Black Creek Diversified Property Fund 10-Q 2015 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________

FORM 10-Q

_______________________________________

(Mark One)

☒QuarterlyReportPursuanttoSection 13or15(d) oftheSecuritiesExchangeActof1934

For the quarterly period ended September 30, 2015

Or

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

For the transition period from  to  .

Commission File No. 000-52596

_______________________________________

DIVIDENDCAPITALDIVERSIFIEDPROPERTYFUNDINC.

(Exact name of registrant as specified in its charter)

_______________________________________

Maryland	30-0309068
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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  ☒    No  ☐ 

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒  (Do not check if a smaller reporting company)	Smaller reporting company	☐

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

As of November 5, 2015, 139,995,543 unclassified shares of common stock (referred to as “Class E” shares), 1,517,286 shares of Class A common stock, 1,506,484 shares of Class W common stock, and 22,981,923 shares of Class I common stock of Dividend Capital Diversified Property Fund Inc., each with a par value $0.01 per share, were outstanding.

Dividend Capital Diversified Property Fund Inc.

Form 10-Q

September 30, 2015

TABLE OF CONTENTS

P
	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Income and Loss	5
Condensed Consolidated Statement of Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
Item 4. Controls and Procedures	44
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	45
Item 1A. Risk Factors	45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3. Defaults Upon Senior Securities	46
Item 4. Mine Safety Disclosures	46
Item 5. Other Information	46
Item 6. Exhibits	47

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and footnoted information)

	As of
	September 30, 2015		December 31, 2014
	(Unaudited)
ASSETS
Investments in real property	$	2,270,746	$	2,442,509
Accumulated depreciation and amortization		(489,395)		(513,083)
Total net investments in real property (1)		1,781,351		1,929,426
Debt related investments, net		27,775		94,951
Total net investments		1,809,126		2,024,377
Cash and cash equivalents		15,186		14,461
Restricted cash		20,258		27,452
Other assets, net		46,250		59,916
Assets held for sale		—		21,927
Total Assets	$	1,890,820	$	2,148,133
LIABILITIES AND EQUITY
Liabilities:
Accounts payable and accrued expenses	$	51,056	$	49,974
Mortgage notes and other secured borrowings (2)		543,947		853,267
Unsecured borrowings		459,000		345,000
Intangible lease liabilities, net		58,649		86,243
Other liabilities		33,073		47,789
Liabilities associated with assets held for sale		—		1,880
Total Liabilities		1,145,725		1,384,153
Equity:
Stockholders’ equity:
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 165,043,370 and    178,399,679 shares issued and outstanding, as of September 30, 2015 and    December 31, 2014, respectively (3)		1,650		1,784
Additional paid-in capital		1,479,403		1,586,444
Distributions in excess of earnings		(818,531)		(893,791)
Accumulated other comprehensive loss		(14,985)		(10,120)
Total stockholders’ equity		647,537		684,317
Noncontrolling interests		97,558		79,663
Total Equity		745,095		763,980
Total Liabilities and Equity	$	1,890,820	$	2,148,133

__________________

(1) Includes approximately $76.3 million and $82.7 million, after accumulated depreciation and amortization, in consolidated real property variable interest entity investments as of September 30, 2015 and December 31, 2014, respectively.

(2) Includes approximately $58.5 million and $59.4 million in consolidated mortgage notes in variable interest entity investments as of September 30, 2015 and December 31, 2014, respectively.

(3) Includes 139,437,007 shares of Class E common stock, 1,447,984 shares of Class A common stock, 1,418,223 shares of Class W common stock, and 22,740,156 shares of Class I common stock issued and outstanding as of September 30, 2015, and 163,067,835 shares of Class E common stock, 1,187,215 shares of Class A common stock, 1,116,698 shares of Class W common stock, and 13,027,931 shares of Class I common stock issued and outstanding as of December 31, 2014.

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

3

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share and footnoted information)

	For the Three Months Ended September 30,				For the Nine Months Ended  September 30,
	2015		2014		2015		2014
REVENUE:
Rental revenue	$	52,854	$	56,793	$	163,308	$	166,933
Debt related income		807		1,798		5,594		5,571
Total Revenue		53,661		58,591		168,902		172,504
EXPENSES:
Rental expense		14,877		12,804		43,412		37,947
Real estate depreciation and amortization    expense		20,851		21,918		61,404		66,481
General and administrative expenses (1)		2,477		2,581		8,157		8,187
Advisory fees, related party		4,225		4,083		13,021		11,678
Acquisition-related expenses		476		372		1,259		962
Impairment of real estate property (2)		6,500		9,500		8,124		9,500
Total Operating Expenses		49,406		51,258		135,377		134,755
Other Income (Expenses):
Interest and other income		704		424		1,500		688
Interest expense		(10,951)		(15,276)		(36,208)		(46,549)
Loss on extinguishment of debt and financing    commitments		—		—		(1,168)		(63)
Gain on sale of real property (3)		4,567		—		133,234		6,462
(Loss) income from continuing operations		(1,425)		(7,519)		130,883		(1,713)
Discontinued operations (4)		—		5		—		30,005
Net (Loss) Income		(1,425)		(7,514)		130,883		28,292
Net loss (income) attributable to    noncontrolling interests		1,297		475		(7,358)		(4,405)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(128)	$	(7,039)	$	123,525	$	23,887
Net (loss) income per basic and diluted common share:
Continuing operations	$	(0.00)	$	(0.04)	$	0.69	$	(0.01)
Discontinued operations	$	—	$	0.00	$	—	$	0.14
NET (LOSS) INCOME PER BASIC AND DILUTED COMMON SHARE	$	(0.00)	$	(0.04)	$	0.69	$	0.13
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		174,290		178,729		179,168		177,717
Diluted		187,279		191,422		192,020		190,605
Distributions declared per common share	$	0.0895	$	0.0872	$	0.2688	$	0.2620

__________________

(1) Includes approximately $1.8 million and $1.6 million paid to our Advisor and its affiliates for reimbursable expenses during the three months ended September 30, 2015 and 2014, respectively, and approximately $5.3 million and $4.8 million paid to our Advisor and its affiliates for reimbursable expenses during the nine months ended September 30, 2015 and 2014, respectively.

(2) Includes approximately $125,000 paid to our Advisor for advisory fees associated with the disposition of real properties during the nine months ended September 30, 2015.

(3) Includes approximately $201,000 paid to our Advisor for advisory fees associated with the disposition of real properties during the three months ended September 30, 2015, and approximately $4.6 million and $328,000 paid to our Advisor for advisory fees associated with the disposition of real properties during the nine months ended September 30, 2015 and 2014, respectively.

(4) Includes approximately  $1.6 million paid to our Advisor for advisory fees associated with the disposition of real properties during the nine months ended September 30, 2014.

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

4

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND LOSS

(Unaudited)

(In thousands)

	For the Three Months Ended September 30,				For the Nine Months Ended  September 30,
	2015		2014		2015		2014
Net (Loss) Income	$	(1,425)	$	(7,514)	$	130,883	$	28,292
Other Comprehensive (Loss) Income:
Net unrealized change from available-for-sale    securities		—		—		—		(211)
Unrealized change from cash flow hedging    derivatives		(6,016)		1,160		(5,251)		1,389
Comprehensive (loss) income		(7,441)		(6,354)		125,632		29,470
Comprehensive loss (income) attributable to    noncontrolling interests		1,732		472		(6,972)		(4,304)
COMPREHENSIVE (LOSS) INCOME    ATTRIBUTABLE TO COMMON    STOCKHOLDERS	$	(5,709)	$	(5,882)	$	118,660	$	25,166

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

5

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(In thousands)

	Stockholders’ Equity
								Accumulated
				Additional		Distributions		Other
	Common Stock			Paid-in		in Excess of		Comprehensive		Noncontrolling		Total
	Shares	Amount		Capital		Earnings		(Loss) Income		Interests		Equity
Balances, December 31, 2014	178,400	$	1,784	$	1,586,444	$	(893,791)	$	(10,120)	$	79,663	$	763,980
Comprehensive income (loss):
Net income	—		—		—		123,525		—		7,358		130,883
Unrealized change from cash flow    hedging derivatives	—		—		—		—		(4,889)		(362)		(5,251)
Common stock:
Issuance of common stock, net of    offering costs	11,939		119		81,490		—		—		—		81,609
Issuance of common stock,     stock-based compensation plans	618		6		942		—		—		—		948
Redemptions of common stock	(25,914)		(259)		(189,350)		—		—		—		(189,609)
Amortization of stock-based     compensation	—		—		24		—		—		—		24
Distributions declared on common     stock	—		—		—		(48,265)		—		—		(48,265)
Noncontrolling interests:
Contributions of noncontrolling    interests	—		—		—		—		—		16,517		16,517
Distributions declared to    noncontrolling interests	—		—		—		—		—		(3,508)		(3,508)
Redemptions of noncontrolling    interests	—		—		(147)		—		24		(2,110)		(2,233)
Balances, September 30, 2015	165,043	$	1,650	$	1,479,403	$	(818,531)	$	(14,985)	$	97,558	$	745,095

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

6

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	For the Nine Months Ended  September 30,
	2015		2014
OPERATING ACTIVITIES:
Net income	$	130,883	$	28,292
Adjustments to reconcile net income to net cash provided by operating activities:
Real estate depreciation and amortization expense		61,404		66,481
Gain on disposition of real property		(133,234)		(36,140)
Impairment of real estate property		8,124		9,500
Collection of accrued interest from debt investment		6,421		—
Loss on extinguishment of debt and financing commitments		1,168		63
Other adjustments to reconcile net income to net cash provided by operating    activities		3,016		7,286
Changes in operating assets and liabilities		119		(12,616)
Net cash provided by operating activities		77,901		62,866
INVESTING ACTIVITIES:
Acquisition of real property		(200,447)		(86,346)
Capital expenditures in real property		(22,043)		(10,176)
Proceeds from disposition of real property		342,157		96,602
Principal collections on debt related investments		52,945		23,688
Other investing activities		(4,931)		(1,146)
Net cash provided by investing activities		167,681		22,622
FINANCING ACTIVITIES:
Mortgage note principal repayments		(110,405)		(49,133)
Defeasance of mortgage note borrowings		(53,267)		—
Net proceeds from revolving line of credit borrowings		34,000		17,500
Net proceeds from term loan		80,000		—
Repayment of other secured borrowings		(25,796)		(844)
Redemption of common shares		(190,019)		(65,087)
Distributions on common stock		(32,080)		(30,913)
Proceeds from sale of common stock		68,851		66,041
Offering costs for issuance of common stock		(3,487)		(3,836)
Distributions to noncontrolling interest holders		(3,394)		(8,391)
Other financing activities		(9,260)		(7,789)
Net cash used in financing activities		(244,857)		(82,452)
NET INCREASE IN CASH AND CASH EQUIVALENTS		725		3,036
CASH AND CASH EQUIVALENTS, beginning of period		14,461		24,778
CASH AND CASH EQUIVALENTS, end of period	$	15,186	$	27,814
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	34,486	$	43,299
Supplemental Disclosure of Noncash Investing and Financing Activities:
Common stock issued pursuant to the distribution reinvestment plan	$	16,090	$	15,578
Issuances of OP Units for beneficial interests	$	7,324	$	—
Assumed mortgage	$	11,869	$	—
Non-cash investment in real property	$	11,869	$	12,232
Non-cash principal collection on debt related investments *	$	11,228	$	7,125
Non-cash disposition of real property *	$	128,008	$	94,011
Non-cash repayment of mortgage note and other secured borrowings *	$	139,236	$	101,807

__________________

*  Represents the amount of sales proceeds and debt repayments from the disposition of real property or the repayment of borrowings that we did not receive or pay in cash, primarily due to the repayment or assumption of related borrowings by the purchaser or borrower at closing.

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

7

DIVIDEND CAPITAL DIVERSIFIED PROPERTY FUND INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

1. ORGANIZATION

Dividend Capital Diversified Property Fund Inc. is a Maryland corporation formed on April 11, 2005 to invest in a diverse portfolio of real property and real estate related investments. As used herein, “the Company,” “we,” “our” and “us” refer to Dividend Capital Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.

We operate in such a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes, and we utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through our operating partnership, Dividend Capital Total Realty Operating Partnership, L.P. (our “Operating Partnership”).

We are the sole general partner of our Operating Partnership. In addition, we have contributed 100% of the proceeds received from our offerings of common stock to our Operating Partnership in exchange for partnership units (“OP Units”) representing our interest as a limited partner of the Operating Partnership. As of September 30, 2015 and December 31, 2014, we owned approximately 92.5% and 93.6%, respectively, of the limited partnership interests in our Operating Partnership, and the remaining limited partnership interests in our Operating Partnership were owned by third-party investors. Our Operating Partnership has classes of OP Units that correspond to our four classes of common stock: Class E OP Units, Class A OP Units, Class W OP Units, and Class I OP Units. As of September 30, 2015 and December 31, 2014, our Operating Partnership had issued and outstanding approximately 12.9 million and 12.1 million Class E OP Units held by third party investors, respectively, which represent limited partnership interests issued in connection with its private placement offerings. As of September 30, 2015 and December 31, 2014, such Class E OP Units had a maximum approximate redemption value of $95.4 million and $87.0 million, respectively, based on the most recent selling price of our common stock pursuant to our primary offering. Furthermore, during the nine months ended September 30, 2015, we exercised our option to acquire, at fair value, previously sold fractional interests in a retail property in the Jacksonville, FL market for a combination of (i) approximately 1.0 million Class E OP Units issued at a price of $7.18 per OP Unit, representing approximately $7.3 million of the aggregate purchase price and (ii) approximately $783,000 in cash. The result of this activity was a net decrease in our financing obligations of approximately $17.9 million and a net increase in our noncontrolling interests of $16.2 million.

Dividend Capital Total Advisors LLC (our “Advisor”), a related party, manages our day-to-day activities under the terms and conditions of an advisory agreement (as amended from time to time, the “Advisory Agreement”). Our Advisor and its affiliates receive various forms of compensation, reimbursements and fees for services relating to the investment and management of our real estate assets.

On July 12, 2012, the Securities and Exchange Commission (the “Commission”) declared effective our Registration Statement on Form S-11 (Registration Number 333-175989) (as amended, the “Prior Registration Statement”). The Prior Registration Statement applied to the offer and sale (the “Prior Offering”) of up to $3,000,000,000 of our shares of common stock, of which $2,250,000,000 of shares were expected to be offered to the public in a primary offering and $750,000,000 of shares were expected to be offered to our stockholders pursuant to an amended and restated distribution reinvestment plan (subject to our right to reallocate such amounts). In the Prior Offering, we offered to the public three classes of shares: Class A shares, Class W shares and Class I shares with net asset value (“NAV”) based pricing.  On September 15, 2015, we terminated the Prior Offering.  Through September 15, 2015, the date our Prior Offering terminated, we had raised gross proceeds of approximately $183.1 million from the sale of approximately 25.8 million shares in the Prior Offering, including approximately $3.4 million through our distribution reinvestment plan.

On September 16, 2015, the Commission declared effective our Registration Statement on Form S-11 (Registration Number 333-197767) (the “Follow-On Registration Statement”). The Follow-On Registration Statement applies to the Company’s follow-on “best efforts” offering of up to $1,000,000,000 of the Company’s Class A, Class I and Class W shares of common stock, of which $750,000,000 of shares are expected to be offered to the public in a primary offering and $250,000,000 of shares are expected to be offered to stockholders of the Company pursuant to its distribution reinvestment plan (subject to the Company’s right to reallocate such amounts) (the “Follow-On Offering”). As of September 30, 2015, we had raised gross proceeds of approximately $389,000 from the sale of approximately 52,000 shares in the Follow-On Offering.

During the nine months ended September 30, 2015, we raised aggregate gross proceeds of approximately $87.1 million from the sale of approximately 11.9 million shares, including approximately $16.1 million raised through our distribution reinvestment plans.

8

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The accompanying interim condensed consolidated financial statements (herein referred to as “financial statements,” “balance sheets,” “statements of operations,” “statements of comprehensive income and loss,” “statement of equity,” or “statements of cash flows”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the Securities and Exchange Commission (the “Commission”) instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, these financial statements do not include all the information and disclosure required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments and eliminations, consisting only of normal recurring items necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of operating results for a full year. The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited financial statements and notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Commission on March 3, 2015. There have been no significant changes to the Company’s significant accounting policies during the nine months endedSeptember 30, 2015 other than the updates described below.

Reclassifications

Certain amounts included in the accompanying financial statements for 2014 have been reclassified to conform to the 2015 financial statements presentation with no effect on previously reported net income (loss) or equity. We reclassified approximately $157,000 and $496,000 in third-party payments related to efforts to acquire real properties that were not ultimately completed (“terminated acquisition costs”) incurred during the three and nine months ended September 30, 2014, respectively, from “general and administrative expenses” into “acquisition-related expenses”. We have also reclassified approximately $181,000 in terminated acquisition costs incurred during the six months ended June 30, 2015, from general and administrative expenses into acquisition related expenses.

Statements of operations amounts for properties disposed of or classified as held for sale as of December 31, 2013, have been reclassified to discontinued operations for all periods presented during 2014. Amounts in our segment disclosures in Note 11 reflect the reclassification of amounts related to properties that have been disposed of or classified as held for sale as of December 31, 2013.

New Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2015-16 (“ASU 2015-16”), which simplifies the accounting for adjustments made to provisional amounts recognized in a business combination. The guidance eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Instead, the guidance requires that an acquirer recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The guidance will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015. The guidance should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. We do not anticipate the adoption will have a significant impact on our financial statements.

The FASB issued Accounting Standards Update 2015-15 (“ASU 2015-15”) and Accounting Standards Update 2015-03 (“ASU 2015-03”) in August 2015 and April 2015, respectively, which simplify the presentation of debt issuance costs and clarify the guidance for presenting and measuring debt issuance costs related to line-of-credit arrangements. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-15 permits an entity to defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs is not affected by the guidance. Both ASU 2015-03 and ASU 2015-15 are effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015 and will require retrospective application. Early adoption is permitted for financial statements that have not been previously issued. We do not anticipate the adoption will have a significant impact on our financial statements.

In June 2015, the FASB issued Accounting Standards Update 2015-10 (“ASU 2015-10”), which (i) made technical corrections and improvements to ASC Topic 815, Derivatives and Hedging (“ASC Topic 815”), which became effective upon the issuance of ASU 2015-10, and (ii) made technical corrections and improvements to ASC Topic 820, Fair Value Measurement and Disclosures (“ASC Topic 820”), which is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015, with early adoption permitted, including adoption in an interim period. We do not anticipate the adoption will have a significant impact on our financial statements.

9

In May 2014, the FASB issued Accounting Standards Update 2014-09 (“ASU 2014-09”), which provides new guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that supersedes most current revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, this guidance expands related disclosure requirements. The new guidance specifically excludes revenue associated with lease contracts. In June 2015, the FASB agreed to defer the effective date of this guidance for a year from the original effective date outlined in ASU 2014-09, and as a result, the guidance will be effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017 and will require full or modified retrospective application. Early adoption is permitted for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. We do not anticipate the adoption will have a significant impact on our financial statements.

3. INVESTMENTS IN REAL PROPERTY

Currently, our consolidated investments in real property consist of investments in office, industrial and retail properties. The following tables summarize our consolidated investments in real property as of September 30, 2015 and December 31, 2014 (amounts in thousands):

Real Property	Land		Building and Improvements		Intangible Lease Assets		Total Investment Amount		Intangible Lease Liabilities		Net Investment Amount
As of September 30, 2015:
Office	$	204,700	$	815,933	$	308,614	$	1,329,247	$	(18,414)	$	1,310,833
Industrial		9,572		65,153		16,436		91,161		(344)		90,817
Retail		252,310		502,817		95,211		850,338		(68,398)		781,940
Total gross book value		466,582		1,383,903		420,261		2,270,746		(87,156)		2,183,590
Accumulated    depreciation/amortization		—		(193,467)		(295,928)		(489,395)		28,507		(460,888)
Total net book value	$	466,582	$	1,190,436	$	124,333	$	1,781,351	$	(58,649)	$	1,722,702
As of December 31, 2014:
Office (1)	$	238,505	$	818,659	$	359,057	$	1,416,221	$	(21,535)	$	1,394,686
Industrial		25,502		193,878		48,421		267,801		(41,011)		226,790
Retail		237,605		464,479		86,820		788,904		(62,292)		726,612
Total gross book value		501,612		1,477,016		494,298		2,472,926		(124,838)		2,348,088
Accumulated    depreciation/amortization		—		(204,165)		(319,081)		(523,246)		38,595		(484,651)
Total net book value	$	501,612	$	1,272,851	$	175,217	$	1,949,680	$	(86,243)	$	1,863,437

__________________

(1) Includes $4.1 million in land, $19.3 million in building and improvements, and $7.0 million in intangible lease assets before accumulated depreciation of $10.2 million, related to an office property classified as held for sale in the accompanying balance sheet as of December 31, 2014.

Acquisitions

The following table summarizes our acquisitions of real properties during the nine months ended September 30, 2015 (dollar amounts and square footage in thousands):

Real Property	Property Type	Market	Number of Properties	Date of Acquisition	Acquired Ownership	Contract Price		Net Rentable Square Feet	Percent Leased
Venture Corporate Center	Office	South Florida	1	August 6, 2015	100%	$	45,750	253	97%
Shenandoah	Retail	South Florida	1	August 6, 2015	100%		32,670	124	100%
City View	Office	Austin, TX	1	April 24, 2015	100%		68,750	274	99%
South Cape	Retail	Greater Boston (1)	1	March 18, 2015	100%		35,450	143	92%
Rialto	Office	Austin, TX	1	January 15, 2015	100%		37,300	155	94%
Total 2015 real    property    acquisitions			5			$	219,920	949	97%

__________________

(1) Our Greater Boston market comprises the greater metro area around Boston, MA. As of September 30, 2015, properties in our Greater Boston market are located in the following states: Massachusetts, Connecticut, New Hampshire, and Rhode Island.

The following table summarizes the allocations of the fair value of the real properties we acquired during the nine months ended September 30, 2015 to land, building and improvements, intangible lease assets, intangible lease liabilities, and mark-to-

10

market adjustment on assumed debt (dollar amounts in thousands). We have not made any material adjustments related to these allocations.

																	Weighted-average Amortization Period (Years)
Real Property	Land		Building and Improvements		Intangible Lease Assets		Intangible Lease Liabilities		Mark-to-Market Adjustment on Assumed Debt		Total Fair Value		Prorations and Credits		Contract Price		Intangible Lease Assets	Intangible Lease Liabilities
Venture Corporate Center	$	12,047	$	22,183	$	11,968	$	(798)	$	—	$	45,400	$	350	$	45,750	6.3	6.1
Shenandoah		10,501		22,959		4,438		(4,294)		(934)		32,670		—		32,670	13.0	18.9
City View		4,606		55,868		9,382		(1,543)		—		68,313		437		68,750	4.5	3.9
South Cape		9,936		22,877		4,675		(2,038)		—		35,450		—		35,450	7.9	23.8
Rialto		5,094		26,740		5,751		(447)		—		37,138		162		37,300	5.2	2.7
Total 2015 real     property     acquisitions	$	42,184	$	150,627	$	36,214	$	(9,120)	$	(934)	$	218,971	$	949	$	219,920	6.7	15.6

For the three and nine months ended September 30, 2015, our consolidated statements of operations include aggregate revenue and net operating income (“NOI”) attributable to the real properties acquired during the nine months ended September 30, 2015 as shown in the table below (amounts in thousands):

	For the Three Months Ended September 30, 2015				For the Nine Months Ended  September 30, 2015
	Revenue		NOI (1)		Revenue		NOI (1)
Real Property
Venture Corporate Center	$	1,123	$	726	$	1,123	$	726
Shenandoah		458		342		458		342
City View		2,136		1,355		3,684		2,383
South Cape		882		684		1,931		1,496
Rialto		1,168		654		3,236		1,908
Total	$	5,767	$	3,761	$	10,432	$	6,855

__________________

(1) For a discussion as to why we view NOI to be an appropriate supplemental performance measure and a reconciliation to GAAP net income, refer to Note 11. 

Dispositions

On March 11, 2015, we completed the sale of a portfolio of twelve wholly owned office and industrial properties comprising approximately 2.7 million net rentable square feet (the “Portfolio”) to an unrelated third party, for a gross sales price of approximately $398.6 million. We incurred closing costs and fees of approximately $7.8 million upon the closing of this transaction, including approximately $4.0 million in advisory fees related to the disposition of real property paid to our Advisor. See Note 5 for information regarding financing related to the disposition of the Portfolio.

During the nine months ended September 30, 2015, we disposed of the following properties (dollar amounts and square footage in thousands):

Property Type	Market	Ownership	Net Rentable Square Feet	Percentage Leased	Disposition Date	Contract Sales Price		Gain on Sale
Land Parcel	Denver, CO	100%	N/A	N/A	August 12, 2015	$	7,577	$	1,701
Office	Los Angeles, CA	100%	111	0%	July 20, 2015		12,549		2,866
Retail	Pittsburgh, PA	100%	103	93%	May 5, 2015		12,500		—
Office and Industrial Portfolio (1)	Various (1)	100%	2,669	100%	March 11, 2015		398,635		105,542
Office	Dallas, TX	100%	177	88%	January 16, 2015		46,600		23,125
Total 2015 real property dispositions			3,060	95%		$	477,861	$	133,234

__________________

(1) The Portfolio includes (i) six office properties comprising 1.1 million net rentable square feet located in the following markets: Los Angeles, CA (three properties, of which one disposed property was a single building from a two-building office property), Northern New Jersey, Miami, FL, and Dallas, TX, and (ii) six industrial properties comprising 1.6 million net rentable square feet located in the following markets: Los Angeles, CA, Dallas, TX, Cleveland, OH, Chicago, IL, Houston, TX, and Denver, CO.

11

For the nine months ended September 30, 2015, our consolidated statements of operations include approximately $6.2 million of aggregate revenue and approximately $6.1 million of NOI attributable to the Portfolio. For the three and nine months ended September 30, 2014, our consolidated statements of operations include approximately $8.5 million and $25.4 million of aggregate revenue, respectively, and approximately $8.4 million and $25.0 million of NOI, respectively, attributable to the Portfolio.

Assets Held for Sale

We did not have any assets or related liabilities classified as held for sale as of September 30, 2015. As of December 31, 2014, we had agreed to dispose of an office property to an unrelated third party. Accordingly, the assets and liabilities related to this property were classified as held for sale in the accompanying balance sheet as of December 31, 2014. We sold the property on January 16, 2015. The following table summarizes the carrying amounts of the major classes of assets and liabilities classified as held for sale as of December 31, 2014 (amounts in thousands):

	As of December 31, 2014
Land	$	4,075
Building and improvements		19,337
Intangible lease assets		7,005
Accumulated depreciation		(10,163)
Other assets, net		1,673
Assets held for sale	$	21,927
Other liabilities		1,880
Liabilities related to assets held for sale	$	1,880

Real Property Impairment

During the nine months ended September 30, 2015, we recorded approximately $1.6 million of impairment charges related to a wholly owned retail property that we acquired in May 2007 in the Pittsburgh, PA market, which was disposed of in May 2015. Prior to the disposition, the net book value of this retail property exceeded the contract sales price less the cost to sell by approximately $1.6 million. Accordingly, we recorded an impairment to reduce the net book value of the property to our estimate of its fair value less the cost to sell.

In addition, during the three months ended September 30, 2015, we recorded a $6.5 million impairment charge related to a consolidated office property located in the Chicago, IL market, which we acquired in February 2007 and we hold through a joint venture in which we are not the managing partner. We have an 80% ownership interest in the office property. As of September 30, 2015, the net book value of this office property exceeded our estimate of the fair value of the property less the cost to sell by $6.5 million. Accordingly, we recorded an impairment charge to reduce the net book value of the property to our estimate of its fair value less the cost to sell.

In the calculation of our NAV, our real estate assets are carried at fair value using valuation methodologies consistent with ASC Topic 820, Fair Value Measurements and Disclosures. As a result, the timing of valuation changes recorded in our NAV will not necessarily be the same as for impairment charges recorded to our financial statements prepared pursuant to GAAP.

Discontinued Operations

We present the results of operations and the respective aggregate net gains (losses), of (i) any property or group of properties that were disposed or classified as held for sale as of December 31, 2013 when the operations and cash flows have been (or will be) eliminated from our ongoing operations and we will not have any significant continuing involvement, and (ii) any property or group of properties, the disposal of which would represent a strategic shift that has (or will have) a major effect on our operations and financial results, when such property (or group of properties) have been disposed of or classified as held for sale, as discontinued operations in our accompanying statements of operations. Interest expense is included in discontinued operations only if it is directly attributable to these operations or properties. Discontinued operations for the three and nine months ended September 30, 2014 include the results of operations and net gain on the disposition of 12 properties classified as held for sale as of December 31, 2013. Properties sold or classified as held for sale after December 31, 2013 are not classified as discontinued operations unless the sale or classification as held for sale meets the new accounting requirements pursuant to Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, issued by the FASB in April 2014. We did not have any discontinued operations for the three and nine months ended September 30, 2015. Certain negligible amounts recorded as discontinued operations for the three months ended September 30, 2014 are not presented in the table below. The following table summarizes amounts recorded as discontinued operations for the nine months ended September 30, 2014 (amounts in thousands):

12

	For the  Nine Months Ended September 30, 2014
Revenues	$	969
Rental expense		(340)
Interest expense		(296)
Other expenses		(7)
Income from discontinued operations		326
Gain on disposition		29,679
Discontinued operations		30,005
Discontinued operations attributable to noncontrolling interests		(4,462)
Discontinued operations attributable to common stockholders	$	25,543

We did not record any capital expenditures related to our discontinued operations during the three or nine months ended September 30, 2014. We did not record any significant operating or investing noncash items related to our discontinued operations during the three months ended September 30, 2014. The following table summarizes significant operating and investing noncash items related to our discontinued operations for the nine months ended September 30, 2014 (amounts in thousands):

	For the  Nine Months Ended September 30, 2014
Noncash items:
Straight-line rent adjustments	$	(41)
Non-cash disposition of real property		80,361

Rental Revenue

The following table summarizes the adjustments to rental revenue related to the amortization of above-market lease assets, below-market lease liabilities, and straight-line rental adjustments for the three and nine months ended September 30, 2015 and 2014. In addition, the following table summarizes tenant recovery income received from tenants for real estate taxes, insurance and other property operating expenses and recognized as rental revenue (amounts in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended  September 30,
	2015		2014		2015		2014
Straight-line rent adjustments	$	(286)	$	1,150	$	(684)	$	2,939
Above-market lease assets		(1,307)		(1,673)		(3,923)		(5,110)
Below-market lease liabilities		1,437		1,797		4,539		5,190
Total (decrease) increase to rental revenue	$	(156)	$	1,274	$	(68)	$	3,019
Tenant recovery income(1)	$	9,293	$	7,862	$	28,031	$	23,745

__________________

(1) Tenant recovery income presented in this table excludes real estate taxes that were paid directly by our tenants that are subject to triple net lease contracts. Such payments totaled approximately $1.4 million and $3.1 million during the three months ended September 30, 2015 and 2014, respectively, and approximately $5.5 million and $9.3 million during the nine months ended September 30, 2015 and 2014, respectively.

13

Concentration of Credit Risk

Concentration of credit risk with respect to our sources of revenue currently exists due to a small number of tenants whose rental payments to us make up a relatively high percentage of our rental revenue. The following is a summary of amounts related to the top five tenants based on annualized base rent, as of September 30, 2015 (dollar amounts and square feet in thousands):

Tenant	Locations	Industry	Annualized Base Rent (1)		% of Total Annualized Base Rent		Square Feet	% of Total Portfolio Square Feet
Charles Schwab & Co., Inc.	1	Securities, Commodities, Fin. Inv./Rel. Activities	$	23,223		13.2%	594	6.9%
Sybase	1	Publishing Information (except Internet)		17,971		10.2%	405	4.7%
Northrop Grumman	1	Professional, Scientific and Technical Services		15,901		9.1%	575	6.6%
Stop & Shop	16	Food and Beverage Stores		14,983		8.5%	911	10.5%
Novo Nordisk	1	Chemical Manufacturing		4,536		2.6%	167	1.9%
	20		$	76,614		43.6%	2,652	30.6%

__________________

(1) Annualized base rent represents the annualized monthly base rent of executed leases as of September 30, 2015.

Rental revenue from our lease with Charles Schwab & Co., Inc., as master tenant of one of our office properties, represented approximately $19.6 million, or 11.6%, of our total revenue for the nine months ended September 30, 2015. Our properties in Massachusetts, New Jersey, California, and Texas accounted for approximately 19%,  17%,  14%, and 11% respectively, of our total gross investment in real property portfolio as of September 30, 2015. A deterioration of general economic or other relevant conditions, changes in governmental laws and regulations, acts of nature, demographics or other factors in any of those states or the geographical region in which they are located could result in the loss of tenants, a decrease in the demand for our properties and a decrease in our revenues from those markets, which in turn may have a disproportionate and material adverse effect on our results of operations and financial condition.

Termination of Purchase Option

As discussed in Item 1A and Item 2 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Commission on March 3, 2015, “Harborside,” an office property located in Northern New Jersey, was subject to a purchase option held by a third party with an exercise price that we estimated to be approximately $239.4 million and an exercise date in May 2016. On August 5, 2015, we paid the option holder approximately $12.0 million to terminate the option. Such payment is included within capital expenditures in real property in the accompanying consolidated statements of cash flows. As a result, the option is no longer outstanding.

4. DEBT RELATED INVESTMENTS

As of September 30, 2015 and December 31, 2014, we had invested in five and 11 debt related investments, respectively. The weighted average maturity of our debt related investments structured as mortgage notes as of September 30, 2015 was 2.9 years, based on our recorded net investments. The following table describes our debt related income for the three and nine months ended September 30, 2015 and 2014 (dollar amounts in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended  September 30,				Weighted Average Yield as of
Investment Type	2015		2014		2015		2014		September 30, 2015 (1)
Mortgage notes (2)	$	666	$	1,058	$	3,808	$	3,469	5.8%
Mezzanine debt (3)		141		740		1,786		2,102	N/A
Total	$	807	$	1,798	$	5,594	$	5,571	5.8%

__________________

(1) Weighted average yield is calculated on an unlevered basis using the amount invested, current interest rates and accretion of premiums or discounts realized upon the initial investment for each investment type as of September 30, 2015. As of September 30, 2015, all of our debt related investments bear interest at fixed rates.

(2) Four and three of our debt related investments structured as mortgage notes were repaid in full during the nine months ended September 30, 2015 and 2014, respectively. During the three and nine months ended September 30, 2015 and 2014, amounts recorded include early repayment fees received and accelerated amortization of origination fees offset by accelerated amortization of deferred due diligence costs related to certain of these repayments.

(3) Our debt related investment structured as a mezzanine loan was repaid in full during the three months ended September 30, 2015. During the three and nine months ended September 30, 2015, amounts recorded were offset by accelerated amortization of deferred due diligence costs.

14

Repayments

During the nine months ended September 30, 2015, we received full repayments of four debt related investments structured as mortgage notes and a debt related investment structured as a mezzanine loan. We received cash proceeds from the repayments of approximately $59.9 million, which comprised principal repayments of $69.8 million (including accrued interest of approximately $6.4 million on our mezzanine debt investment) and early repayment fees of $1.3 million, partially offset by the repayments of borrowings secured by these and other debt related investments of approximately $11.2 million.

Impairment

We review each of our debt related investments on a quarterly basis, and more frequently when such an evaluation is warranted, to determine if impairment exists. Accordingly, we do not group our debt related investments into classes by credit quality indicator. A debt related investment is impaired when, based on current information and events (including economic, industry and geographical factors), it is probable that we will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the agreement. When an investment is deemed impaired, the impairment is measured based on the expected future cash flows discounted at the investment’s effective interest rate. As a practical expedient, we may measure impairment based on the fair value of the collateral of an impaired collateral-dependent debt related investment. Regardless of the measurement method, we measure impairment based on the fair value of the collateral when it is determined that foreclosure is probable.

As of December 31, 2014, we had one impaired debt related investment that was a subordinate debt related investment. As of December 31, 2014, we had a gross recorded investment in the impaired debt related investment of $3.0 million, with a related allowance for loan loss of $3.0 million. Based on our review during the nine months ended September 30, 2015, we determined that the impaired debt related investment did not have any value and therefore we recorded a direct write-off of the allowance for loan loss of $3.0 million. We did not record any current period provision for loan loss or recoveries of amounts previously charged off during the three and nine months ended September 30, 2015. As of September 30, 2015 and December 31, 2014, we did not have any impaired loans for which we have not recorded an allowance for loan loss.

As of December 31, 2014, we had one impaired debt related investment with an unpaid principal balance of approximately $3.0 million. The following table describes our recorded investment in debt related investments before allowance for loan loss, and the related allowance for loan loss as of September 30, 2015 and December 31, 2014 (amounts in thousands):

	Debt Related Investments Individually Evaluated for Impairment as of
	September 30, 2015		December 31, 2014
Debt related investments	$	27,775	$	97,951
Less: Allowance for loan losses		—		(3,000)
Total	$	27,775	$	94,951

As of December 31, 2014, our impaired debt related investment was on non-accrual status. As of September 30, 2015, we did not have any debt related investment on non-accrual status. When a debt related investment is on non-accrual status, we record income on the investment using the cash basis of accounting. All of our debt related investments that were past due 90 days or more were on non-accrual status as of December 31, 2014.

We did not record any interest income related to our impaired debt related investment during the three and nine months ended September 30, 2015 or 2014.

15

5. DEBT OBLIGATIONS

The following table describes our borrowings as of September 30, 2015 and December 31, 2014 (dollar amounts in thousands):

	Weighted Average Stated Interest Rate as of		Outstanding Balance as of (1)				Gross Investment Amount Securing Borrowings as of (2)
	September 30, 2015	December 31, 2014	September 30, 2015		December 31, 2014		September 30, 2015		December 31, 2014
Fixed-rate mortgages	5.9%	5.8%	$	535,967	$	807,994	$	1,026,446	$	1,625,637
Floating-rate mortgage (3)	3.2%	3.2%		7,980		8,250		16,459		16,118
Total mortgage notes	5.8%	5.8%		543,947		816,244		1,042,905		1,641,755
Repurchase facility (4)	N/A	2.8%		—		37,023		—		51,156
Total secured     borrowings	5.8%	5.6%		543,947		853,267		1,042,905		1,692,911
Line of credit (5)	2.0%	2.6%		109,000		75,000		N/A		N/A
Term loans (6)	2.6%	2.7%		350,000		270,000		N/A		N/A
Total unsecured     borrowings	2.4%	2.7%		459,000		345,000		N/A		N/A
Total borrowings	4.3%	4.8%	$	1,002,947	$	1,198,267		N/A		N/A

__________________

(1) Amounts are presented on a GAAP basis and are net of (i) unamortized premiums to the face value of our outstanding fixed-rate mortgages of $1.9 million and $2.0 million as of September 30, 2015 and December 31, 2014, respectively, and (ii) GAAP principal amortization related to troubled debt restructurings of $2.9 million and $2.3 million as of September 30, 2015 and December 31, 2014, respectively.

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

(3) As of September 30, 2015 and December 31, 2014, our floating rate mortgage note was subject to an interest rate spread of 3.00% over one-month LIBOR.

(4) As of December 31, 2014, borrowings under our repurchase facility were subject to interest at a floating rate of 2.25% over one-month LIBOR. However, we had effectively fixed the interest rate of the borrowings using interest rate swaps at 2.84% for the term of the borrowings.

(5) As of September 30, 2015 and December 31, 2014, borrowings under our line of credit were subject to interest at a floating rate of 1.40% and 1.75% over one-month LIBOR, respectively. However, as of September 30, 2015, we had effectively fixed the interest rate of approximately $33.7 million of the total of $109.0 million in borrowings using interest rate swaps at 2.84%, resulting in a weighted average interest rate on the total line of credit of 1.99%. As of December 31, 2014, we had effectively fixed the interest rate of approximately $30.0 million of the total of $75.0 million in borrowings using interest rate swaps at 3.60%, resulting in a weighted average interest rate on the total line of credit of 2.56%.

(6) As of September 30, 2015 and December 31, 2014, borrowings under our term loans were subject to interest at weighted average floating rates of 1.52% and 1.70%, respectively, over one-month LIBOR. However, we had effectively fixed the interest rates of the borrowings using interest rate swaps at 2.57% and 2.69% as of September 30, 2015 and December 31, 2014, respectively.

As of September 30, 2015, nine mortgage notes were interest-only and 12 mortgage notes were fully amortizing with outstanding principal balances of approximately $273.8 million and $271.1 million, respectively. None of our mortgage notes are recourse to us.

Assumption and Defeasance of Mortgage Note

As discussed in Note 3, we completed the sale of the Portfolio on March 11, 2015. Upon the disposition of the Portfolio, the buyer assumed approximately $128.0 million of a mortgage note borrowing, which is scheduled to mature in July 2020 and bears interest at 5.46%. In addition, we were released of our obligations on $44.8 million of the mortgage note borrowing that was not assumed by the buyer through a defeasance process. Accordingly, we incurred defeasance costs of approximately $8.6 million, which are included within gain on sale of real property in the accompanying statements of operations. Upon such defeasance, we derecognized the associated borrowing, which was assumed by an unrelated successor borrower.

Repayment of Mortgage Notes and Repurchase Facility

During the nine months ended September 30, 2015, we repaid six mortgage note borrowings in full during the respective free-prepayment periods prior to their scheduled maturities and repaid the borrowings under our repurchase facility in full using proceeds from our term loans and our revolving credit facility. The following table describes these repayments in more detail (dollar amounts in thousands):

16

Debt Obligation	Repayment Date	Balance Repaid		Stated Interest Rate (1)	Contractual Maturity Date	Collateral Type	Collateral Market
Austin-Mueller Health Center	July 6, 2015	$	16,946	7.50%	January 1, 2016	Office Property	Austin, TX
Preston Sherry Plaza	July 1, 2015		22,292	5.85%	September 1, 2015	Office Property	Dallas, TX
Campus Road	April 10, 2015		33,501	4.75%	July 10, 2015	Office Property	Princeton, NJ
Mansfield	April 1, 2015		8,307	6.03%	October 1, 2015	Retail Property	Greater Boston
Orleans	January 2, 2015		13,818	6.02%	July 1, 2015	Retail Property	Greater Boston
Whitman	January 2, 2015		7,316	6.02%	July 1, 2015	Retail Property	Greater Boston
Total/weighted average     mortgage notes			102,180	5.81%
Repurchase facility	May 29, 2015		37,023	2.84%	May 29, 2015	Debt Related Investments	Various
Total/weighted average     borrowings		$	139,203	5.02%

__________________

(1) We had effectively fixed the stated interest rates of certain of our borrowings by using interest rate swaps.

Recast of Credit Facility

On January 13, 2015, we amended and restated our $620 million senior unsecured term loan and revolving line of credit (the “Old Facility”) to provide for a $550 million senior unsecured term loan and revolving line of credit (the “Amended Facility”) with a syndicate of 14 lenders led by Bank of America, N.A., as Administrative Agent. The Amended Facility provides us with the ability from time to time to increase the size of the Amended Facility up to a total of $900 million less the amount of any prepayments under the term loan component of the Amended Facility, subject to receipt of lender commitments and other conditions. Because many members of the lending group participated as lenders in the Old Facility, the credit agreement for the Amended Facility is an amended and restated form of the credit agreement for the Old Facility.

The $550 million Amended Facility consists of a $400 million revolving credit facility (the “Revolving Credit Facility”) and a $150 million term loan (the “$150 Million Term Loan”). The Revolving Credit Facility contains a sublimit of $50 million for letters of credit and a sublimit of $50 million for swing line loans. The primary interest rate for the Revolving Credit Facility is based on LIBOR, plus a margin ranging from 1.40% to 2.30%, depending on our consolidated leverage ratio. The maturity date of the Revolving Credit Facility is January 31, 2019 and contains one 12-month extension option that we may exercise upon (i) payment of an extension fee equal to 0.15% of the sum of the amount outstanding under the Revolving Credit Facility and the unused portion of the Revolving Credit Facility at the time of the extension, and (ii) compliance with the other conditions set forth in the credit agreement. The primary interest rate within the $150 Million Term Loan is based on LIBOR, plus a margin ranging from 1.35% to 2.20%, depending on our consolidated leverage ratio. The maturity date of the $150 Million Term Loan is January 31, 2018 and contains two 12-month extension options that we may exercise upon (i) payment of an extension fee equal to 0.125% of the sum of the amount outstanding under the $150 Million Term Loan at the time of each extension, and (ii) compliance with the other conditions set forth in the credit agreement.

Borrowings under the Amended Facility are available for general business purposes including, but not limited to, refinancing of existing indebtedness and financing the acquisition of permitted investments, including commercial properties. Upon entering into the Amended Facility on January 13, 2015, we borrowed $280 million on the Revolving Credit Facility and $100 million on the $150 Million Term Loan. We primarily used the proceeds from the Amended Facility to repay $380 million of outstanding borrowings under the Old Facility.

We accounted for the amendment and restatement of the Old Facility as a modification of debt, and recognized approximately $896,000 within loss on extinguishment of debt and financing commitments during the nine months ended September 30, 2015, primarily resulting from the write-off of a portion of the deferred financing costs incurred in connection with the issuance of the Old Facility.

Term Loan Credit Agreement

On February 27, 2015, we entered into a $200 million seven-year term loan credit agreement (the “$200 Million Term Loan”) with a syndicate of six lenders led by Wells Fargo Bank, National Association as Administrative Agent and Regions Bank as Syndication Agent. The primary interest rate within the $200 Million Term Loan is based on LIBOR, plus a margin ranging from 1.65% to 2.55%, depending on our consolidated leverage ratio. The maturity date of the $200 Million Term Loan is February 27, 2022 with no extension options.

17

Borrowings under the $200 Million Term Loan are available for general business purposes including, but not limited to financing the acquisition of permitted investments, including commercial properties.

As of September 30, 2015, we had outstanding borrowings of $109.0 million and $150.0 million under the Revolving Credit Facility and $150 Million Term Loan components of our Amended Facility, respectively. As of September 30, 2015, we had outstanding borrowings of $200.0 million under the $200 Million Term Loan. As of September 30, 2015, the unused portion of our Revolving Credit Facility was approximately $288.8 million, all of which was available to us. As of December 31, 2014, we had outstanding borrowings of $270.0 million and $75.0 million under the term loan and revolving credit facility components of the Old Facility, respectively, and $189.4 million was available for us to borrow due to covenant constraints under the revolving credit facility component of the Old Facility.

The following table reflects our contractual debt maturities as of September 30, 2015, specifically our obligations under our mortgage notes and unsecured borrowings (dollar amounts in thousands):

	As of September 30, 2015
	Mortgage Notes			Unsecured Borrowings			Total
Year Ending December 31,	Number of Borrowings Maturing	Outstanding Principal Balance		Number of Borrowings Maturing	Outstanding Principal Balance (1)		Outstanding Principal Balance (2)
2015	—	$	2,823	—	$	—	$	2,823
2016	11		309,913	—		—		309,913
2017	6		206,659	—		—		206,659
2018	—		1,761	1		150,000		151,761
2019	—		1,868	1		109,000		110,868
2020	—		1,982	—		—		1,982
2021	1		10,825	—		—		10,825
2022	1		1,663	1		200,000		201,663
2023	—		978	—		—		978
2024	—		1,034	—		—		1,034
Thereafter	2		5,397	—		—		5,397
Total	21	$	544,903	3	$	459,000	$	1,003,903

__________________

(1) Unsecured borrowings presented include (i) borrowings under the $150 Million Term Loan of $150.0 million, which are scheduled to mature in 2018, subject to two one-year extension options, (ii) borrowings under the Revolving Credit Facility of $109.0 million, which are scheduled to mature in 2019, subject to a one-year extension option, and (iii) borrowings under the $200 Million Term Loan of $200.0 million, which are scheduled to mature in 2022 with no extension options.

(2) Outstanding balance represents expected cash outflows for contractual amortization and scheduled balloon payment maturities and does not include the GAAP principal amortization of our restructured mortgage note of approximately $2.9 million that does not reduce the contractual amount due of the related mortgage note as of September 30, 2015, partially offset by the mark-to-market premium on assumed debt of $1.9 million as of September 30, 2015.

18

6. DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

We maintain risk management control systems to monitor interest rate risk attributable to both our outstanding and forecasted debt obligations. We generally seek to limit the impact of interest rate changes on earnings and cash flows by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on our unsecured floating rate borrowings. While this hedging strategy is designed to minimize the impact on our net income (loss) and cash provided by operating activities 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 instruments for hedging or other purposes to achieve these risk management objectives.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from counterparties in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amounts. We have entered into and plan to enter into certain interest rate derivatives with the goal of mitigating our exposure to adverse fluctuations in the interest payments on our one-month LIBOR-indexed debt. Certain of our floating rate borrowings are not hedged and therefore, to an extent, we have ongoing exposure to interest rate movements.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges under ASC Topic 815 is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the next 12 months, we estimate that approximately $2.6 million will be reclassified as an increase to interest expense related to active effective hedges of existing floating-rate debt, and we estimate that approximately $1.9 million will be reclassified as an increase to interest expense related to effective forward started interest rate swaps where the hedging instrument has been terminated. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The table below presents a reconciliation of the beginning and ending balances, between December 31, 2014 and September 30, 2015, of our accumulated other comprehensive loss (“OCI”), net of amounts attributable to noncontrolling interests, related to the effective portion of our cash flow hedges as presented on our financial statements, as well as amounts related to our available-for-sale securities (amounts in thousands):

		Gains and Losses on Cash Flow Hedges		Unrealized Losses on Available-For- Sale Securities		Accumulated Other Comprehensive Loss
Beginning balance as of December 31, 2014:		$	(9,069)	$	(1,051)	$	(10,120)
	Other comprehensive income:
	Amount of loss reclassified from OCI into interest expense     (effective portion) (net of tax benefit of $0)		3,538		—		3,538
	Change in fair value recognized in OCI     (effective portion) (net of tax benefit of $0)		(8,789)		—		(8,789)
	Net current-period other comprehensive income		(5,251)		—		(5,251)
	Attribution of and other adjustments to OCI     attributable to noncontrolling interests		384		2		386
Ending balance as of September 30, 2015:		$	(13,936)	$	(1,049)	$	(14,985)

Fair Values of Derivative Instruments

The table below presents the gross fair value of our derivative financial instruments as well as their classification on our accompanying balance sheets as of September 30, 2015 and December 31, 2014 (amounts in thousands):

		Fair Value of Asset Derivatives as of					Fair Value of Liability Derivatives as of
	Balance Sheet	September 30,		December 31,		Balance Sheet	September 30,		December 31,
	Location	2015		2014		Location	2015		2014
Derivatives designated as     hedging instruments     under ASC Topic 815
Interest rate contracts	Other assets, net (1)	$	—	$	543	Other liabilities (1)	$	(6,939)	$	(907)
Total derivatives		$	—	$	543		$	(6,939)	$	(907)

__________________

(1) Although our derivative contracts are subject to master netting arrangements which serve as credit mitigants to both us and our counterparties under certain situations, we do not net our derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheet.

19

The majority of the inputs used to value our derivative instruments fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments associated with our derivative instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of potential default by us and our counterparties. As of September 30, 2015, we had assessed the significance of the impact of the credit valuation adjustments and had determined that it was not significant to the overall valuation of our derivative instruments. As a result, we have determined that our derivative valuations are classified in Level 2 of the fair value hierarchy.

Designated Derivatives

As of September 30, 2015 and December 31, 2014, we had 12 and 11 outstanding interest rate swaps, respectively, that were designated as cash flow hedges of interest rate risk, with a total notional amount of $383.7 million and $339.2 million, respectively. In addition, as of September 30, 2015, we had (i) two interest rate swaps with a total notional amount of $100.0 million that will become effective in December 2016 and mature in January 2020 and (ii) two interest rate swaps with a total notional amount of $100.0 million that will become effective in December 2016 and mature in February 2022, all of which were designated as cash flow hedges of interest rate risk.

Non-Designated Derivatives

Derivatives not designated as hedges are not speculative and are used to hedge our exposure to interest rate movements and other identified risks but do not meet hedge accounting requirements. As of both September 30, 2015 and December 31, 2014, we did not have any outstanding derivatives that were not designated as hedges.

Effect of Derivative Instruments on the Statements of Comprehensive Income and Loss

The table below presents the effect of our derivative financial instruments on our accompanying financial statements for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended  September 30,
	2015		2014		2015		2014
Derivatives Designated as Hedging     Instruments
Derivative type		Interest rate contracts		Interest rate contracts		Interest rate contracts		Interest rate contracts
Amount of (loss) gain recognized in     OCI (effective portion)	$	(7,236)	$	421	$	(8,789)	$	(843)
Location of loss reclassified from     accumulated OCI into income     (effective portion)		Interest expense		Interest expense		Interest expense		Interest expense
Amount of loss reclassified from     accumulated OCI into income     (effective portion)	$	1,220	$	739	$	3,538	$	2,232
Location of (loss) gain recognized in     income (ineffective portion and amount     excluded from effectiveness testing)		Interest and other income (expense)		Interest and other income (expense)		Interest and other income (expense)		Interest and other income (expense)
Amount of (loss) gain recognized in     income (ineffective portion and amount     excluded from effectiveness testing)	$	(117)	$	9	$	(0)	$	—

20

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

We use the framework established in ASC Topic 820,  Fair Value Measurement and Disclosures, to measure the fair value of our financial instruments as disclosed in the table below. The fair values estimated below are indicative of certain interest rate and other assumptions as of September 30, 2015 and December 31, 2014, and may not take into consideration the effects of subsequent interest rate or other assumption fluctuations, or changes in the values of underlying collateral. The fair values of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued expenses approximate their carrying values because of the short-term nature of these instruments.

The carrying amounts and estimated fair values of our other financial instruments as of September 30, 2015 and December 31, 2014 were as follows (amounts in thousands):  

	As of September 30, 2015				As of December 31, 2014
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Investments in real estate securities	$	200	$	200	$	200	$	200
Fixed-rate debt related investments, net		27,775		28,905		69,889		71,770
Floating-rate debt related investments, net		—		—		25,062		25,157
Derivative instruments		—		—		543		543
Liabilities:
Fixed-rate mortgage notes	$	535,967	$	540,511	$	807,994	$	848,045
Floating-rate mortgage notes		7,980		7,986		8,250		8,249
Floating-rate other secured borrowings		—		—		37,023		37,023
Floating-rate unsecured borrowings		459,000		459,000		345,000		347,235
Derivative liabilities		6,939		6,939		907		907

The methodologies used and key assumptions made to estimate fair values of the financial instruments, other than derivatives disclosed in Note 6, described in the above table are as follows:

Debt Related Investments — The fair value of our performing debt related investments are estimated using a discounted cash flow methodology. This method discounts estimated future cash flows using rates management determines best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality. Credit spreads and market interest rates used to determine the fair value of these instruments are based on unobservable Level 3 inputs which management has determined to be its best estimate of current market values.

Mortgage Notes and Other Borrowings — The fair value of our mortgage notes and other borrowings are estimated using a discounted cash flow analysis, based on our estimate of market interest rates. Credit spreads relating to the underlying instruments are based on unobservable Level 3 inputs, which we have determined to be our best estimate of current market spreads of similar instruments.

8. STOCKHOLDERS’ EQUITY

Common Stock

On August 12, 2015, we completed a self-tender offer, pursuant to which we accepted for purchase approximately 17.2 million unclassified shares of common stock, which we refer to as “Class E” shares, at a purchase price of $7.25 per share for an aggregate cost of approximately $124.4 million. The following table describes the changes in each class of common shares during the nine months ended September 30, 2015 (shares and dollar amounts in thousands):

	Class E			Class A			Class W			Class I			Total
	Shares	Amount (1)		Shares	Amount (1)		Shares	Amount (1)		Shares	Amount (1)		Shares	Amount (1)
Balances, December 31, 2014	163,068	$	1,670,408	1,187	$	8,518	1,117	$	7,808	13,028	$	90,320	178,400	$	1,777,054
Issuance of common stock:
Shares sold	—		—	262		1,970	306		2,253	9,159		66,738	9,727		70,961
Distribution reinvestment    plan	1,903		13,832	20		149	15		112	274		1,997	2,212		16,090
Stock-based compensation	—		—	—		—	—		—	618		972	618		972
Redemptions of    common stock	(25,534)		(186,135)	(21)		(155)	(20)		(148)	(339)		(2,462)	(25,914)		(188,900)
Balances, September 30, 2015	139,437	$	1,498,105	1,448	$	10,482	1,418	$	10,025	22,740	$	157,565	165,043	$	1,676,177

__________________

(1) Dollar amounts presented in this table represent the gross amount of proceeds from the sale of common shares, or the amount paid to stockholders to redeem common shares, and do not include other costs and expenses accounted for within additional paid-in capital, such as selling commissions, dealer manager and distribution fees, offering and organizational costs, and other costs associated with our distribution reinvestment plans and share redemption programs.

21

9. RELATED PARTY TRANSACTIONS

Our day-to-day activities are managed by our Advisor, a related party, under the terms and conditions of the Advisory Agreement. Our Advisor is considered to be a related party as certain indirect owners and employees of our Advisor serve as two of our directors and all of our executive officers. The responsibilities of our Advisor cover all facets of our business, and include the selection and underwriting of our real property and debt related investments, the negotiations for these investments, the asset management and financing of these investments and the oversight of real property dispositions.

Dividend Capital Securities LLC, which we refer to as the “Dealer Manager,” is distributing the shares of our common stock in our public offering on a “best efforts” basis. The Dealer Manager is an entity related to the Advisor and is a member of the Financial Industry Regulatory Authority, Inc., or FINRA. The Dealer Manager coordinates our distribution effort and manages our relationships with participating broker-dealers and financial advisors and provides assistance in connection with compliance matters relating to marketing our public offering.

On September 16, 2015, the Company entered into a Second Amended and Restated Dealer Manager Agreement (the “Second Amended Dealer Manager Agreement”) with the Dealer Manager. The Dealer Manager served as dealer manager for the Prior Offering and will serve as dealer manager for the Follow-On Offering. The Second Amended Dealer Manager Agreement is an amendment and restatement of the dealer manager agreement entered into by the Company and the Dealer Manager on February 8, 2013 in connection with the Prior Offering, as amended by Amendment No. 1 dated May 31, 2013, Amendment No. 2 dated June 26, 2013 and Amendment No. 3 dated March 20, 2014. The purpose of the Second Amended Dealer Manager Agreement is to engage the Dealer Manager with respect to the Follow-On Offering. As amended, the Second Amended Dealer Manager Agreement may be made to apply to future offerings by naming them in a schedule to the agreement, with the consent of the Company and the Dealer Manager. Pursuant to the Second Amended Dealer Manager Agreement, we pay (i) selling commissions on Class A shares sold in the primary offering of up to 3.0% of the public offering price per share, (ii) a dealer manager fee which accrues daily in an amount equal to 1/365th of 0.6% of our NAV per share of Class A and Class W shares outstanding and an amount equal to 1/365th of 0.1% of our NAV per share of Class I shares outstanding on such day on a continuous basis, and (iii) a distribution fee which accrues daily in an amount equal to 1/365th of 0.5% of our NAV per Class A share outstanding on such day on a continuous basis. Subject to Financial Industry Regulatory Authority, Inc., or FINRA, limitations on underwriting compensation, we will continue to pay the dealer manager fee and distribution fee until the earlier to occur of the following: (i) a listing of the class of such shares on a national securities exchange or (ii) such shares no longer being outstanding. Pursuant to the Follow-On Offering, we are offering on a continuous basis up to $1,000,000,000 of shares of our common stock, consisting of up to $750,000,000 of shares in our primary offering and up to $250,000,000 of shares pursuant to our distribution reinvestment plan.

Restricted Stock Unit Agreements

We have entered into Restricted Stock Unit Agreements (the “Advisor RSU Agreements”) with our Advisor. The purposes of the Advisor RSU Agreements are to promote an alignment of interests among our stockholders, the Advisor and the personnel of our Advisor and its affiliates, and to promote retention of the personnel of our Advisor and its affiliates. Pursuant to the terms of the Advisor RSU Agreements, we have granted approximately 441,000 restricted stock units (“Company RSUs”) to the Advisor that remain unvested and unsettled as of September 30, 2015. Each Company RSU will, upon vesting, be settled in one share of our Class I common stock. The Company RSUs are subject to specified vesting and settlement provisions and, upon settlement in Class I shares of Company common stock, require offsets of advisory fees and expenses otherwise payable from the Company to the Advisor based on the NAV per Class I share on the grant date of the applicable Company RSU (the weighted average grant-date NAV per Class I share with respect to the unsettled Company RSUs is $7.06 as of September 30, 2015). As of September 30, 2015, the Advisor had approximately 76,000 shares of Class I common stock issued upon settlement of Company RSUs that remained subject to fee offset.

Vesting and Payment Offset

The chart below shows the grant dates, vesting dates and Class I NAV on the grant dates of the unvested Company RSUs as of September 30, 2015 (share amounts in thousands).

Award	Grant Date	Vesting Dates	Number of Unvested Shares	Applicable Grant Date NAV per Share
Company RSU	April 7, 2014	April 15, 2016, April 15, 2017	247	$	6.96
Company RSU	February 25, 2015	April 15, 2016, April 15, 2017	59		7.18
Company RSU	February 25, 2015	April 15, 2018	135		7.18
			441	$	7.06

On each vesting date, an offset amount will be calculated and deducted on a pro rata basis over the next 12 months from the cash payments otherwise due and payable to the Advisor under our then-current Advisory Agreement for any fees or expense reimbursements. Each offset amount will equal the number of Company RSUs vesting on such date multiplied by the grant-date NAV per Class I share. For each Company RSU, the offset amount will always be calculated based on the grant-date NAV per Class

22

I share, even beyond the initial grant and vesting dates. At the end of each 12-month period following each vesting date, if the offset amount has not been fully realized by offsets from the cash payments otherwise due and payable to the Advisor under the Advisory Agreement, the Advisor will promptly pay any shortfall to us.

Termination

The Advisor RSU Agreements will automatically terminate upon termination or non-renewal of the Advisory Agreement by any party for any reason. In addition, upon a change in control of us, then either the Advisor or we may immediately terminate the Advisor RSU Agreements. Further, the Advisor may immediately terminate the Advisor RSU Agreements if we exercise certain rights under the Advisor RSU Agreements to replace the Company RSUs with another form of compensation.

Upon termination of the Advisor RSU Agreements, the Advisor will promptly pay any unused offset amounts to us or, at the Advisor’s election, return Class I shares in equal value based on the Class I NAV as of the date of termination of the Advisor RSU Agreements. In addition, upon termination of the Advisor RSU Agreements, all unvested Company RSUs will be forfeited except that, unless the Advisor RSU Agreements were terminated at the election of the Advisor following a change in control of us or as a result of a premature termination of the Advisory Agreement at our election for cause (as defined in the Advisory Agreement) or upon the bankruptcy of the Advisor, then following such forfeiture of Company RSUs, the Advisor will have the right to acquire from us the number of Class I shares equal to the number of Company RSUs forfeited, in return for a purchase price equal to such number of Class I shares multiplied by the grant-date NAV per Class I share. The Advisor must notify us of its election to exercise the foregoing acquisition right within 30 days following the termination of the Advisor RSU Agreements, and the parties will close the transaction within 60 days following the termination of the Advisor RSU Agreements. 

Dividend Equivalent Payments

If our board of directors declares and we pay a cash dividend on Class I shares for any period in which the Company RSUs are outstanding (regardless of whether such Company RSUs are then vested), the Advisor will be entitled to dividend equivalents with respect to that cash dividend equal to the cash dividends that would have been payable on the same number of Class I shares as the number of Company RSUs subject to the Advisor RSU Agreements had such Class I shares been outstanding during the same portion of such period as the Company RSUs were unpaid and outstanding. Any such dividend equivalents may be paid in cash or Class I shares, at the Advisor’s election.

Summary of Fees and Other Amounts

The following table summarizes fees and other amounts earned by our Advisor and its related parties in connection with services performed for us during the three and nine months ended September 30, 2015 and 2014 (amounts in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended  September 30,
	2015		2014		2015		2014
Advisory fees (1)	$	4,225	$	4,083	$	13,021	$	11,678
Other reimbursements paid to our Advisor (2)		2,176		1,953		6,590		5,923
Other reimbursements paid to our Dealer Manager		33		82		310		423
Advisory fees related to the disposition of     real properties		201		—		4,779		1,973
Development management fee		18		3		52		107
Primary dealer fee (3)		—		1,648		2,540		2,198
Selling commissions, dealer manager,     and distribution fees		102		62		271		238
Total	$	6,755	$	7,831	$	27,563	$	22,540

__________________

(1) Amounts reported for the three months ended September 30, 2015 include approximately $283,000 in consideration of the issuance of approximately 153,000 shares of our Class I common stock to the Advisor. Such shares were issued on April 15, 2015 upon the settlement of restricted stock units issued to our Advisor on April 7, 2014 and February 25, 2015, and are recognized as advisory fees expense over a one year period as an offset to amounts otherwise payable in cash. Amounts reported for the nine months ended September 30, 2015 include approximately $786,000 in consideration of the issuance of approximately 276,000 shares of our Class I common stock to the Advisor. Such shares include (i) approximately 153,000 shares issued on April 15, 2015 upon the settlement of restricted stock units issued to our Advisor on April 7, 2014 and February 25, 2015, and (ii) 123,000 shares issued on April 15, 2014 upon the settlement of restricted stock units issued to our Advisor on April 7, 2014. Such Class I shares are recognized as advisory fees expense over a one year period as an offset to amounts otherwise payable in cash.

(2) Other reimbursements paid to our Advisor primarily comprise salary, bonus, and overhead reimbursements.

(3) Amounts reported represent primary dealer fees we paid to the Dealer Manager based on the gross proceeds raised by participating broker-dealers pursuant to certain selected dealer agreements. Of the primary dealer fee earned during the nine months ended September 30, 2015, the Dealer Manager reallowed approximately $2.3 million to participating third-party broker-dealers and retained approximately $254,000. Of the primary dealer fee earned during the nine months ended September 30, 2014, the Dealer Manager reallowed approximately $2.0 million to participating third-party broker-dealers and retained approximately $220,000.

23

As of September 30, 2015 and December 31, 2014, we owed approximately $2.4 million and $1.9 million to our Advisor and affiliates of our Advisor for such services and reimbursement of certain expenses, respectively. Pursuant to the Advisory Agreement, we accrue the advisory fee on a daily basis and pay our Advisor amounts due subsequent to each month-end.

10. 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 and nine months ended September 30, 2015 and 2014 are described in the following table (amounts in thousands, except per share information):

	For the Three Months Ended September 30,				For the Nine Months Ended  September 30,
Numerator	2015		2014		2015		2014
(Loss) income from continuing operations	$	(1,425)	$	(7,519)	$	130,883	$	(1,713)
Loss (income) from continuing operations attributable     to noncontrolling interests		1,297		475		(7,358)		57
(Loss) income from continuing operations     attributable to common stockholders		(128)		(7,044)		123,525		(1,656)
Dilutive noncontrolling interests share     of (loss) income from continuing operations		(10)		(500)		8,575		(128)
Numerator for diluted earnings     per share – adjusted (loss) income from     continuing operations		(138)		(7,544)		132,100		(1,784)
Income from discontinued operations		—		5		—		30,005
Income from discontinued operations     attributable to noncontrolling interests		—		—		—		(4,462)
Income from discontinued operations     attributable to common stockholders		—		5		—		25,543
Dilutive noncontrolling interests share     of discontinued operations		—		—		—		1,915
Numerator for diluted earnings     per share – adjusted income from     discontinued operations	$	—	$	5	$	—	$	27,458
Denominator
Weighted average shares outstanding-basic		174,290		178,729		179,168		177,717
Incremental weighted average shares effect     of conversion of OP units		12,989		12,693		12,852		12,888
Weighted average shares outstanding-diluted		187,279		191,422		192,020		190,605
INCOME (LOSS) PER COMMON SHARE-BASIC     AND DILUTED
Net income (loss) from continuing operations	$	(0.00)	$	(0.04)	$	0.69	$	(0.01)
Net income from discontinued operations		—		0.00		—		0.14
Net income (loss)	$	(0.00)	$	(0.04)	$	0.69	$	0.13

24

11. SEGMENT INFORMATION

We have four reportable operating segments, which include our three real property operating sectors (office, industrial, and retail) and debt related investments. We organize and analyze the operations and results of each of these segments independently, due to inherently different considerations for each segment. Such considerations include, but are not limited to, the nature and characteristics of the investment, and investment strategies and objectives. For example, the physical characteristics of our buildings, the related operating characteristics, the geographic markets, and the type of tenants are inherently different for each of our segments. The following tables set forth revenue and the components of net operating income (“NOI”) of our segments for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands):  

	For the Three Months Ended September 30,
	Revenues				NOI
	2015		2014		2015		2014
Real property (1)
Office	$	34,418	$	35,439	$	23,937	$	26,608
Industrial		1,358		5,825		885		5,220
Retail		17,078		15,529		13,155		12,161
Debt related investments		807		1,798		807		1,798
Total	$	53,661	$	58,591	$	38,784	$	45,787

	For the Nine Months Ended September 30,
	Revenues				NOI
	2015		2014		2015		2014
Real property (1)
Office	$	102,631	$	103,566	$	74,056	$	77,863
Industrial		7,147		17,674		5,656		15,622
Retail		53,530		45,693		40,184		35,501
Debt related investments		5,594		5,571		5,594		5,571
Total	$	168,902	$	172,504	$	125,490	$	134,557

__________________

(1) Excludes results of operations of real properties categorized as discontinued operations.

We consider NOI to be an appropriate supplemental financial performance measure because NOI reflects the specific operating performance of our real properties and debt related investments, and excludes certain items that are not considered to be controllable in connection with the management of each property, such as depreciation and amortization, general and administrative expenses, advisory fees, acquisition-related expenses, interest and other income, interest expense, loss on extinguishment of debt and financing commitments, gain on the sale of real property and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our financial performance as a whole, since it excludes such items that could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance.

The following table is a reconciliation of our NOI to our reported net income (loss) attributable to common stockholders for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended  September 30,
	2015		2014		2015		2014
Net operating income	$	38,784	$	45,787	$	125,490	$	134,557
Real estate depreciation and amortization expense		(20,851)		(21,918)		(61,404)		(66,481)
General and administrative expenses		(2,477)		(2,581)		(8,157)		(8,187)
Advisory fees, related party		(4,225)		(4,083)		(13,021)		(11,678)
Acquisition-related expenses		(476)		(372)		(1,259)		(962)
Impairment of real estate property		(6,500)		(9,500)		(8,124)		(9,500)
Interest and other income		704		424		1,500		688
Interest expense		(10,951)		(15,276)		(36,208)		(46,549)
Loss on extinguishment of debt and financing     commitments		—		—		(1,168)		(63)
Gain on sale of real property		4,567		—		133,234		6,462
Discontinued operations		—		5		—		30,005
Net loss (income) attributable to noncontrolling interests		1,297		475		(7,358)		(4,405)
Net (loss) income attributable to common     stockholders	$	(128)	$	(7,039)	$	123,525	$	23,887

25

The following table reflects our total assets by business segment as of September 30, 2015 and December 31, 2014 (amounts in thousands):

	As of
	September 30, 2015		December 31, 2014
Segment assets:
Net investments in real property
Office (1)	$	1,018,140	$	1,069,584
Industrial		61,685		207,655
Retail		701,526		652,187
Debt related investments, net		27,775		94,951
Total segment assets, net		1,809,126		2,024,377
Non-segment assets:
Cash and cash equivalents		15,186		14,461
Other non-segment assets (2)		66,508		87,368
Assets held for sale (3)		—		21,927
Total assets	$	1,890,820	$	2,148,133

__________________

(1) Excludes approximately $20.3 million of net investments in real property related to an office property classified as held for sale in the accompanying balance sheet as of December 31, 2014.

(2) Other non-segment assets primarily consist of corporate assets including restricted cash and receivables, including straight-line rent receivable.

(3) Includes other assets and restricted cash related to properties classified as held for sale in the accompanying balance sheet as of December 31, 2014.

12. SUBSEQUENT EVENTS

We have evaluated subsequent events for the period from September 30, 2015, the date of these financial statements, through the date these financial statements are issued, and determined that there have been no significant subsequent events. For information regarding acquisitions, dispositions, and financing transactions that occurred subsequent to September 30, 2015, see “Subsequent Events” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10-Q.

26

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements may 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 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 Securities Act and Section 21E of the Exchange Act. Such statements are subject to a number of assumptions, risks and uncertainties that 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 that may cause our results to vary are general economic and business (particularly real estate and capital market) conditions being less favorable than expected, 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 tenants, availability of capital (debt and equity), interest rate fluctuations, competition, supply and demand for properties in our current and any proposed market areas, tenants’ ability to pay rent at current or increased levels, accounting principles, policies and guidelines applicable to REITs, environmental, regulatory and/or safety requirements, tenant 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. For a further discussion of these factors and other risk factors that could lead to actual results materially different from those described in the forward-looking statements, see “Risk Factors” under Item 1A of Part 1 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on March 3, 2015, Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the Commission on May 12, 2015,  and Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the Commission on August 13, 2015, each available at www.sec.gov, and Part II, Item 1A of this Quarterly Report on Form 10-Q.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

This section of our Quarterly Report on Form 10-Q provides an overview of what management believes to be the key elements for understanding (i) our company and how we manage our business, (ii) how we measure our performance and our operating results, (iii) our liquidity and capital resources, and (iv) the financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

Overview

Dividend Capital Diversified Property Fund Inc. is a Maryland corporation formed on April 11, 2005 to invest in a diverse portfolio of real property and real estate related investments. As used herein, “the Company,” “we,” “our” and “us” refer to Dividend Capital Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.

We operate in such a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes, and we utilize an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) organizational structure to hold all or substantially all of our assets through our operating partnership, Dividend Capital Total Realty Operating Partnership, L.P. (our “Operating Partnership”). Furthermore, our Operating Partnership wholly owns a taxable REIT subsidiary, DCTRT Leasing Corp., through which we execute certain business transactions that might otherwise have an adverse impact on our status as a REIT if such business transactions were to occur directly or indirectly through our Operating Partnership. We are an externally managed REIT and have no employees. Our day-to-day activities are managed by Dividend Capital Total Advisors LLC (our “Advisor”), a related party, under the terms and conditions of an advisory agreement (as amended from time to time, the “Advisory Agreement”).

The primary sources of our revenue and earnings include rent received under long-term operating leases of our properties, including reimbursements from customers for certain operating costs, and interest payments received from our debt related investments. Our primary expenses include rental expenses, depreciation and amortization expenses, general and administrative expenses, asset management and advisory fees, and interest expenses.

As of September 30, 2015, we had total investments with an estimated fair value of approximately $2.3 billion (calculated in accordance with our valuation procedures), comprising:  

27

(1)59 operating properties located in 20  geographic markets in the United States, aggregating approximately 9.8 million net rentable square feet. As of September 30, 2015, our real property portfolio was approximately 88.8% leased. Our real property portfolio consists of:

· 20  office properties located in 14 geographic markets, aggregating approximately 4.4 million net rentable square feet, with an aggregate fair value amount of approximately $1.4 billion;

· 33 retail properties located in seven geographic markets, aggregating approximately 3.5 million net rentable square feet, with an aggregate fair value amount of approximately $872.3 million; and

· six industrial properties located in three geographic markets, aggregating approximately 1.9 million net rentable square feet, with an aggregate fair value amount of approximately $88.1 million.

(2)Approximately $27.8 million in net debt related investments, all of which are structured as mortgage notes.  

Consistent with our investment strategy, we currently have four business segments, consisting of investments in (i) office property, (ii) industrial property, (iii) retail property, and (iv) real estate-related debt (which we refer to as “debt related investments”). We may have additional segments in the future to the extent we enter into additional real property sectors, such as multifamily, hospitality, and other real property types. For a discussion of our business segments and the associated revenue and net operating income by segment, see Note 11 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

Any future and near-term obligations are expected to be funded primarily through the use of cash on hand, cash generated from operations, proceeds from our public offerings and other equity offerings, proceeds from the sale of existing investments, and the issuance and assumption of debt obligations.

· Cash on hand — As of September 30,  2015, we had approximately $15.2 million of cash and cash equivalents.

· Cash available under our credit facility — As of September 30, 2015, the unused portion of our revolving line of credit was approximately $288.8 million,  all of which was available to us.

· Cash generated from operations — During the nine months ended September 30, 2015, we generated approximately $77.9 million from operations of our real properties and income from debt related investments.

· Proceeds from offerings of equity securities — We currently maintain a public offering of our shares of common stock. During the nine months ended September 30, 2015, we raised approximately $73.2 million in proceeds from the sale of Class A, W, and I shares in our prior public offering and our current follow-on public offering, including approximately $2.3 million under the distribution reinvestment plan. Additionally, during the nine months ended September 30, 2015, we received (i) approximately $13.8 million in proceeds from the distribution reinvestment plan offering of our unclassified shares of common stock, which we refer to as “Class E” shares (the “Class E DRIP Offering”), and (ii) approximately $7.3 million from partnership units (“OP Units”) issued in a real estate transaction.

· Proceeds from sales and repayments of existing investments — During the nine months ended September 30, 2015, we sold 15 operating properties and a land parcel for approximately $477.9 million. After buyer credits, closing costs, and the assumption of a related mortgage note, we received net proceeds of $342.2 million. In addition, during that period five of our debt related investments with aggregate principal balances of $69.8 million were repaid to us in full.

We believe that our existing cash balance, cash generated from operations, proceeds from our public offerings and our ability to sell investments and to issue debt obligations remains adequate to meet our expected capital obligations for the next twelve months.

Significant Transactions During the Nine Months Ended September 30, 2015

Investment Activity

Dispositions of Real Properties

During the nine months ended September 30, 2015, we completed (i) the disposition of 15 wholly owned properties aggregating approximately 3.1 million net rentable square feet for an aggregate sales price of approximately $470.3 million, and (ii) the sale of a wholly owned land parcel for a sales price of approximately $7.6 million. Of these sales, the most significant is the sale of a portfolio of 12 wholly owned office and industrial properties comprising approximately 2.7 million net rentable square feet to an unrelated third party for a contract sales price of approximately $398.6 million on March 11, 2015. For additional information on these dispositions, see Note 3 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

28

Acquisitions of Real Properties

The following table summarizes our acquisitions of real properties during the nine months ended September 30, 2015 (dollar amounts and square footage in thousands):

Real Property	Property Type	Market	Number of Properties	Date of Acquisition	Acquired Ownership	Contract Price		Net Rentable Square Feet	Percent Leased
Venture Corporate Center	Office	South Florida	1	August 6, 2015	100%	$	45,750	253	97%
Shenandoah	Retail	South Florida	1	August 6, 2015	100%		32,670	124	100%
City View	Office	Austin, TX	1	April 24, 2015	100%		68,750	274	99%
South Cape	Retail	Greater Boston (1)	1	March 18, 2015	100%		35,450	143	92%
Rialto	Office	Austin, TX	1	January 15, 2015	100%		37,300	155	94%
Total 2015 real    property    acquisitions			5			$	219,920	949	97%

__________________

(1) Our Greater Boston market comprises the greater metro area around Boston, MA. As of September 30, 2015, properties in our Greater Boston market are located in the following states: Massachusetts, Connecticut, New Hampshire, and Rhode Island.

Financing Activity

Self-Tender Offer

On August 12, 2015, we completed a self-tender offer, pursuant to which we accepted for purchase approximately 17.2 million unclassified shares of common stock, which we refer to as “Class E” shares, at a purchase price of $7.25 per share for an aggregate cost of approximately $124.4 million. We funded the purchase with a $115.0 million draw on our Revolving Credit Facility (as defined below) and existing cash.

Recast of Credit Facility

During the nine months ended September 30, 2015, we amended and restated our $620 million senior unsecured term loan and revolving line of credit (the “Old Facility”) to provide for a $550 million senior unsecured term loan and revolving line of credit, with a syndicate of lenders led by Bank of America, N.A., as Administrative Agent (collectively, the “Amended Facility”), consisting of a $400 million revolving credit facility (the “Revolving Credit Facility”) and a $150 million term loan (the “$150 Million Term Loan”). The Amended Facility provides us with the ability from time to time to increase the size of the Amended Facility up to a total of $900 million less the amount of any prepayments under the $150 Million Term Loan, subject to receipt of lender commitments and other conditions. As of September 30, 2015, we had outstanding borrowings of $150.0 million and $109.0 million under the $150 Million Term Loan and the Revolving Credit Facility, respectively.

New Credit Agreement

During the nine months ended September 30, 2015, we entered into an unsecured credit agreement providing for a $200 million term loan with a syndicate of six lenders led by Wells Fargo Bank and National Association, which matures in February 2022 (the “$200 Million Term Loan”). As of September 30, 2015, we had outstanding borrowings of $200.0 million under the $200 Million Term Loan.

Assumption and Defeasance of Mortgage Note

Upon the disposition of a portfolio of 12 office and industrial properties during the nine months ended September 30, 2015, the buyer assumed approximately $128.0 million of a mortgage note borrowing from us, which is scheduled to mature in July 2020 and bears interest at 5.46%. In addition, we were released of our obligations on $44.8 million of the mortgage note borrowing that was not assumed by the buyer through a defeasance process. Accordingly, we incurred defeasance costs of approximately $8.6 million, which are included within gain on sale of real property in the statements of operations included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q. Upon such defeasance, we derecognized the associated borrowing, which was assumed by an unrelated successor borrower.

Mortgage Borrowings

During the nine months ended September 30, 2015, we repaid six mortgage note borrowings in full prior to their scheduled maturities with an aggregate balance of approximately $102.2 million at the time of the payoffs and a weighted average interest rate of 5.81%.  All of these mortgage notes were repaid within the open prepayment period. For additional information on these repayments, see Note 5 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

29

Net Asset Value Calculation

Our board of directors, including a majority of our independent directors, has adopted valuation procedures that contain a comprehensive set of methodologies to be used in connection with the calculation of our net asset value (“NAV”) on a daily basis. Altus Group U.S., Inc., an independent valuation firm (the “Independent Valuation Firm”) manages the fundamental element of the valuation process—the valuation of our real property portfolio. Our board of directors, including a majority of our independent directors, approved the Independent Valuation Firm.

The following table sets forth the components of NAV for the Company as of September 30, 2015 and June 30, 2015 (amounts in thousands except per share information). As used below, “Fund Interests” means our Class E shares, Class A shares, Class W shares, and Class I shares, along with the OP Units held by third parties, and “Aggregate Fund NAV” means the NAV of all of the Fund Interests.

	As of September 30, 2015		As of June 30, 2015
Office properties	$	1,356,600	$	1,308,600
Industrial properties		88,050		86,850
Retail properties		872,300		835,320
Real properties	$	2,316,950	$	2,230,770
Debt related investments		27,775		56,548
Total Investments	$	2,344,725	$	2,287,318
Cash and other assets, net of other liabilities		(26,734)		(25,014)
Debt obligations		(997,517)		(818,417)
Outside investors' interests		(4,498)		(4,494)
Aggregate Fund NAV	$	1,315,976	$	1,439,393
Total Fund Interests outstanding		177,468		195,153
NAV per Fund Interest	$	7.42	$	7.38

When the fair value of our real estate assets is calculated for the purposes of determining our NAV per share, the calculation is done using the fair value methodologies detailed within the FASB Accounting Standards Codification under Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). However, our valuation procedures and our NAV are not subject to accounting principles generally accepted in the United States (“GAAP”) and will not be subject to independent audit. In the determination of our NAV, the value of certain of our assets and liabilities are generally determined based on their carrying amounts under GAAP; however, those principles are generally based upon historic cost and therefore may not be determined in accordance with ASC Topic 820. Readers should refer to our audited financial statements for our net book value determined in accordance with GAAP from which one can derive our net book value per share by dividing our stockholders’ equity by shares of our common stock outstanding as of the date of measurement.

Our valuation procedures, which address specifically each category of our assets and liabilities and are applied separately from the preparation of our financial statements in accordance with GAAP, involve adjustments from historical cost. There are certain factors which cause NAV to be different from net book value on a GAAP basis. Most significantly, the valuation of our real estate assets, which is the largest component of our NAV calculation, will be provided to us by the Independent Valuation Firm on a daily basis. For GAAP purposes, these assets are generally recorded at depreciated or amortized cost. We generally do not undertake to mark to market our debt investments or real estate-related liabilities, but rather these assets and liabilities are usually included in our determination of NAV at an amount determined in accordance with GAAP. As disclosed in Note 7 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q, the estimated fair value of our debt liabilities, net of the fair value of our debt investments, was $3.4 million higher than the GAAP carrying balance, meaning that if we used the fair value of our debt rather than the carrying balance, our NAV would have been lower by approximately $3.4 million as of September 30, 2015.  Also for NAV purposes, we mark-to-market our hedging instruments on a frequency that management determines to be practicable under the circumstances and currently we seek to mark-to-market our hedging instruments on a weekly basis. However, our NAV policies and procedures allow for that frequency to change to be more or less frequent. Other examples that will cause our NAV to differ from our GAAP net book value include the straight-lining of rent, which results in a receivable for GAAP purposes that is not included in the determination of our NAV, and, for purposes of determining our NAV, the assumption of a value of zero in certain instances where the balance of a loan exceeds the value of the underlying real estate properties, where GAAP net book value would reflect a negative equity value for such real estate properties, even if such loans are non-recourse. Third party appraisers may value our individual real estate assets using appraisal standards that deviate from fair value standards under GAAP. The use of such appraisal standards may cause our NAV to deviate from GAAP fair value principles. We did not develop our valuation procedures with the intention of complying with fair value concepts under GAAP and, therefore, there could be differences between our fair values and the fair values derived from the principal market or most advantageous market concepts of establishing fair value under GAAP.

30

We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on your ability to redeem shares under our share redemption programs and our ability to suspend or terminate our share redemption programs at any time. Our NAV generally does not consider exit costs (e.g. selling costs and commissions related to the sale of a property) that would likely be incurred if our assets and liabilities were liquidated or sold. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges.

Please note that our NAV is not a representation, warranty or guarantee that: (1) we would fully realize our NAV upon a sale of our assets; (2) shares of our common stock would trade at our per share NAV on a national securities exchange; and (3) a stockholder would be able to realize the per share NAV if such stockholder attempted to sell his or her shares to a third party.

The September 30, 2015 valuation for our real properties was provided by the Independent Valuation Firm in accordance with our valuation procedures and determined starting with the appraised value. The aggregate real property valuation of $2.32 billion compares to a GAAP basis of real properties (before accumulated amortization and depreciation and the impact of intangible lease liabilities) of $2.18 billion, representing an increase of approximately $133.4 million or 6.1%. Certain key assumptions that were used by our Independent Valuation Firm in the discounted cash flow analysis are set forth in the following table based on weighted averages by property type. 

	Office	Industrial	Retail	Weighted Average Basis
Exit capitalization rate	6.74%	7.35%	6.50%	6.67%
Discount rate / internal rate of return ("IRR")	7.51%	8.01%	6.97%	7.32%
Annual market rent growth rate	3.17%	2.97%	2.80%	3.02%
Average holding period (years)	10.8	10.0	10.5	10.6

A change in the rates used would impact the calculation of the value of our real properties. For example, assuming all other factors remain constant, an increase in the weighted-average annual discount rate/IRR and the exit capitalization rate of 0.25% would reduce the value of our real properties by approximately 1.95% and 2.13%, respectively.

The following table sets forth the quarterly changes to the components of NAV for the Company and the reconciliation of NAV changes for each class of shares (amounts in thousands, except per share and footnoted information):

	Total		Class E Common Stock		Class A Common Stock		Class W Common Stock		Class I Common Stock		Class E OP Units
NAV as of June 30, 2015	$	1,439,393	$	1,164,065	$	10,050	$	8,798	$	159,966	$	96,514
Fund level changes to NAV
Realized/unrealized gains on net assets		5,149		4,181		35		32		562		339
Income accrual		23,391		18,683		178		165		2,744		1,621
Dividend accrual		(16,747)		(13,437)		(97)		(103)		(1,941)		(1,169)
Advisory fee		(3,847)		(3,074)		(29)		(27)		(451)		(266)
Performance based fee		(364)		(290)		(3)		(3)		(43)		(25)
Class specific changes to NAV		—		—		—		—		—		—
Dealer Manager fee		(71)		—		(16)		(15)		(40)		—
Distribution fee		(13)		—		(13)		—		—		—
NAV as of September 30, 2015
before share/unit sale/redemption     activity	$	1,446,891	$	1,170,128	$	10,105	$	8,847	$	160,797	$	97,014
Share/unit sale/redemption activity
Shares/units sold		12,201		4,539		630		1,697		5,335		—
Shares/units redeemed		(143,116)		(140,609)		—		(31)		(841)		(1,635)
NAV as of September 30, 2015	$	1,315,976	$	1,034,058	$	10,735	$	10,513	$	165,291	$	95,379
Shares/units outstanding as of June 30, 2015		195,153		157,819		1,363		1,193		21,692		13,086
Shares/units sold		1,650		616		85		229		720		—
Shares/units redeemed		(19,335)		(18,998)		—		(4)		(113)		(220)
Shares/units outstanding as of September 30, 2015 (1)		177,468		139,437		1,448		1,418		22,299		12,866
NAV per share/unit as of June 30, 2015			$	7.38	$	7.38	$	7.38	$	7.38	$	7.38
Change in NAV per share/unit				0.04		0.04		0.04		0.04		0.04
NAV per share/unit as of September 30, 2015			$	7.42	$	7.42	$	7.42	$	7.42	$	7.42

________________

(1) Amounts reported do not include approximately 441,000 restricted stock units granted to the Advisor that remain unvested as of September 30, 2015.

31

How We Measure Our Operating Performance

Funds From Operations

FFO Definition (“FFO”)

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

The following unaudited table presents a reconciliation of FFO to net income (loss) for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands, except per share information):

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Reconciliation of net earnings to FFO:
Net (loss) income attributable to common stockholders	$	(128)	$	(7,039)	$	123,525	$	23,887
Add (deduct) NAREIT-defined adjustments:
Depreciation and amortization expense		20,851		21,918		61,404		66,481
Gain on disposition of real property (1)		(4,567)		—		(133,234)		(36,140)
Impairment of real estate property		6,500		9,500		8,124		9,500
Noncontrolling interests’ share of net (loss) income		(1,297)		(475)		7,358		4,405
Noncontrolling interests’ share of FFO		(1,594)		(1,712)		(4,874)		(5,002)
FFO attributable to common shares-basic		19,765		22,192		62,303		63,131
FFO attributable to dilutive OP Units		1,473		1,576		4,466		4,575
FFO attributable to common shares-diluted	$	21,238	$	23,768	$	66,769	$	67,706
FFO per share-basic and diluted	$	0.11	$	0.12	$	0.35	$	0.36
Weighted average number of shares outstanding
Basic		174,290		178,729		179,168		177,717
Diluted		187,279		191,422		192,020		190,605

_________________

(1) Includes amounts attributable to discontinued operations.

Company-Defined FFO

As part of its guidance concerning FFO, NAREIT has stated that the “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” As a result, modifications to FFO are common among REITs as companies seek to provide financial measures that meaningfully reflect the specific characteristics of their businesses. In addition to the NAREIT definition of FFO and other GAAP measures, we provide a Company-Defined FFO measure that we believe is helpful in assisting management and investors assess the sustainability of our operating performance. As described further below, our Company-Defined FFO presents a performance metric that adjusts for items that we do not believe to be related to our ongoing operations. In addition, these adjustments are made in connection with calculating certain of the Company’s financial covenants including its interest coverage ratio and fixed charge coverage ratio and therefore we believe this metric will help our investors better understand how certain of our lenders view and measure the financial performance of the Company and ultimately its compliance with these financial covenants. However, no single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity and results of operations.

Our Company-Defined FFO is derived by adjusting FFO for the following items: acquisition-related expenses and gains, losses associated with extinguishment of debt and financing commitments, and gains and losses on derivatives. Historically, Management has also adjusted FFO for certain other adjustments that did not occur in any of the periods presented, and are further described in Item 7 of Part 1 of our Annual Report on Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—How We Measure Our Performance.” Management’s evaluation of our future operating performance excludes the items set forth above based on the following economic considerations:

Acquisition-related expenses — For GAAP purposes, expenses associated with efforts to acquire real properties, including efforts related to acquisition opportunities that are not ultimately completed, are recorded to earnings. We believe by excluding

32

acquisition-related expenses, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance, because these types of expenses are directly correlated to our investment activity rather than our ongoing operating activity.

Losses on extinguishment of debt and financing commitments — Losses on extinguishment of debt and financing commitments represent losses incurred as a result of the early retirement of debt obligations and breakage costs and fees incurred related to certain of our derivatives and other financing commitments. Such losses may be due to dispositions of assets, the repayment of debt prior to its contractual maturity. Our management believes that any such losses are not related to our ongoing operations. Accordingly, we believe by excluding losses on extinguishment of debt and financing commitments, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance.

Unrealized gains and losses on derivatives — Unrealized gains and losses on derivatives represent the gains or losses on the fair value of derivative instruments due to hedge ineffectiveness. As these gains or losses relate to underlying long-term assets and liabilities, where we are not speculating or trading assets, our management believes that any such gains or losses are not reflective of our ongoing operations. Accordingly, we believe by excluding unrealized gains or losses on derivatives, Company-Defined FFO provides useful supplemental information for management and investors when evaluating the sustainability of our operating performance.

We also believe that Company-Defined FFO allows investors and analysts to compare the performance of our portfolio with other REITs that are not currently affected by the adjusted items. In addition, as many other REITs adjust FFO to exclude the items described above, we believe that our calculation and reporting of Company-Defined FFO may assist investors and analysts in comparing our performance with that of other REITs. However, because Company-Defined FFO excludes items that are an important component in an analysis of our historical performance, such supplemental measure should not be construed as a complete historical performance measure and may exclude items that have a material effect on the value of our common stock.

The following unaudited table presents a reconciliation of Company-Defined FFO to FFO for the three and nine months ended September 30, 2015 and 2014 (amounts in thousands, except per share information):

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Reconciliation of FFO to Company-Defined FFO:
FFO attributable to common shares-basic	$	19,765	$	22,192	$	62,303	$	63,131
Add (deduct) our adjustments:
Acquisition-related expenses		476		372		1,259		962
Loss on extinguishment of debt and financing     commitments		—		—		1,168		63
Unrealized loss on derivatives		117		—		0		—
Noncontrolling interests’ share of     NAREIT-defined FFO		1,594		1,712		4,874		5,002
Noncontrolling interests’ share of     Company-Defined FFO		(1,635)		(1,736)		(5,035)		(5,070)
Company-Defined FFO attributable to     common shares-basic		20,317		22,540		64,569		64,088
Company-Defined FFO attributable to     dilutive OP Units		1,514		1,601		4,628		4,644
Company-Defined FFO attributable to     common shares-diluted	$	21,831	$	24,141	$	69,197	$	68,732
Company-Defined FFO per share-basic     and diluted	$	0.12	$	0.13	$	0.36	$	0.36
Weighted average number of shares outstanding
Basic		174,290		178,729		179,168		177,717
Diluted		187,279		191,422		192,020		190,605

Limitations of FFO and Company-Defined FFO

FFO (both NAREIT-defined and Company-Defined) is presented herein as a supplemental financial measure and has inherent limitations. We do not use FFO or Company-Defined FFO as, nor should they be considered to be, an alternative to net income (loss) computed under GAAP as an indicator of our operating performance, or as an alternative to cash from operating activities computed under GAAP, or as an indicator of liquidity or our ability to fund our short or long-term cash requirements, including

33

distributions to stockholders. Management uses FFO and Company-Defined FFO as indications of our future operating performance and as a guide to making decisions about future investments. Our FFO and Company-Defined FFO calculations do not present, nor do we intend them to present, a complete picture of our financial condition and operating performance. In addition, other REITs may define FFO and an adjusted FFO metric differently and choose to treat acquisition-related expenses and potentially other accounting line items in a manner different from us due to specific differences in investment strategy or for other reasons; therefore, comparisons with other REITs may not be meaningful. Our Company-Defined FFO calculation is limited by its exclusion of certain items previously discussed, but we continuously evaluate our investment portfolio and the usefulness of our Company-Defined FFO measure in relation thereto. We believe that net income (loss) computed under GAAP remains the primary measure of performance and that FFO or Company-Defined FFO are only meaningful when they are used in conjunction with net income (loss) computed under GAAP. Further, we believe that our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and operating performance.

Specifically with respect to fees and expenses associated with the acquisition of real property, which are excluded from Company-Defined FFO, such fees and expenses are characterized as operational expenses under GAAP and included in the determination of net income (loss) and income (loss) from operations, both of which are performance measures under GAAP. The purchase of operating properties is a key strategic objective of our business plan focused on generating operating income and cash flow in order to fund our obligations and to make distributions to investors. However, as the corresponding acquisition-related costs are paid in cash, these acquisition-related costs negatively impact our GAAP operating performance and our GAAP cash flows from operating activities during the period in which efforts are undertaken to acquire properties. In addition, if we acquire a property after all offering proceeds from our public offerings have been invested, there will not be any offering proceeds to pay the corresponding acquisition-related costs. Accordingly, such costs will then be paid from other sources of cash such as additional debt proceeds, operational earnings or cash flow, net proceeds from the sale of properties, or other ancillary cash flows. Among other reasons as previously discussed, the treatment of acquisition-related costs is a reason why Company-Defined FFO is not a complete indicator of our overall financial performance, especially during periods in which efforts are undertaken to acquire properties. Note that, pursuant to our valuation procedures, acquisition-related expenses result in an immediate decrease to our NAV.

FFO and Company-Defined FFO may not be useful performance measures as a result of the various adjustments made to net income for the charges described above to derive such performance measures. Specifically, we intend to operate as a perpetual-life vehicle and, as such, it is likely for our operating results to be negatively affected by certain of these charges in the future, specifically acquisition-related expenses, as it is currently contemplated as part of our business plan to acquire additional investment properties which would result in additional acquisition-related expenses. Any change in our operational structure would cause the non-GAAP measure to be re-evaluated as to the relevance of any adjustments included in the non-GAAP measure. As a result, we caution investors against using FFO or Company-Defined FFO to determine a price to earnings ratio or yield relative to our NAV.

Further, FFO or Company-Defined FFO is not comparable to the performance measure established by the Investment Program Association (the “IPA”), referred to as “modified funds from operations,” or “MFFO,” as MFFO makes further adjustments including certain mark-to-market items and adjustments for the effects of straight-line rent. As such, FFO and Company-Defined FFO may not be comparable to the MFFO of non-listed REITs that disclose MFFO in accordance with the IPA standard. More specifically, Company-Defined FFO has limited comparability to the MFFO and other adjusted FFO metrics of those REITs that do not intend to operate as perpetual-life vehicles as such REITs have a defined acquisition stage. Because we do not have a defined acquisition stage, we may continue to acquire real estate and real estate-related investments for an indefinite period of time. Therefore, Company-Defined FFO may not reflect our future operating performance in the same manner that the MFFO or other adjusted FFO metrics of a REIT with a defined acquisition stage may reflect its operating performance after the REIT had completed its acquisition stage.

Neither the Commission nor any other regulatory body, nor NAREIT, has adopted a set of standardized adjustments that includes the adjustments that we use to calculate Company-Defined FFO. In the future, the Commission or another regulatory body, or NAREIT, may decide to standardize the allowable adjustments across the non-listed REIT industry at which point we may adjust our calculation and characterization of Company-Defined FFO.

Net Operating Income (“NOI”)

We also use NOI as a supplemental financial performance measure because NOI reflects the specific operating performance of our real properties and debt related investments and excludes certain items that are not considered to be controllable in connection with the management of each property, such as other-than-temporary impairment, losses related to provisions for losses on debt related investments, gains or losses on derivatives, acquisition-related expenses, losses on extinguishment of debt and financing commitments, interest income, depreciation and amortization, general and administrative expenses, advisory fees, interest expense and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our operating financial performance as a whole, since it does exclude such items that could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income, as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. We present NOI in the tables below, and include a reconciliation to GAAP in Note 11 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

34

Our Operating Results

Three Months Ended September 30, 2015 Compared to the Three Months Ended September 30, 2014

The following unaudited table illustrates the changes in rental revenue, rental expenses and net operating income for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. Our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods. Our same store portfolio includes 51 properties acquired prior to January 1, 2014 and owned through September 30, 2015, comprising approximately 8.2 million square feet. A discussion of these changes follows the table (dollar amounts in thousands):  

	For the Three Months Ended September 30,
	2015		2014		$ Change		% Change
Revenue
Base rental revenue-same store (1)	$	37,055	$	36,571	$	484	1%
Other rental revenue-same store		6,452		7,841		(1,389)	-18%
Total rental revenue-same store		43,507		44,412		(905)	-2%
Rental revenue-2014/2015 acquisitions/     dispositions (2)		9,347		12,381		(3,034)	-25%
Total rental revenue		52,854		56,793		(3,939)	-7%
Debt related income		807		1,798		(991)	-55%
Total revenue	$	53,661	$	58,591	$	(4,930)	-8%
Rental Expenses
Same store	$	11,613	$	11,103	$	510	5%
2014/2015 acquisitions/dispositions (2)		3,264		1,701		1,563	92%
Total rental expenses	$	14,877	$	12,804	$	2,073	16%
Net Operating Income
Real property-same store	$	31,894	$	33,309	$	(1,415)	-4%
Real property-2014/2015 acquisitions/     dispositions (2)		6,083		10,680		(4,597)	-43%
Debt related income		807		1,798		(991)	-55%
Total net operating income (3)	$	38,784	$	45,787	$	(7,003)	-15%

__________________

(1) Base rental revenue represents contractual base rental revenue earned by us from our tenants and does not include the impact of certain GAAP adjustments to rental revenue, such as straight-line rent adjustments, amortization of above-market intangible lease assets or the amortization of below-market lease intangible liabilities. Such GAAP adjustments and other rental revenue such as expense recovery revenue are included in the line item referred to as “other rental revenue.”

(2) Excludes amounts associated with our discontinued operations.

(3) For a discussion as to why we view net operating income to be an appropriate supplemental performance measure, refer to “—How We Measure Our Operating Performance—Net Operating Income (“NOI”)” above. See also Note 11 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

Net Operating Income

Base Rental Revenue - Same Store

The table below presents the factors contributing to the increase in our same store base rental revenue for the three months ended September 30, 2015 and 2014 (dollar amounts other than annualized base rent per square foot in thousands):

Same Store Portfolio	Base Rent for the  Three Months Ended September 30,						Average % Leased for the  Three Months Ended September 30,		Annualized Base Rent per Square Foot for the Three Months Ended September 30,
	2015		2014			$ Change	2015	2014	2015		2014
Office	$	24,578	$	24,365	$	213	90.3%	96.3%	$	31.42	$	29.20
Industrial		1,208		1,034		174	72.2%	84.1%		3.51		2.58
Retail		11,269		11,172		97	94.7%	94.9%		16.64		16.47
Total base rental     revenue - same store	$	37,055	$	36,571	$	484	87.6%	93.0%	$	20.54	$	19.11

Base rental revenue in our same store office portfolio increased for the three months ended September 30, 2015, compared to the same period in 2014, primarily due to (i) an increase in average base rent per square foot and (ii) expiration of rental concessions, partially offset by the decrease in the average leased square feet for the three months ended September 30, 2015, compared to the same period in 2014.

35

Other Rental Revenue - Same Store  

Same store other rental revenue decreased for the three months ended September 30, 2015, compared to the same period in 2014, primarily due to a decrease in our straight line rent adjustment within our same store portfolio due to rent increases and the expiration of concessions.

Rental Expenses - Same Store

The table below presents the amounts recorded and changes in rental expense of our same store portfolio for the three months ended September 30, 2015 and 2014 (dollar amounts in thousands):

	For the Three Months Ended September 30,
	2015		2014		$ Change		% Change
Real estate taxes	$	4,380	$	4,384	$	(4)	-0.1%
Repairs and maintenance		3,163		2,844		319	11.2%
Utilities		1,712		1,615		97	6.0%
Property management fees		839		855		(16)	-1.9%
Insurance		253		308		(55)	-17.9%
Other		1,266		1,097		169	15.4%
Total same store     rental expense	$	11,613	$	11,103	$	510	4.6%

Debt Related Income

Debt related income decreased for the three months ended September 30, 2015, compared to the same period in 2014. The decrease is primarily attributable to the repayments of debt related investments of approximately $69.8 million since June 30, 2014, partially offset by the investment of approximately $4.9 million in debt related investments in the same period.

Other Operating Expenses

Impairment of Real Estate Property

During the three months ended September 30, 2015, we recorded a $6.5 million impairment charge related to a consolidated office property located in the Chicago, IL market, which we acquired in February 2007 and we hold through a joint venture in which we are not the managing partner. We have an 80% ownership interest in the office property. During the three months ended September 30, 2014, we recorded a $9.5 million impairment related to a wholly owned retail property in the Pittsburgh, PA market.

In the calculation of our NAV, our real estate assets are carried at fair value using valuation methodologies consistent with ASC Topic 820, Fair Value Measurements and Disclosures. As a result, the timing of valuation changes recorded in our NAV will not necessarily be the same as for impairment charges recorded to our financial statements prepared pursuant to GAAP.

Other Income (Expenses)

Interest Expense

Interest expense decreased for the three months ended September 30, 2015, compared to the same period in 2014, primarily due to lower average mortgage note borrowings during the three months ended September 30, 2015, and the full repayment of our other secured borrowings and financing obligations during 2015, partially offset by an increase in interest expense on our unsecured borrowings due to higher average borrowings during the three months ended September 30, 2015. The following table further describes our interest expense by debt obligation, and includes amortization of deferred financing costs, amortization related to our derivatives, and amortization of discounts and premiums for the three months ended September 30, 2015 and 2014 (amounts in thousands):  

36

	For the Three Months Ended September 30,
Debt Obligation	2015		2014
Mortgage notes	$	7,966	$	12,435
Unsecured borrowings		2,985		2,194
Other secured borrowings		—		342
Financing obligations		—		305
Total interest expense	$	10,951	$	15,276

Gain on Sale of Real Property

During the three months ended September 30, 2015, we disposed of (i) an office property in the Los Angeles, CA market, for which we recorded a gain on sale of real property of approximately $2.9 million, and (ii) a land parcel in the Denver, CO market, for which we recorded a gain on sale of real property of approximately $1.7 million. During the three months ended September 30, 2014, we recorded no gain or loss on sale of real property due to a lack of disposition activity.

Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014

The following unaudited table illustrates the changes in rental revenue, rental expenses and net operating income for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. Our same store portfolio includes all operating properties that we owned for the entirety of both the current and prior year reporting periods. Our same store portfolio includes 51 properties acquired prior to January 1, 2014 and owned through September 30, 2015, comprising approximately 8.2 million square feet. A discussion of these changes follows the table (dollar amounts in thousands): 

	For the Nine Months Ended September 30,
	2015		2014		$ Change		% Change
Revenue
Base rental revenue-same store (1)	$	111,608	$	109,336	$	2,272	2%
Other rental revenue-same store		22,805		23,413		(608)	-3%
Total rental revenue-same store		134,413		132,749		1,664	1%
Rental revenue-2014/2015 acquisitions/     dispositions (2)		28,895		34,184		(5,289)	-15%
Total rental revenue		163,308		166,933		(3,625)	-2%
Debt related income		5,594		5,571		23	0%
Total revenue	$	168,902	$	172,504	$	(3,602)	-2%
Rental Expenses
Same store	$	35,304	$	33,646	$	1,658	5%
2014/2015 acquisitions/dispositions (2)		8,108		4,301		3,807	89%
Total rental expenses	$	43,412	$	37,947	$	5,465	14%
Net Operating Income
Real property-same store	$	99,109	$	99,103	$	6	0%
Real property-2014/2015 acquisitions/     dispositions (2)		20,787		29,883		(9,096)	-30%
Debt related income		5,594		5,571		23	0%
Total net operating income (3)	$	125,490	$	134,557	$	(9,067)	-7%

__________________

(1) Base rental revenue represents contractual base rental revenue earned by us from our tenants and does not include the impact of certain GAAP adjustments to rental revenue, such as straight-line rent adjustments, amortization of above-market intangible lease assets or the amortization of below-market lease intangible liabilities. Such GAAP adjustments and other rental revenue such as expense recovery revenue are included in the line item referred to as “other rental revenue.”

(2) Excludes amounts associated with our discontinued operations.

(3) For a discussion as to why we view net operating income to be an appropriate supplemental performance measure, refer to “—How We Measure Our Operating Performance—Net Operating Income” above. See also Note 11 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

37

Net Operating Income

Base Rental Revenue - Same Store

The table below presents the factors contributing to the increase in our same store base rental revenue for the nine months ended September 30, 2015 and 2014 (base rent dollar amounts in thousands):

Same Store Portfolio	Base Rent for the  Nine Months Ended September 30,						Average % Leased for the  Nine Months Ended September 30,		Annualized Base Rent per Square Foot for the Nine Months Ended September 30,
	2015		2014			$ Change	2015	2014	2015		2014
Office	$	74,257	$	72,276	$	1,981	94.3%	95.7%	$	30.30	$	29.05
Industrial		3,676		3,693		(17)	77.8%	84.7%		3.30		3.05
Retail		33,675		33,367		308	93.8%	94.2%		16.73		16.52
Total base rental     revenue - same store	$	111,608	$	109,336	$	2,272	90.3%	92.6%	$	20.01	$	19.11

Base rental revenue in our same store office portfolio increased for the nine months ended September 30, 2015, compared to the same period in 2014, primarily due to (i) an increase in average base rent per square foot and (ii) expiration of rental concessions, partially offset by a decrease in the average leased square feet during the nine months ended September 30 2015, compared to the same period in 2014.

Other Rental Revenue - Same Store

Same store other rental revenue decreased for the nine months ended September 30, 2015, compared to the same period in 2014, primarily due to a decrease in our straight line rent adjustment within our same store portfolio due to rent increases and the expiration of concessions, partially offset by lease termination payments for approximately $1.5 million related to tenants in our retail and office portfolios that we received during the nine months ended September 30, 2015 and (ii) an increase in recoverable revenue due to an increase in snow removal costs incurred by properties in our Greater Boston market.

Rental Expenses - Same Store

The table below presents the amounts recorded and changes in rental expense of our same store portfolio for the nine months ended September 30, 2015 and 2014 (dollar amounts in thousands):

	For the Nine Months Ended September 30,
	2015		2014		$ Change		% Change
Real estate taxes	$	13,064	$	12,749	$	315	2.5%
Repairs and maintenance (1)		10,895		9,161		1,734	18.9%
Utilities		4,784		5,178		(394)	-7.6%
Property management fees		2,547		2,399		148	6.2%
Insurance		867		922		(55)	-6.0%
Other		3,147		3,237		(90)	-2.8%
Total same store     rental expense	$	35,304	$	33,646	$	1,658	4.9%

__________________

(1) The increase in repairs and maintenance expenses for the nine months ended September 30, 2015, compared to the same period in 2014, is primarily attributable to snow removal costs incurred by properties in our Greater Boston market.

Debt Related Income

Debt related income decreased for the nine months ended September 30, 2015, compared to the same period in 2014. The decrease is primarily attributable to the repayments of debt related investments of approximately $99.5 million during 2014 and 2015, partially offset by the investment of approximately $6.4 million in debt related investments in the same period and the receipt of early repayment fees during 2015.

Other Operating Expenses

Real Estate Depreciation and Amortization Expense

Real estate depreciation and amortization expense decreased by $5.1 million, or 8%, for the nine months ended September 30, 2015, compared to the same period in 2014, primarily due to our disposition of real properties during 2014 and 2015, partially offset by our acquisition of properties during the same period.

38

Advisory Fees

Advisory fees increased by $1.3 million, or 12%, for the nine months ended September 30, 2015, compared to the same period in 2014, primarily due to (i) an increase in the performance component of our advisory fees due to an increase in our annual non-compounded investment return and (ii) an increase in the fixed component of the advisory fees resulting from an increase in our average Aggregate Fund NAV. For more information on the structure of our advisory fees, see Note 11 to our financial statements beginning on page F-1 of our Annual Report on Form 10-K filed with the Commission on March 3, 2015.

Impairment of Real Estate Property

During the nine months ended September 30, 2015, we recorded a  $6.5 million impairment charge related to a consolidated office property located in the Chicago, IL market, which we acquired in February 2007 and we hold through a joint venture in which we are not the managing partner.  We have an 80% ownership interest in the office property. In addition, during the nine months ended September 30, 2015, we recorded $1.6 million of impairment charges related to a wholly owned retail property that we acquired in May 2007 in the Pittsburgh, PA market. During the nine months ended September 30, 2014, we recorded a $9.5 million impairment related to this retail property.

In the calculation of our NAV, our real estate assets are carried at fair value using valuation methodologies consistent with ASC Topic 820, Fair Value Measurements and Disclosures. As a result, the timing of valuation changes recorded in our NAV will not necessarily be the same as for impairment charges recorded to our financial statements prepared pursuant to GAAP.

Other Income (Expenses)

Interest Expense

Interest expense decreased for the nine months ended September 30, 2015, compared to the same period in 2014, primarily due to (i) lower average mortgage note borrowings, and (ii) our full repayment of repurchase facilities and financing obligations during 2015, partially offset by an increase in interest expense on our unsecured borrowings due to higher average borrowings. The following table further describes our interest expense by debt obligation, and includes amortization of deferred financing costs, amortization related to our derivatives, and amortization of discounts and premiums (amounts in thousands):

	For the Nine Months Ended September 30,
Debt Obligation	2015		2014
Mortgage notes (1)	$	27,709	$	38,507
Unsecured borrowings		7,779		6,398
Other secured borrowings		477		1,036
Financing obligations		243		904
Total interest expense	$	36,208	$	46,845

__________________

(1) Includes interest expense attributable to discontinued operations of $296,000 for the nine months ended September 30, 2014. 

Loss on Extinguishment of Debt and Financing Commitments

Loss on extinguishment of debt and financing commitments was approximately $1.2 million and $63,000 for the nine months ended September 30, 2015 and 2014, respectively. The loss in 2015 primarily resulted from (i) deferred financing costs written off due to the amendment and restatement of the Old Facility on January 13, 2015 (see “Significant Transactions During the Nine Months Ended September 30, 2015 – Financing Activity – Recast of Credit Facility” above and Note 5 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for more information regarding the recast of the Old Facility), and (ii) accelerated amortization of deferred financing costs upon the repayment of borrowings under our repurchase facilities earlier than we had originally expected. The loss in 2014 primarily resulted from the accelerated amortization of deferred financing costs upon the repayment of borrowings under our repurchase facilities earlier than we had originally expected.

Gain on Sale of Real Property

During the nine months ended September 30, 2015, we disposed of (i) a portfolio of 12 office and industrial properties, for which we recorded gains on sale of real property of approximately $105.5 million, and (ii) two properties and a land parcel, for which we recorded an aggregate gain on sale of real property of approximately $27.7 million. During the nine months ended September 30, 2014, we disposed of (i) a portfolio of 12 industrial properties, for which we recorded a gain on sale of real property of approximately $29.5 million, which is classified within discontinued operations, and (ii) three properties and a land parcel, for which we recorded an aggregate gain on sale of real property of approximately $6.5 million.

39

Liquidity and Capital Resources

Liquidity Outlook

We believe our existing cash balance, our available credit under our Revolving Credit Facility, cash from operations, additional proceeds from our public offerings, proceeds from the sale of existing investments, and prospective debt or equity issuances will be sufficient to meet our liquidity and capital needs for the foreseeable future, including the next 12 months. Our capital requirements over the next 12 months are anticipated to include, but are not limited to, operating expenses, distribution payments, debt service payments, including debt maturities of approximately $202.6 million, redemption payments, issuer tender offers, and acquisitions of real property and debt related investments. Subsequent to September 30, 2015, we repaid approximately $24.2 million of debt that was scheduled to mature over the next 12 months. Borrowings that are subject to extension options are also subject to certain lender covenants and restrictions that we must meet to extend the initial maturity date. We currently believe that we will qualify for these extension options. However, we cannot guarantee that we will meet the requirements to extend the notes upon initial maturity. In the event that we do not qualify to extend the notes, we expect to repay them with proceeds from new borrowings or available proceeds from our Revolving Credit Facility.

In order to maintain a reasonable level of liquidity for redemptions of Class A, Class W and Class I shares pursuant to our Second Amended and Restated Class A, W and I Share Redemption Program (the “Class AWI SRP”), we intend to generally maintain under normal circumstances the following aggregate allocation to sources of liquidity, which include liquid assets and capacity under our borrowing facilities: (1) 10% of the aggregate NAV of our outstanding Class A, Class W and Class I shares up to $1 billion of collective Class A, Class W and Class I share NAV, and (2) 5% of the aggregate NAV of our outstanding Class A, Class W and Class I shares in excess of $1 billion of collective Class A, Class W and Class I share NAV. However, as set forth in the Class AWI SRP, no assurance can be given that we will maintain this allocation to liquid assets. Our board of directors has the right to modify, suspend or terminate our Class AWI SRP if it deems such action to be in the best interest of our stockholders. As of September 30, 2015, the aggregate NAV of our outstanding Class A, Class W and Class I shares was approximately $186.6 million. 

We calculate our leverage for reporting purposes as our total borrowings, calculated on a GAAP basis, divided by the fair value of our real property and debt related investments. Based on this methodology, as of September 30, 2015, our leverage was 42.8%. There are other methods of calculating our overall leverage ratio that may differ from this methodology, such as the methodology used in determining our compliance with corporate borrowing covenants.

As of September 30, 2015, we had approximately $15.2 million of cash compared to $14.5 million as of December 31, 2014. The following discussion summarizes the sources and uses of our cash during the nine months ended September 30, 2015.

Operating Activities

Net cash provided by operating activities increased by approximately $15.0 million to approximately $77.9 million for the nine months ended September 30, 2015 from approximately $62.9 million for the same period in 2014. The increase is primarily due to (i) a decrease of $8.8 million in cash paid for interest primarily resulting from our extinguishment of mortgage note and other secured borrowings,  and (ii) the receipt of approximately $6.4 million of accrued interest on our mezzanine debt investment upon repayment.

Lease Expirations

Our primary source of funding for our property-level operating expenses and debt service payments is rent collected pursuant to our tenant leases. Our operating portfolio was approximately 88.8% leased as of September 30, 2015, compared to approximately 92.8% as of September 30, 2014. Our properties are generally leased to tenants for terms ranging from three to ten years. As of September 30, 2015, the weighted average remaining term of our leases was approximately 6.8 years, based on contractual remaining base rent, 4.2 years, based on annualized base rent, and 4.5 years, based on leased square footage. The following is a schedule of expiring leases for our consolidated operating properties by annualized base rent and square footage as of September 30, 2015 and assuming no exercise of lease renewal options (dollar amounts and square footage in thousands):

40

	Lease Expirations
Year	Number of Leases Expiring	Annualized Base Rent (1)		%	Square Feet	%
2015 (2)	44	$	1,996	1.2%	132	1.5%
2016	80		20,715	11.7%	821	9.5%
2017	82		42,434	24.0%	1,376	15.9%
2018	105		13,097	7.4%	617	7.1%
2019	96		24,093	13.6%	1,204	13.8%
2020	100		22,302	12.6%	1,088	12.6%
2021	41		14,929	8.5%	1,532	17.7%
2022	27		9,272	5.2%	529	6.1%
2023	21		14,310	8.1%	585	6.8%
2024	18		4,325	2.4%	295	3.4%
Thereafter	31		9,174	5.3%	482	5.6%
Total	645	$	176,647	100.0%	8,661	100.0%

__________________

(1) Annualized base rent represents the annualized monthly base rent of leases executed as of September 30, 2015.

(2) Represents the number of leases expiring and annualized base rent for the remainder of 2015. Includes eight leases with annualized base rent of approximately $110,000 that are on a month-to-month basis.  

Our three most significant leases, together comprising approximately 32.5% of our annualized base rent as of September 30, 2015, will expire between December 2016 and September 2017. Based on market information as of September 30, 2015, we have obtained third-party estimates that current market rental rates, on a weighted-average basis utilizing annualized base rent as of September 30, 2015, are approximately 15% lower than our in-place leases. Accordingly, we believe replicating the cash flows from these leases would be very difficult. If any one of these tenants does not renew their respective lease, we would be at greater risk of reduced revenues due to downtime, and when the leases expire, we may be forced to lower the rental rates or offer other concessions in order to attract new tenants. In addition, we could be required to expend substantial funds to construct new tenant improvements in the vacated space.

During the nine months ended September 30, 2015, we signed new leases for approximately 279,000 square feet and renewal leases for approximately 587,000 square feet. Tenant improvements and leasing commissions related to these leases were approximately $4.4 million and $2.5 million, respectively, or $4.97 and $2.78 per square foot, respectively. Of the leases described above, approximately 594,000 square feet were considered comparable leases related to which we realized average straight line rent growth of 21.7%. Comparable leases comprise leases for which prior leases were in place for the same suite within 12 months of executing the new lease.

Investing Activities

Net cash provided by investing activities increased approximately $145.1 million to approximately $167.7 million for the nine months ended September 30, 2015 from $22.6 million for the same period in 2014. The increase is primarily due to (i) an increase in proceeds from disposition of real properties during the nine months ended September 30, 2015, compared to the same period in 2014, and (ii) the payoff of five debt related investments during the nine months ended September 30, 2015, partially offset by (i) an increase in cash paid to acquire operating properties during the nine months ended September 30, 2015 compared to the same period in 2014, and (ii) an increase in capital expenditures in real property during the nine months ended September 30, 2015.

Financing Activities

Net cash used in financing activities increased approximately $162.4 million to approximately $244.9 million for the nine months ended September 30, 2015 from $82.5 million for the same period in 2014. The increase is primarily due to (i) extinguishment of certain mortgage notes and other secured borrowings during the nine months ended September 30, 2015, and (ii) the repurchase of our common shares pursuant to a self-tender offer and redemption of our common shares pursuant to our share redemption programs during the nine months ended September 30, 2015, partially offset by an increase in net proceeds from our unsecured borrowing facilities during the nine months ended September 30, 2015, compared to the same period in 2014.

During the nine months ended September 30, 2015 and 2014, we raised approximately $73.2 million and $68.6 million in proceeds from the sale of Class A, W, and I shares, respectively, including approximately $2.3 million and $549,000 under the distribution reinvestment plan, respectively. We have offered and will continue to offer Class E shares of common stock through the Class E DRIP Offering. The amount raised under the Class E DRIP Offering decreased by approximately $1.2 million to approximately $13.8 million for the nine months ended September 30, 2015, from approximately $15.0 million for the same period in 2014. In addition, during the nine months ended September 30, 2015, we raised approximately $7.3 million from OP Units issued in a real estate transaction.

Debt Maturities

11 of our mortgage notes with an aggregate outstanding balance as of September 30, 2015 of approximately $310.8 million have initial maturities before January 1, 2017. Of these borrowings, one mortgage note with an outstanding balance of

41

approximately $108.2 million as of September 30, 2015 has extension options beyond December 31, 2016. These extension options are subject to certain lender covenants and restrictions that we must meet to extend the maturity date. We currently believe that we will qualify for our extension options. 

For additional information on our upcoming debt maturities, see Note 5 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.

Distributions

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. 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 the current and anticipated market conditions, current and anticipated future performance and make-up of our investments, our overall financial projections and expected future cash needs.

The following table sets forth the amounts and sources of distributions declared for the three and nine months ended September 30, 2015 and 2014 (dollar amounts in thousands):  

	For the Three Months Ended						For the Nine Months Ended
Distributions:	September 30, 2015		% of Total Distributions	September 30, 2014		% of Total Distributions	September 30, 2015		% of Total Distributions	September 30, 2014		% of Total Distributions
Common stock distributions     paid in cash	$	10,526	61.7%	$	10,327	61.6%	$	32,180	61.9%	$	30,955	61.7%
Other cash distributions (1)		1,277	7.5%		1,185	7.1%		3,723	7.2%		3,645	7.3%
Total cash distributions	$	11,803	69.2%	$	11,512	68.6%	$	35,903	69.1%	$	34,600	68.9%
Common stock distributions     reinvested in common    shares		5,257	30.8%		5,263	31.4%		16,085	30.9%		15,603	31.1%
Total distributions	$	17,060	100.0%	$	16,775	100.0%	$	51,988	100.0%	$	50,203	100.0%
Sources of distributions:
Cash flow from operations (2)(3)	$	17,060	100.0%	$	16,775	100.0%	$	51,988	100.0%	$	50,203	100.0%
Financial performance metric:
NAREIT-defined FFO (4)	$	21,238	124.5%	$	23,768	141.7%	$	66,769	128.4%	$	67,706	134.9%

__________________

(1) Other cash distributions include (i) distributions declared for OP Units for the respective period, (ii) regular distributions made during the period to our joint venture partners that are noncontrolling interest holders, which exclude distributions of disposition proceeds related to properties sold by the joint ventures, and (iii) dealer manager and distribution fees we pay to our dealer manager with respect to the Class A, Class W and Class I shares. 

(2) Expenses associated with the acquisition of real property are recorded to earnings and as a deduction to our cash from operations. We incurred acquisition costs of approximately $476,000 and $1.3 million during the three and nine months ended September 30, 2015, respectively.  We incurred acquisition costs of approximately $372,000 and $962,000 during the three and nine months ended September 30, 2014, respectively. 

(3) Our long-term strategy is to fund the payment of quarterly distributions to investors entirely from our operations. There can be no assurance that we will achieve this strategy. In periods where cash flows from operations are not sufficient to fund distributions, we fund any shortfall with proceeds from borrowings.

(4) NAREIT-defined FFO is an operating metric and should not be used as a liquidity measure. However, management believes the relationship between NAREIT-defined FFO and distributions may be meaningful for investors to better understand the sustainability of our operating performance compared to distributions made. The definition of NAREIT-defined FFO, a reconciliation to GAAP net income, and a discussion of NAREIT-defined FFO’s inherent limitations are provided in “How We Measure Our Operating Performance” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10-Q.

Redemptions

The following table sets forth relationships between the amount of redemption requests received by us pursuant to our Class E Share Redemption Program (the “Class E SRP”), the resulting pro-rata redemption caps, and actual amounts of Class E shares redeemed under the redemption program for each of the last four quarterly periods (share amounts in thousands):

For the Quarter Ended:	Number of Class E Shares Requested for Redemption	Number of Class E Shares Redeemed	Percentage of Class E Shares Requested for Redemption Redeemed	Percentage of Class E Shares Requested for Redemption Redeemed Pro Rata (1)	Average Price Paid per Share
December 31, 2014	18,907	1,964	10.4%	7.4%	$	7.16
March 31, 2015	18,996	1,530	8.1%	5.9%		7.30
June 30, 2015	20,657	5,005	24.2%	21.6%		7.38
September 30, 2015	12,908	1,845	14.3%	11.1%		7.42
Average	17,867	2,586	14.5%	11.8%	$	7.33

__________________

(1) Represents redemptions of shares from investors that did not qualify for death or disability redemptions.

Additionally, during the third quarter of 2015, we (i) redeemed approximately 17.2 million Class E shares at a purchase price of $7.25 per share for an aggregate cost of approximately $124.4 million pursuant to a self-tender offer, and (ii) satisfied 100% of redemption requests received pursuant to our Class AWI SRP; we redeemed approximately 113,000 Class I shares and 4,000 Class

42

W shares for a weighted average price of approximately $7.34 per share pursuant to our Class AWI SRP. See “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” of this Quarterly Report on Form 10-Q for more information regarding redemptions of shares during the three months ended September  30, 2015.

Subsequent Events

For information regarding significant subsequent events, see Note 12 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q. In addition, the following acquisitions, dispositions, and financing transactions occurred subsequent to September 30, 2015.

Repayments of Mortgage Notes

Subsequent to September 30, 2015, we repaid four mortgage note borrowings in full prior to their scheduled maturities within the open prepayment period using proceeds from our Revolving Credit Facility. The following table describes our repayment of mortgage note borrowings subsequent to September 30, 2015 (dollar amounts in thousands): 

Debt Obligation	Repayment Date	Balance as of September 30, 2015		Stated Interest Rate	Contractual Maturity Date	Collateral Type	Collateral Market
Abington	October 1, 2015	$	4,681	6.75%	January 1, 2016	Retail Property	Greater Boston
Hyannis	October 1, 2015		4,635	6.75%	January 1, 2016	Retail Property	Greater Boston
Riverport Portfolio	October 1, 2015		8,052	7.38%	April 1, 2016	Industrial Portfolio	Louisville, KY
DeGuigne	November 2, 2015		6,871	7.78%	February 1, 2016	Office Property	Silicon Valley, CA
Total/weighted average		$	24,239	7.25%

Acquisition of Real Property

On October 8, 2015, we acquired a retail property in Chester Springs, NJ comprising approximately 223,000 net rentable square feet from an unaffiliated third party, for a gross purchase price of approximately $53.8 million. At acquisition, the property was approximately 95% leased to 34 tenants. We acquired the property using existing cash and proceeds from our Revolving Credit Facility. 

Borrowing Under Mortgage Note

On November 5, 2015, we received proceeds from a new mortgage note borrowing of approximately $70.0 million bearing interest at a fixed rate of 3.80%, which matures in November 2025 and is non-amortizing. The mortgage note is secured by a retail property in the Washington, DC market. 

New Accounting Pronouncements and Significant Accounting Policies

For information regarding new accounting pronouncements and significant accounting policies, see Note 2 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q. 

43

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the adverse effect on the value of assets and liabilities that results from a change in the applicable market resulting from a variety of factors such as perceived risk, interest rate changes, inflation and overall general economic changes. Accordingly, we manage our market risk by matching projected cash inflows from operating, investing and financing activities with projected cash outflows for debt service, acquisitions, capital expenditures, distributions to stockholders and unit holders, and other cash requirements. Our outstanding borrowings are directly impacted by changes in market conditions. This impact is largely mitigated by the fact that the majority of our outstanding borrowings have fixed interest rates, which minimize our exposure to the risk that fluctuating interest rates may pose to our operating results and liquidity.

As of September 30, 2015, the fair value of our fixed rate debt was $540.5 million and the carrying value of our fixed rate debt was $536.0 million. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of September 30, 2015. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

As of September 30, 2015, we had approximately $83.3 million of unhedged variable rate borrowings outstanding indexed to LIBOR rates. If the LIBOR rates relevant to our remaining variable rate borrowings were to increase 10%, we estimate that our annual interest expense would increase by approximately $16,000 based on our outstanding floating-rate debt as of September 30, 2015.  

We may seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on loans secured by our assets. We maintain 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 (loss) 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 instruments for hedging or other purposes. In addition to the above described risks, we are subject to additional credit risk. Credit risk refers to the ability of each individual borrower under our debt related investments to make required interest and principal payments on the scheduled due dates. We seek to reduce credit risk by actively monitoring our debt related investments and the underlying credit quality of our holdings. In the event of a significant rising interest rate environment and/or economic downturn, loan and collateral defaults may continue to increase and result in further credit losses that would continue to, or more severely, adversely affect our liquidity and operating results. 

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act, is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

44

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 1A.  RISK FACTORS

Please see the risk factors discussed in Item 1A of Part I of our Annual Report on Form 10-K filed with the Commission on March 3, 2015, Item 1A of Part II of our Quarterly Report on Form 10-Q filed with the Commission on May 12, 2015, and Item 1A of Part II of our Quarterly Report on Form 10-Q filed with the Commission on August 13, 2015.

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

Share Redemption Program and Other Redemptions

As of September 30, 2015, no material changes had occurred to our Class E SRP or our separate Class AWI SRP as discussed in Item 5 of our Annual Report on Form 10-K filed with the Commission on March 3, 2015.

Pursuant to the Class E SRP as of September 30, 2015, we will not redeem during any consecutive 12-month period more than 5% of the number of Class E shares of common stock outstanding at the beginning of such 12-month period.

Currently, the Class AWI SRP imposes a quarterly cap on the aggregate “net redemptions” of our Class A, Class W and Class I share classes equal to the amount of shares of such classes with a value (based on the redemption price per share on the day the redemption is effected) of up to 5% of the aggregate NAV of the outstanding shares of such classes as of the last day of the previous calendar quarter (the “Quarterly Cap”). We use the term “net redemptions” to mean, for any quarter, the excess of our share redemptions (capital outflows) of our Class A, Class W and Class I share classes over the share purchases net of sales commissions (capital inflows) of such classes in any ongoing public offering of Class A, Class W or Class I shares, whether in a primary offering or pursuant to a distribution reinvestment plan. On any business day during a calendar quarter, the maximum amount available for redemptions will be equal to (1) 5% of the NAV of our outstanding Class A, Class W and Class I shares, calculated as of the last day of the previous calendar quarter, plus (2) proceeds from sales of new Class A, Class W and Class I shares in our public offering (including reinvestment of distributions but net of sales commissions) since the beginning of the current calendar quarter, less (3) proceeds paid to redeem shares of such classes since the beginning of the current calendar quarter through the prior business day. For each future quarter, our board of directors reserves the right to choose whether the Quarterly Cap will be applied to “gross redemptions,” meaning, for any class and any quarter, amounts paid to redeem shares of such class since the beginning of such calendar quarter, or “net redemptions.” In addition, for each future quarter, our board of directors reserves the right to choose whether the Quarterly Cap and the “net redemptions” test will be applied to our Class A, Class W and Class I shares on a class-specific basis rather than on the aggregate basis described above. If our board of directors chooses to have the Quarterly Cap and the “net redemptions” test apply on a class-specific basis, then “net redemptions” of our Class A, Class W and Class I share classes will mean, for any class and any quarter, the excess of our share redemptions (capital outflows) of such class over the share purchases net of sales commissions (capital inflows) of such class in any ongoing public offering of Class A, Class W or Class I shares, whether in a primary offering or pursuant to a distribution reinvestment plan. Further, the quarterly cap will mean a quarterly cap on the “net redemptions” of each of our Class A, Class W and Class I share classes equal to the amount of shares of such class with an aggregate value (based on the redemption price per share on the day the redemption is effected) of up to 5% of the NAV of the outstanding shares of such class as of the last day of the previous calendar quarter. Additionally, our board of directors has the right to modify, suspend or terminate our share redemption programs if it deems such action to be in the best interest of our stockholders.

In aggregate, for the three months ended September 30, 2015, we redeemed (i) approximately 17.2 million Class E shares pursuant to our self-tender offer for approximately $124.4 million and (ii) approximately 2.0 million shares of common stock pursuant to the Class E SRP and the Class AWI SRP for approximately $14.5 million, as described further in the table below (number of shares in thousands). 

Period	Total Number of Shares Redeemed	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Pursuant to the Program (1)
July 1 - July 31, 2015	41	$	7.35	41	—
August 1 - August 31, 2015 (2)	17,177		7.25	17,177	—
September 1 - September 30, 2015	1,897		7.41	1,897	—
Total	19,115	$	7.27	19,115	—

__________________

(1) Redemptions are limited under the Class E SRP and the Class AWI SRP as described above. We redeemed all Class A, W, and I shares that were requested to be redeemed during the three months ended September 30, 2015. As of September 30, 2015, we had capacity under the Class AWI SRP to redeem up to an aggregate of $15.7 million of Class A, W, and I shares. Pursuant to the Class AWI SRP, this capacity resets at the beginning of each quarter.

(2) Includes (i)  approximately 17.2 million Class E shares redeemed at $7.25 per share for an aggregate cost of approximately $124.4 million pursuant to our self-tender offer and (ii) approximately 24,000 shares redeemed pursuant to the Class E SRP and the Class AWI SRP, as discussed above.

45

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.  

ITEM 5.  OTHER INFORMATION

Distribution Reinvestment Plan Suitability Requirements

Pursuant to the terms of our distribution reinvestment plan (“DRP”), participants in the DRP must promptly notify us if at any time they fail to meet the current suitability requirements for making an investment in us.

The current suitability standards require that Class E stockholders participating in the DRP other than investors in Arizona, California, Ohio and Oregon have either:

· a net worth (exclusive of home, home furnishings and automobiles) of $150,000 or more; or

· a net worth (exclusive of home, home furnishings and automobiles) of at least $45,000 and had during the last tax year, or estimate that such investor will have during the current tax year, a minimum of $45,000 annual gross income.

The current suitability standards require that Class E stockholders participating in the DRP in Arizona, California, Ohio and Oregon must have either:

· a net worth (exclusive of home, home furnishings and automobiles) of $250,000 or more; or

· a net worth (exclusive of home, home furnishings and automobiles) of at least $70,000 and had during the last tax year, or estimate that such investor will have during the current tax year, a minimum of $70,000 annual gross income.

In addition, Class E stockholders participating in the DRP in Ohio and Oregon must have a net worth of at least 10 times their investment in us and any of our affiliates (namely, Industrial Income Trust Inc. and Industrial Property Trust Inc.).

The current suitability standards for Class A, Class W and Class I stockholders participating in the DRP are listed in the section entitled “Suitability Standards” in our current Class A, Class W and Class I public offering prospectus on file at www.sec.gov and on our website at www.dividendcapitaldiversified.com.

Stockholders can notify us of any changes to their ability to meet the suitability requirements or change their DRP election by contacting us at Dividend Capital Diversified Property Fund Inc., Investor Relations, 518 17th Street, Suite 1700, Denver, Colorado 80202, Telephone: (303) 228-2200.

46

ITEM 6. EXHIBITS

Exhibit Number	Description
3.1	Articles of Restatement, incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K, filed March 21, 2012
3.2	Articles of Amendment, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed July 12, 2012
3.3	Articles Supplementary (Class A shares), incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed July 12, 2012
3.4	Articles Supplementary (Class W shares), incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed July 12, 2012
3.5	Articles Supplementary (Class I shares), incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed July 12, 2012
3.6	Certificate of Correction to Articles of Restatement, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on March 26, 2014
3.7	Sixth Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed December 8, 2014
4.1	Fourth Amended and Restated Distribution Reinvestment Plan, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed July 12, 2012
4.2	Class E Share Redemption Program, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed July 12, 2012
4.3	Statement regarding transfer restrictions, preferences, limitations and rights of holders of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-11 (No. 333-175989), filed April 15, 2013
4.4	Second Amended and Restated Class A, W and I Share Redemption Program, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed December 17, 2014
10.1	Second Amended and Restated Dealer Manager Agreement, incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed September 16, 2015.
31.1	Rule 13a-14(a) Certification of Principal Executive Officer*
31.2	Rule 13a-14(a) Certification of Principal Financial Officer*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
99.1	Consent of Altus Group U.S., Inc.*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*

__________________

*    Filed or furnished herewith.

47

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 DIVERSIFIED PROPERTY FUND INC.
Date: November 12, 2015	/s/ JEFFREY L. JOHNSON
	Jeffrey L. Johnson Chief Executive Officer
Date: November  12, 2015	/s/ M. KIRK SCOTT
	M. Kirk Scott Chief Financial Officer and Treasurer

48