Ended
	March 31, 2007
Net operating income	$	7,504
Interest income	2,538
Depreciation and amortization	(3,418		)
General and administrative expenses	(744		)
Interest expense	(2,883		)
Minority interests	(12		)
Net income	$	2,985

The following table reflects our total assets by market segment (amounts in thousands).

25

	As of March 31,  2007		As of December 31, 2006
Segment assets:
Investments in real property, net	$	451,515	$	256,631
Investments in real estate securities	168,579		48,179
Debt related investments	89,591		28,256
Total segment assets, net	$	709,685	$	333,066
Non-segment assets:
Cash and cash equivalents	$	166,273	$	67,317
Other non-segment assets (1)	28,993		52,588
Total assets	$	904,951	$	452,971

(1)Other non-segment assets primarily consist of corporate assets including subscriptions receivable, certain loan costs, including loan costs associated with our financing obligations, deferred acquisition costs, and restricted cash.

19.SUBSEQUENT EVENTS

Real Property Acquisitions

DDR Retail Portfolio Acquisition

On April 25, 2007, wholly-owned subsidiaries of both ours and Developers Diversified Realty Corporation (“DDR”) formed a joint venture, which we refer to as the DDR Joint Venture. Pursuant to this joint venture, on May 11, 2007, we acquired a fee interest in a portfolio in three retail properties, which we refer to as the DDR Retail Portfolio. The DDR Retail Portfolio consists of three retail properties located in the following markets: 1) Raleigh, North Carolina 2) Philadelphia, Pennsylvania and 3) Pittsburgh, Pennsylvania. The acquisition was made pursuant to a purchase agreement entered into by and between the DDR Joint Venture and DDR, as seller.

The DDR Joint Venture purchased the DDR Retail Portfolio for a total acquisition cost of approximately $163.0 million (which excludes an expected acquisition fee of $2.5 million to be paid to the Advisor).

The total approximate acquisition cost of the DDR Retail Portfolio was funded as follows: (i) an equity contribution from us using proceeds from our public offering and available cash and (ii) an equity contribution from DDR. We intend to obtain debt financing related to the DDR Retail Portfolio, the terms of which have not been finalized.

Probable DCT Property Acquisitions

Pursuant to the terms of the amendment to the DCT Joint Venture I, we expect to acquire Logistics Boulevard, an industrial property located in the Cincinnati, Ohio market, during June 2007 for approximately $31.3 million. This acquisition is subject to the satisfaction of certain conditions and there is no guarantee that we will be able to acquire this property per the terms described above or at all.

In addition, through the DCT Joint Venture II, we expect to acquire Midpoint Drive, an industrial property located in the Kansas City, Kansas market, during May 2007 for approximately $9.0 million, and Greenwood Center, an industrial property located in the Atlanta, Georgia market during October 2007 for approximately $22.6 million. These acquisitions are subject to the satisfaction of certain conditions and there is no guarantee that we will be able to acquire these properties per the terms described above or at all.

We expect to fund acquisitions pursuant to DCT Joint Venture I and DCT Joint Venture II generally from (1) equity contributions from the Company to the respective joint venture using proceeds from the Company’s public offering and (2)  equity contributions from DCT to the respective joint venture.

26

Probable Acquisition of California Circle Office Center

On April 19, 2007, a joint venture between a wholly-owned subsidiary of ours and Westcore Properties AC, LLC (“Westcore”), which we refer to as the California Circle Joint Venture, deposited a non-refundable amount of $150,000 into an escrow account in connection with the intended acquisition of an office property located in the San Jose, California market, which we refer to as the California Circle Office Center. The escrow account has been established pursuant to a purchase agreement entered into by and between the California Circle Joint Venture and the seller.

The California Circle Joint Venture anticipates the closing of the California Circle Office Center to occur in June 2007 for a total investment of approximately $14.2 million (which excludes an expected acquisition fee of $273,000 to be paid to the Advisor).

The total approximate acquisition cost for California Circle Office Center is intended to be funded as follows: (i) an equity contribution from us using proceeds from our public offering and available cash, (ii) an equity contribution from Westcore and (iii) debt financing, the terms of which have not yet been determined.

There is no assurance that the California Circle Joint Venture will be able to purchase California Circle Office Center for the terms set forth herein or at all.

Probable Acquisition of Fortune Concourse Office Center

On April 23, 2007, a joint venture between a wholly-owned subsidiary of ours and Westcore, which we refer to as the Fortune Concourse Joint Venture, deposited a non-refundable amount of $500,000 into an escrow account in connection with the intended acquisition of an office property located in San Jose, California, which we refer to as the Fortune Concourse Office Center. The escrow account has been established pursuant to a purchase agreement entered into by and between the Fortune Concourse Joint Venture and the seller.

The Fortune Concourse Joint Venture anticipates the closing of the Fortune Concourse Office Center to occur in May 2007 for a total investment of approximately $47.6 million (which excludes an expected acquisition fee of $851,500 to be paid to the Advisor).

The total approximate acquisition cost of the Fortune Concourse Office Center is intended to be funded as follows: (i) an equity contribution from us using proceeds from our public offering and available cash, (ii) an equity contribution from Westcore and (iii) debt financing, the terms of which have not yet been determined.

There is no assurance that the Fortune Concourse Joint Venture will be able to purchase Fortune Concourse Office Center for the terms set forth herein or at all.

Probable Acquisition of CB Square Retail Center

On May 2, 2007, we deposited a non-refundable amount of $184,000 into an escrow account in connection with the intended acquisition of a retail property located in the Jacksonville, Florida market, which we refer to as the CB Square Retail Center. The escrow account has been established pursuant to a purchase agreement entered into by and between us and the seller.

We anticipate the closing of the CB Square Retail Center to occur in June 2007 for a total investment of approximately $18.6 million (which excludes an expected acquisition fee of $369,000 to be paid to the Advisor).

The total approximate acquisition cost for CB Square Retail Center is intended to be funded as follows: (i) an equity contribution from us using proceeds from our public offering and available cash and (ii) debt financing, the terms of which have not yet been determined.

There is no assurance that we will be able to purchase the CB Square Retail Center for the terms set forth herein or at all.

Acquisition of Real Estate Securities

From April 1, 2007 through April 30, 2007, we invested in various real estate securities at an aggregate acquisition cost of approximately $50.4 million, including $28.4 million invested in CMBS and CDOs and $22.0 million invested in preferred equity securities.

27

In aggregate, as of April 30, 2007, we had invested approximately $217.3 million in real estate securities, net of dispositions.

Acquisition of Debt Related Investments

On April 11, 2007, we invested approximately $20.0 million in a mezzanine loan related to an office property located in Sunnyvale, California. This mezzanine loan is an interest-only note and had a remaining term of 56 months, as of the date of acquisition.

In aggregate, as of April 30, 2007, we had invested approximately $106.0 million in debt related investments, net of borrower repayments of approximately $4.4 million.

Secured Mortgage Financing

Shackleford Mortgage Financing

In conjunction with the acquisition of the Shackleford property (see Note 3), we entered into an interest-only, secured mortgage loan agreement with an independent, third-party commercial lender on April 2, 2007. The term of the secured mortgage loan is 10 years. Pursuant to this loan, we received loan proceeds of approximately $13.7 million in the form of a promissory note at a 5.80% fixed interest rate. The note is non-recourse to the Company.

DCT Joint Venture I Mortgage Financing

In conjunction with the acquisition of all assets acquired by the DCT Joint Venture I (see Note 3 and Note 13), we entered into an interest-only, secured mortgage loan agreement with an independent, third-party commercial lender on May 4, 2007. The term of the secured mortgage loan is 10 years. Pursuant to this loan, we received loan proceeds of approximately $85.0 million in the form of a promissory note at a 5.66% fixed interest rate. The note is non-recourse to either the Company of the DCT Joint Venture I.

Hedging Activity

In April 2007, we entered into two $50.0 million interest rate swap agreements for purposes of hedging the expected interest payments associated with a portion of the anticipated secured mortgage financing related to the acquisition of the DDR Retail Portfolio. We terminated these interest rate swap agreements in April 2007.

Proceeds from Public Offering

As of April 30, 2007, we had approximately 14,700 stockholders, issued approximately 79.3 million shares of our common stock to stockholders and received approximately $786.6 million in gross proceeds from our public offering.

28

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto as of December 31, 2006 and for the year then ended, included in our annual report on Form 10-K filed with the SEC on March 23, 2007.

Forward-Looking Information

This report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements relate to, without limitation, our future capital expenditures, distributions and acquisitions (including the amount and nature thereof), other development trends of the real estate industry, business strategies, and the expansion and growth of our operations. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Act and Section 21E of the Exchange Act. Such statements are subject to a number of assumptions, risks and uncertainties which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “continue,” or the negative of these words, or other similar words or terms. Readers are cautioned not to place undue reliance on these forward-looking statements. Among the factors about which we have made assumptions are general economic and business (particularly real estate) conditions being less favorable than expected, the potential impact of terrorist attacks on the national, regional and local economies, the business opportunities that may be presented to and pursued by us, changes in laws or regulations (including changes to laws governing the taxation of REITs), risk of acquisitions, availability and creditworthiness of prospective customers, availability of capital (debt and equity), interest rate fluctuations, competition, supply and demand for properties in our current and any proposed market areas, customers’ ability to pay rent at current or increased levels, accounting principles, policies and guidelines applicable to REITs, environmental, regulatory and/or safety requirements, customer bankruptcies and defaults, the availability and cost of comprehensive insurance, including coverage for terrorist acts, and other factors, many of which are beyond our control. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

Overview

We were formed as a Maryland corporation on April 11, 2005 to invest in a diverse portfolio of real properties, real estate securities and debt related investments. Our operating segments include (1) direct investments in real property, consisting of office, industrial, retail, multifamily and other properties, primarily located in North America, (2) investments in real estate securities, including securities issued by other real estate companies, CMBS, CDOs and similar investments and (3) certain debt related investments, including mortgage notes secured by real estate, participations in mortgage loans, B-notes, mezzanine debt and other related investments.   For a more detailed discussion of our operating segments, see Note 18 to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

On January 27, 2006, we commenced an initial public offering of up to $2.0 billion in shares of our common stock, 75% of which are being offered at a price of $10.00 per share, and 25% of which are being offered pursuant to our distribution reinvestment plan at a price of $9.50 per share. On April 3, 2006, we satisfied the minimum offering requirements of our public offering. As of March 31, 2007, we had accepted subscriptions from approximately 13,300 stockholders, issued approximately 71.8 million shares of our common stock and received approximately $646.2 million in net proceeds.

As of March 31, 2007, we had invested in 24 real properties at a total gross investment amount of approximately $457.8 million, comprising approximately 5.6 million net rentable square feet.   These assets included (1) seven office and office/R&D properties with a total gross investment amount of approximately $188.8 million, comprising approximately 1.1 million net rentable square feet, (2) 16 industrial properties with a total gross investment amount of approximately $236.5 million, comprising approximately 4.2 million net rentable square feet and (3) one retail property with a total gross

29

investment amount of approximately $32.4 million, comprising approximately 330,000 net rentable square feet.  These properties are located in ten distinct markets throughout the United States.   These properties were acquired using a combination of (1) net proceeds from our public and private offerings, (2) debt financings, (3) available cash and (4) minority interest equity contributions.

As of March 31, 2007, we had invested in various real estate securities, net of dispositions, at a total approximate cost of $169.0 million, including (1) preferred equity securities of various real estate operating companies and real estate investment trusts primarily in the retail, office, multifamily, lodging and diversified real estate sectors with an approximate cost of $54.2 million and (2) CMBS and CDOs with an approximate cost of $114.8 million.  The total cost of these purchases was paid for using a combination of (1) net proceeds from the Company’s public offering, (2) borrowings from our REPO Facility and (3) available cash.

As of March 31, 2007, we had acquired approximately $89.6 million in debt related investments.  These debt related investments included (1) investments in senior participating interests in two mortgage loans of approximately $33.4 million, (2) investments in two B-notes of approximately $36.3 million and (3) an investment in mezzanine debt of approximately $19.9 million.

Liquidity and Capital Resources

Significant Sources of Capital

The following discussion describes our significant sources of capital for the three months ended March 31, 2007.  We did not commence formal business operations until the acquisition of our first real property on June 28, 2006.

Public Offering

On May 27, 2005, we filed a registration statement with the SEC on Form S-11 in connection with an initial public offering of our common stock. The registration statement was declared effective on January 27, 2006. Pursuant to the registration statement, we are offering for sale up to $2.0 billion in shares of common stock, 75% of which are being offered to stockholders at a price of $10.00 per share, and 25% of which are being offered to participants in our distribution reinvestment plan at a price of $9.50 per share.

For the three months ended March 31, 2007, approximately 39.5 million shares of common stock were issued in connection with the public offering.  For the three months ended March 31, 2007, we raised net proceeds of approximately $359.5 million.  The net proceeds from the sale of these securities were transferred to our Operating Partnership on a one-for-one basis for OP Units. We had not met the minimum offering requirements of our initial public offering as of March 31, 2006.

The Operating Partnership’s Private Placement

The Operating Partnership is currently offering undivided tenancy-in-common interests in our properties to accredited stockholders in a private placement exempt from registration under the Securities Act. We anticipate that these tenancy-in-common interests may serve as replacement properties for stockholders seeking to complete like-kind exchange transactions under Section 1031 of the Code. Additionally, the tenancy-in-common interests sold to stockholders are 100% leased by the Operating Partnership, and such leases contain purchase options whereby our Operating Partnership has the right to acquire the tenancy-in-common interests from the stockholders commencing at the beginning of the 15th month and terminating at the end of the 18th month of the lease in exchange for OP units under Section 721 of the Internal Revenue Code. During the three months ended March 31, 2007, we had raised approximately $26.9 million pursuant to our Operating Partnership’s private placement. We had not raised any capital from the sale of undivided tenancy-in-common interests in our properties pursuant to the Operating Partnership’s private placement during the three months ended March 31, 2006.

Debt Financings

Mortgage Debt—During the three months ended March 31, 2007, we obtained aggregate mortgage debt financing in the amount of approximately $48.2 million; all of this mortgage debt was interest only. We had not obtained any mortgage debt financing as of March 31, 2006. We incurred interest expense, including the amortization of related loan costs, of approximately $1.7 million for the three months ended March 31, 2007. For a summary of these mortgage debt financings

30

and their related terms, see Note 6 to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Master Repurchase Facility (the “REPO Facility”)—On October 26, 2006, we closed a master repurchase facility with JP Morgan Chase Bank, N.A. The REPO Facility has a capacity of $200 million and matures in October 2007, subject to extension, with a final maturity date in October 2009. The REPO Facility bears interest at spreads of 0.05% to 2.15% over one-month LIBOR and, based on our expected investment activities, provides for advance rates that vary from 35% to 97% based upon the asset being financed. The lender has a consent right to the inclusion of investments in this facility, determines periodically the market value of the investments, and has the right to require additional collateral if the estimated market value of the included investments declines. During the three months ended March 31, 2007, we had repaid approximately $6.0 million in borrowings under the REPO Facility, resulting in aggregate borrowings of approximately $5.0 million at a weighted average spread of LIBOR plus 0.97%.  We incurred interest expense, including REPO Facility non-usage fees and the amortization of related loan costs, of approximately $248,000 for the three months ended March 31, 2007. We had not entered into any REPO Facility transactions as of March 31, 2006.

The REPO Facility requires that we pay down borrowings as principal payments on the loans and investments pledged are received.

Minority Interest Contributions

For the three months ended March 31, 2007, our joint venture partners had contributed approximately $12.8 million in equity capital to our consolidated joint ventures in connection with the acquisition of certain of our real properties.  We had not entered into any joint venture arrangements as of March 31, 2006.

Cash Flow from Operations

For the three months ended March 31, 2007, our cash provided by operating activities was approximately $5.2 million.  Cash used in operating activities for the three months ended March 31, 2006 was insignificant.

Significant Uses of Capital

The following discussion describes our significant uses of capital for the three months ended March 31, 2007.  We did not commence formal business operations until the acquisition of our first real property on June 28, 2006.

Real Property Acquisitions

During the three months ended March 31, 2007, we acquired ten real properties with a gross investment amount of approximately $198.4 million, comprising approximately 2.6 million net rentable square feet.  These assets included (1) three office properties with a total gross investment amount of approximately $58.1 million, comprising approximately 405,000 net rentable square feet, (2) six industrial properties with a total gross investment amount of approximately $107.9 million, comprising approximately 1.9 million net rentable square feet and (3) one retail property with a total gross investment amount of approximately $32.4 million, comprising approximately 330,000 net rentable square feet. These properties were acquired using a combination of (1) net proceeds from our public offering, (2) debt financings, (3) available cash and (4) minority interest equity contributions.  For all properties acquired and consolidated, the results of operations for the acquired properties are included in our condensed consolidated statements of operations from the dates of acquisition.

Real Estate Securities Acquisitions

During the three months ended March 31, 2007, the Company acquired real estate securities classified as available-for-sale through purchases in the open market with an aggregate cost of approximately $121.8 million. These purchases consisted of (1) preferred equity securities of various real estate operating companies and real estate investment trusts with an approximate cost of $34.1 million and (2) CMBS and CDOs with an approximate cost of $87.7 million. The cost of these purchases was paid for using net proceeds from the Company’s public offering. In addition, the Company acquired approximately $16.1 million of real estate securities that had not settled as of March 31, 2007, which have been included in our accompanying condensed consolidated balance sheets as unsettled securities purchases. There was no real estate securities acquisition activity during the three months ended March 31, 2006.

31

We have not invested in any real estate securities, including CMBS and CDOs, that contain assets that could be classified as sub prime residential mortgages.  As such, we currently do not have direct exposure to the sub prime residential lending market.  To date, the recent losses in the sub prime market have not materially affected the market value of our securities portfolio.  However, to the extent that turmoil in the sub prime residential lending market continues and/or intensifies, it may have the potential to affect the value of our securities portfolio and/or the availability or the terms of financing that we may anticipate utilizing in order to leverage our securities portfolio.

Debt Related Investments

During the three months ended March 31, 2007, the Company acquired approximately $61.3 million in debt related investments.  These debt related investments included (1) an investment in a first mortgage loan to a commercial developer secured by a real property currently in the final stages of construction in the New York metropolitan market of approximately $25.8 million, (2) an investment in a B-note of approximately $15.0 million, (3) an investment in mezzanine debt of approximately $19.9 million and (4) additional borrowings under the terms of a senior participating interest in a commercial developer mortgage loan of approximately $608,000. There was no debt related investment activity during the three months ended March 31, 2006.  The Company acquired these investments at a net discount of approximately $86,000, which will be amortized to debt related income over the related term of the investments.

Debt Service Requirements

As of March 31, 2007, we had total outstanding debt and short-term borrowings of approximately $137.6 million.  These borrowings consisted of (1) approximately $132.6 million in secured, fixed-rate, interest-only, non-recourse mortgage notes and (2) approximately $5.0 million in borrowings under our REPO Facility. In addition, we had financing obligations of approximately $65.9 million related to the Operating Partnership’s private placement.  All of our borrowings require monthly payments of interest only.  Currently, our cash flows from operations are sufficient to satisfy these monthly debt service requirements and financing obligations and we anticipate that cash flows from operations will continue to be sufficient to satisfy our regular monthly debt service and quarterly financing obligation lease payments.  For the three months ended March 31, 2007, our debt service expense was approximately $2.9 million, including accrued interest of approximately $986,000, non-usage fees under our REPO Facility and the amortization of deferred loan costs. There were no debt service requirements during the three months ended March 31, 2006.

Distributions

The payment of distributions is determined by our board of directors and may be adjusted at its discretion at any time.  Distribution levels are set by our board of directors at a level it believes to be appropriate and sustainable based upon a review of a variety of factors including, but not limited to, the evaluation of existing assets within our portfolio, anticipated acquisitions, projected levels of additional capital to be raised, debt to be incurred in the future and the anticipated results of operations.  In December 2006, our board of directors set the distribution level at an annualized $0.60 per share or OP Unit for the quarter ended March 31, 2007.

The total amount of distributions for the three months ended March 31, 2007 was approximately $8.1 million and was satisfied by two sources:  (1) a cash distribution to stockholders of approximately $3.4 million and (2) a common stock issuance of approximately $4.7 million (approximately 496,000 shares) pursuant to our distribution reinvestment plan.

We funded our distributions for the three months ended March 31, 2007 of $8.1 million from a combination of (1) funds from operations of approximately $6.1 million and (2) short-term borrowings and borrowings under our REPO Facility of approximately $2.0 million.  Our long-term strategy is to fund the payment of distributions entirely from funds from operations.

Results of Operations

Summary

As a result of the acquisition of real properties, real estate securities and debt related investments discussed previously and based on the fact that we did not formally commence business operations until June 2006, the results of our operations for the three months ended March 31, 2007 reflect significant increases compared with our results of operations for the three months ended March 31, 2006.

32

Rental Revenue

For the three months ended March 31, 2007, we earned rental revenue of approximately $7.7 million from our 24 real properties acquired throughout the year.  We did not have any rental revenue during the three months ended March 31, 2006.

Securities Income

For the three months ended March 31, 2007, we earned income from investments in real estate securities of approximately $1.9 million, which is derived from dividend income earned on preferred equity securities and interest earned on CMBS and CDOs of approximately $761,000 and $1.1 million, respectively.  We did not have any income from investments in real estate securities during the three months ended March 31, 2006.

Debt Related Income

For the three months ended March 31, 2007, we earned income from debt related investments of approximately $1.3 million.  We earned approximately $675,000 from our investments in three B-Notes, $305,000 from our investment in senior participation mortgage interests, and $280,000 from our investment in a mezzanine loan. We did not have any income from debt related investments during the three months ended March 31, 2006.

Rental Expense

During the three months ended March 31, 2007, we incurred rental expense of approximately $2.1 million. We did not own any real property during the three months ended March 31, 2006.

Depreciation and Amortization

During the three months ended March 31, 2007, we recorded depreciation and amortization expense of approximately $3.4 million, related to our 24 real properties that we owned during the period. We held no depreciable assets during the three months ended March 31, 2006.

General and Administrative Expenses

During the three months ended March 31, 2007 and 2006, we recorded general and administrative expenses of approximately $744,000 and $63,000, respectively.  The increase in general and administrative expenses of approximately $681,000 is primarily attributable to commencement of our formal operations.

Asset Management Fees, Related Party

During the three months ended March 31, 2007, our Advisor earned approximately $1.3 million in asset management fees, which was comprised of (1) real property asset management fees of approximately $782,000, (2) real estate securities asset management fees of approximately $335,000 and (3) debt related asset management fees of approximately $148,000.  We did not own any assets that would have resulted in asset management fees during the three months ended March 31, 2006.

For a detailed discussion of the asset management fees we pay to our Advisor, see Note 13 to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Interest Income

During the three months ended March 31, 2007, we earned interest income of approximately $2.5 million.  Interest income is attributed to interest earned on cash balances held in interest bearing bank accounts and money market mutual funds.  The Company had negligible cash balances during the three months ended March 31, 2006.

Interest Expense

During the three months ended March 31, 2007, we incurred interest expense of approximately $2.98 million.  Interest expense resulted primarily from (1) the issuance of mortgage notes associated with our real property acquisitions, (2)

33

imputed interest expense on financing obligations associated with our Operating Partnership’s private placement and (3) borrowings on our REPO Facility. We had no outstanding debt as of March 31, 2006.

Off-Balance Sheet Arrangements

As of March 31, 2007 and December 31, 2006, we had no material off-balance sheet arrangements 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.

Supplemental Earnings Measures

Funds from Operations

We believe that net income, as defined by GAAP, is the most appropriate earnings measure. However, we consider funds from operations, or FFO, as defined by NAREIT, to be a useful supplemental measure of our operating performance. FFO is defined as net income, calculated in accordance with GAAP, plus real estate related depreciation and amortization, less gains (or losses) from dispositions of real estate held for investment purposes and adjustments to derive our pro rata share of FFO of consolidated and unconsolidated joint ventures. We consider FFO to be a useful measure for reviewing our comparative operating and financial performance because, by excluding all operating real estate depreciation and amortization and gains or losses related to sales of previously depreciated operating real estate, FFO can help the investing public compare the operating performance of a company’s real estate between periods or to other companies. The following table presents the calculation of our FFO reconciled from net income for the three months ended March 31, 2007  and 2006 (amounts in thousands, except per share information):

Calculation of Funds from Operations

	For the Three Months Ended
	March 31,			March 31,
	2007			2006
Reconciliation to Funds From Operations:
Net Income (loss)	$	2,985		$	(1	)
Add:
Depreciation and amortization	3,418			—
Minority interest share of net income (loss)	12			(62		)
Less:
FFO attributable to minority interest	(297		)	62
FFO attributable to common stock	$	6,118		$	(1	)
FFO per share - basic	$	0.11		$	(3.12	)
FFO per share - diluted	$	0.11		$	(3.12	)

Subsequent Events

See subsequent events discussion in Note 19 in our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to the relatively low inflation rate. With the exception of leases with tenants in multifamily properties, we expect to include provisions in the majority of our tenant leases designed to protect us from the impact of inflation. These provisions will include reimbursement

34

billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases, annual reimbursement of operating expenses above a certain allowance. Due to the generally long-term nature of these leases, annual rent increases may not be sufficient to cover inflation and rent may be below market. Leases in multifamily properties generally turn over on an annual basis and do not typically present the same issue regarding inflation protection due to their short-term nature.

Critical Accounting Policies

There have been no material changes to our critical accounting policies as set forth in Item 7. to Part II of our Annual Report on Form 10-K filed with the SEC on March 23, 2007.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be exposed to interest rate changes primarily as a result of short-and long-term debt used to maintain liquidity, fund capital expenditures and expand our investment portfolio and operations. We will seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Also, we will be exposed to both credit risk and market risk.

Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.

Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. With regard to variable rate financing, the Advisor will assess our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.

The Advisor maintains risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy is designed to minimize the impact on our net income and funds from operations from changes in interest rates, the overall returns on our investments may be reduced. Our board of directors has established policies and procedures regarding our use of derivative financial instruments for hedging or other purposes. As of March 31, 2007, we had entered into one hedging arrangement related to our floating rate mortgage note for the acquisition of 40 Boulevard. See Note 9 to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. In addition, in April 2007, we entered into two $50.0 million interest rate swap agreements for purposes of hedging the expected interest payments associated with a portion of the anticipated secured mortgage financing related to the acquisition of the DDR Retail Portfolio. We terminated these interest rate swap agreements in April 2007.

ITEM 4.  CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. Under the direction of our President (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the “Exchange Act”)) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that our disclosure controls and procedures will detect or uncover every situation involving failure of persons within Dividend Capital Total Realty Trust Inc. or its affiliates to disclose material information otherwise required to be set forth in our periodic reports. Based on this evaluation, our President and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective at the reasonable assurance level.

35

(b) Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the most recent fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

None.

ITEM 1A.RISK FACTORS

There have been no material changes to the risk factors set forth in Item 1A to Part I of our Annual Report on Form 10-K filed with the SEC on March 23, 2007.

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

Share Redemption Program

We have established a share redemption program that provides our stockholders with limited interim liquidity. The share redemption program will be immediately terminated if our shares of common stock are listed on a national or other securities exchange or the Nasdaq National Market, or if a secondary market is otherwise established.

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

Share Purchase Anniversary	Redemption Price as a Percentage of Purchase Price
Less than 1 year	No Redemption Allowed
1 year	92.5	%
2 years	95.0	%
3 years	97.5	%
4 years and longer	100.0	%

In the event that our stockholders seek to redeem all of their shares of our common stock, shares of our common stock purchased pursuant to our distribution reinvestment plan may be excluded from the foregoing one-year holding period requirement, in the discretion of the board of directors. In addition, for purposes of the one-year holding period, holders of OP Units who exchange their OP Units for shares of our common stock shall be deemed to have owned their shares as of the date they were issued their OP Units. The board of directors reserves the right in its sole discretion at any time and from time to time to (a) waive the one-year holding period in the event of the death or disability (as such term is defined in the Code) of a stockholder, as well as the annual limitation discussed below, (b) reject any request for redemption for any reason or no reason, or (c) reduce the number of shares of our common stock allowed to be purchased under the share redemption program. At any time we are engaged in an offering of shares of our common stock, the per share price for shares of our common stock redeemed under our redemption program will never be greater than the then-current offering price of our shares of our common stock sold in the primary offering. We are not obligated to redeem shares of our common stock under the share redemption program. We presently intend to limit the number of shares to be redeemed during any consecutive twelve month period to no more than five percent of the number of shares of common stock outstanding at the beginning of such twelve month period. The aggregate amount of redemptions under our share redemption program is not expected to exceed the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan. However, to

36

the extent that the aggregate proceeds received from the sale of shares pursuant to our distribution reinvestment plan are not sufficient to fund redemption requests pursuant to the five percent limitation outlined above, the board of directors may, in its sole discretion, choose to use other sources of funds to redeem shares of our common stock. Such sources of funds could include cash on hand, cash available from borrowings and cash from liquidations of securities investments as of the end of the applicable quarter, to the extent that such funds are not otherwise dedicated to a particular use, such as working capital, cash distributions to stockholders or purchases of real property or real estate securities. The board of directors may also increase the annual limit above five percent but, in any event, the number of shares of our common stock that we may redeem will be limited by the funds available from purchases pursuant to our distribution reinvestment plan, cash on hand, cash available from borrowings and cash from liquidations of securities investments as of the end of the applicable quarter.

The board of directors may, in its sole discretion, amend, suspend, or terminate the share redemption program at any time if it determines that the funds available to fund the share redemption program are needed for other business or operational purposes or that amendment, suspension or termination of the share redemption program is in the best interest of our stockholders. In addition, the board of directors may determine to modify the share redemption program to redeem shares at the then-current net asset value per share (provided that any offering will then also be conducted at net asset value per share), as calculated in accordance with policies and procedures developed by our board of directors. If the board of directors decides to amend, suspend or terminate the share redemption program, we will provide stockholders with no less than 30 days’ prior written notice. Therefore, our stockholders may not have the opportunity to make a redemption request prior to any potential termination of our share redemption program.

As of March 31, 2007, we had not redeemed any shares of common stock pursuant to our share redemption program.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.OTHER INFORMATION

None.

ITEM 6.EXHIBITS

a.Exhibits

10.1	Sale and Purchase Agreement between Boulevard 40 Office LLC, as seller, and Alliance Commercial Partners LLC, as buyer (40 Boulevard).†
10.2	Assignment and Assumption of Sale and Purchase Agreement between Alliance Commercial Partners, LLC, as assignor, and a joint venture between an affiliate of Alliance Commercial Partners and Dividend Capital Total Realty Trust Inc. (40 Boulevard).†
10.3	Promissory note secured by a deed of trust between a joint venture between an affiliate of Alliance Commercial Partners LLC and Dividend Capital Total Realty Trust Inc. and Bank of America, N.A. (40 Boulevard).†

37

10.4	Management Agreement between a joint venture between an affiliate of Alliance Commercial Partners LLC and Dividend Capital Total Realty Trust Inc, and Jones Lang LaSalle Americas (Illinois) LP, as property manager (40 Boulevard).†
10.5	Sale and Purchase Agreement between New Tower Trust Company Multi-Employer, as seller, and Alliance Commercial Partners LLC, as buyer (Washington Commons, Phase I).†
10.6	Sale and Purchase Agreement between Washington Commons Phase II Limited Partnership, as seller, and Alliance Commercial Partners LLC, as buyer (Washington Commons, Phase II).†
10.7	Sale and Purchase Agreement between Washington Commons Phase III Limited Partnership, as seller, and Alliance Commercial Partners LLC, as buyer (Washington Commons, Phase III).†
10.8	Assignment of Sale and Purchase Agreement between Alliance Commercial Partners, LLC. as assignor, and a joint venture between an affiliate of Alliance Commercial Partners and Dividend Capital Total Realty Trust Inc. (Washington Commons, Phase I).†
10.9	Assignment of Sale and Purchase Agreement between Alliance Commercial Partners, LLC. as assignor, and a joint venture between an affiliate of Alliance Commercial Partners and Dividend Capital Total Realty Trust Inc. (Washington Commons, Phase II).†
10.10	Assignment of Sale and Purchase Agreement between Alliance Commercial Partners, LLC. as assignor, and a joint venture between an affiliate of Alliance Commercial Partners and Dividend Capital Total Realty Trust Inc. (Washington Commons, Phase III).†
10.11	Promissory note secured by a deed of trust between a joint venture between an affiliate of Alliance Commercial Partners LLC and Dividend Capital Total Realty Trust Inc. and Bank of America, N.A. (Washington Commons).†
10.12	Management Agreement between a joint venture between an affiliate of Alliance Commercial Partners LLC and Dividend Capital Total Realty Trust Inc. and HP Office Management EU, LLC, as property manager (Washington Commons).†
10.13	Real Estate Purchase and Sale Agreement between Principal Life Insurance Company, as seller, and an affiliate of Dividend Capital Total Realty Trust, Inc., as buyer (Bandera Road).†
10.14	Promissory note secured by a deed of trust between an affiliate of Dividend Capital Total Realty Trust Inc. and Countrywide Commercial Real Estate Finance Inc. (Bandera Road).†
10.15	Management Agreement between a an affiliate of Dividend Capital Total Realty Trust Inc. and Cencor Realty Services, as property manager (Bandera Road).†
10.16	First Amendment to Partnership Agreement between TRT Industrial Fund I LLC and DCT Industrial Fund II LLC. †
10.17	Partnership Agreement between TRT Industrial Fund II LLC and DCT Industrial Fund III LLC. †
10.18	Promissory note secured by a deed of trust between affiliates of a joint venture between affiliates of DCT Industrial Trust Inc. and Dividend Capital Total Realty Trust Inc. and Column Financial, Inc. (DCT Joint Venture I Financing).*
31.1	Rule 13a-14(a) Certification of Principal Executive Officer *
31.2	Rule 13a-14(a) Certification of Principal Financial Officer *
32.1	Section 1350 Certification of Principal Executive Officer *

38

32.2 Section 1350 Certification of Principal Financial Officer *

†Previously filed.

*Filed herewith.

39

SIGNATURES

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

	DIVIDEND CAPITAL TOTAL REALTY TRUST INC.
Date: May 11, 2007	/s/ MARC J. WARREN
	Marc J. Warren
	President
Date: May 11, 2007	/s/ JAMES R. GIULIANO, III
	James R. Giuliano, III
	Chief Financial Officer

40

EXHIBIT INDEX

10.1	Sale and Purchase Agreement between Boulevard 40 Office LLC, as seller, and Alliance Commercial Partners LLC, as buyer (40 Boulevard).†
10.2	Assignment and Assumption of Sale and Purchase Agreement between Alliance Commercial Partners, LLC, as assignor, and a joint venture between an affiliate of Alliance Commercial Partners and Dividend Capital Total Realty Trust Inc. (40 Boulevard).†
10.3	Promissory note secured by a deed of trust between a joint venture between an affiliate of Alliance Commercial Partners LLC and Dividend Capital Total Realty Trust Inc. and Bank of America, N.A. (40 Boulevard).†
10.4	Management Agreement between a joint venture between an affiliate of Alliance Commercial Partners LLC and Dividend Capital Total Realty Trust Inc, and Jones Lang LaSalle Americas (Illinois) LP, as property manager (40 Boulevard).†
10.5	Sale and Purchase Agreement between New Tower Trust Company Multi-Employer, as seller, and Alliance Commercial Partners LLC, as buyer (Washington Commons, Phase I).†
10.6	Sale and Purchase Agreement between Washington Commons Phase II Limited Partnership, as seller, and Alliance Commercial Partners LLC, as buyer (Washington Commons, Phase II).†
10.7	Sale and Purchase Agreement between Washington Commons Phase III Limited Partnership, as seller, and Alliance Commercial Partners LLC, as buyer (Washington Commons, Phase III).†
10.8	Assignment of Sale and Purchase Agreement between Alliance Commercial Partners, LLC. as assignor, and a joint venture between an affiliate of Alliance Commercial Partners and Dividend Capital Total Realty Trust Inc. (Washington Commons, Phase I).†
10.9	Assignment of Sale and Purchase Agreement between Alliance Commercial Partners, LLC. as assignor, and a joint venture between an affiliate of Alliance Commercial Partners and Dividend Capital Total Realty Trust Inc. (Washington Commons, Phase II).†
10.10	Assignment of Sale and Purchase Agreement between Alliance Commercial Partners, LLC. as assignor, and a joint venture between an affiliate of Alliance Commercial Partners and Dividend Capital Total Realty Trust Inc. (Washington Commons, Phase III).†
10.11	Promissory note secured by a deed of trust between a joint venture between an affiliate of Alliance Commercial Partners LLC and Dividend Capital Total Realty Trust Inc. and Bank of America, N.A. (Washington Commons).†
10.12	Management Agreement between a joint venture between an affiliate of Alliance Commercial Partners LLC and Dividend Capital Total Realty Trust Inc. and HP Office Management EU, LLC, as property manager (Washington Commons).†
10.13	Real Estate Purchase and Sale Agreement between Principal Life Insurance Company, as seller, and an affiliate of Dividend Capital Total Realty Trust, Inc., as buyer (Bandera Road).†
10.14	Promissory note secured by a deed of trust between an affiliate of Dividend Capital Total Realty Trust Inc. and Countrywide Commercial Real Estate Finance Inc. (Bandera Road).†
10.15	Management Agreement between a an affiliate of Dividend Capital Total Realty Trust Inc. and Cencor Realty Services, as property manager (Bandera Road).†

41

10.16	First Amendment to Partnership Agreement between TRT Industrial Fund I LLC and DCT Industrial Fund II LLC.†
10.17	Partnership Agreement between TRT Industrial Fund II LLC and DCT Industrial Fund III LLC. †
10.18	Promissory note secured by a deed of trust between affiliates of a joint venture between affiliates of DCT Industrial Trust Inc. and Dividend Capital Total Realty Trust Inc. and Column Financial, Inc. (DCT Joint Venture I Financing).*
31.1	Rule 13a-14(a) Certification of Principal Executive Officer *
31.2	Rule 13a-14(a) Certification of Principal Financial Officer *
32.1	Section 1350 Certification of Principal Executive Officer *
32.2	Section 1350 Certification of Principal Financial Officer *

†Previously filed.

*Filed herewith.

42