SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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 number 333-86234
DIVIDEND CAPITAL TRUST INC.
(Exact name of registrant as specified in its charter)
Maryland 82-0538520
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
518 Seventeenth Street, 17th Floor 80202
Denver, CO (Zip Code)
(Address of Principal Executive Offices)
(303) 228-2200
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
Indicate by check mark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports); and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to be
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
There were no shares of the registrant owned by non-affiliates as of the
last business day of the registrant's most recently completed second fiscal
quarter. The number of shares outstanding of the registrant's common stock as of
March 26, 2003 was 715,598.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
Page
PART I
Item 1. Business...........................................................1
Item 2. Properties.........................................................2
Item 3. Legal Proceedings..................................................3
Item 4. Submission of Matters to a Vote of Shareholders....................3
PART II
Item 5. Market for Common Stock and Related Shareholder Matters............4
Item 6. Selected Financial Data............................................7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................7
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.........10
Item 8. Financial Statements..............................................11
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..........................................12
PART III
Item 10. Directors and Executive Officers of the Registrant................13
Item 11. Executive Compensation............................................14
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters........................15
Item 13. Certain Relationships and Related Transactions....................15
Item 14. Controls and Procedures...........................................16
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.......................................................17
PART I
ITEM 1. BUSINESS
Overview
Dividend Capital Trust Inc. (the "Company") was formed as a Maryland
corporation in April 2002 in order to invest in commercial real estate
properties, consisting primarily of high-quality industrial buildings triple-net
leased to creditworthy corporate tenants. The Company intends to qualify as a
real estate investment trust ("REIT") for federal tax purposes commencing with
its taxable year ending December 31, 2003. The Company is structured as an
umbrella partnership REIT ("UPREIT") under which substantially all of the
Company's current and future business is and will be conducted through a
majority owned subsidiary, Dividend Capital Operating Partnership LP (the
"Partnership"), a Delaware limited partnership. As used herein, the "Company"
refers to Dividend Capital Trust Inc. and Dividend Capital Operating Partnership
LP, collectively, except where the context otherwise requires.
The Company is managed by Dividend Capital Advisors LLC (the "Advisor") and
the Company's property manager is Dividend Capital Property Management LLC (the
"Property Manager"). Dividend Capital Securities LLC (the "Dealer Manager")
serves as the dealer manager of the Company's public offering.
As of the date of this filing, the Company has neither purchased nor
contracted to purchase any properties. As a result, the Company is still in the
development stage and the accompanying audited consolidated financial statements
are presented as such.
The Company is the sole general partner of the Partnership and as of March
26, 2003, held a 97.28% interest in the Partnership. Also as of March 26, 2003,
the Advisor held a 2.72% limited partnership interest in the Partnership.
Subject to certain restrictions, the limited partners may require the
Partnership to redeem some or all of their operating partnership units for the
Company's common shares or, at the option of the Partnership, for cash. The
rights of the limited partners are limited and do not include the ability to
replace the general partner or to approve the sale, purchase or refinancing of
the Partnership's assets. Due to the Company's control of the Partnership
through its general partner interest and the limited rights of the limited
partners, the Partnership is consolidated with the Company and the limited
partnership interest not held by the Company is reflected as a minority interest
in the accompanying consolidated financial statements.
As of December 31, 2002, there were no employees of the Company. All
management and administrative personnel responsible for conducting the Company's
business are employed by the Advisor and certain of its affiliates. As of
December 31, 2002, the Advisor and its affiliates had 24 employees engaged in
business activities for the Company.
Investment Objectives
General
The Company's objective is to invest in commercial real estate properties,
consisting primarily of high-quality industrial buildings triple-net leased to
creditworthy corporate tenants.
The Company's investment objectives are:
o To maximize quarterly cash dividends paid to the Company's
investors;
o To manage risk in order to preserve, protect and return the
Company's investors' capital contributions;
o To realize capital appreciation upon the Company's ultimate sale
of the Company's properties; and
1
o To ultimately list the Company's shares on a national securities
exchange or an over-the-counter market, complete a sale or merger
of the Company in a transaction which provides the Company's
investors with securities of a publicly-traded company or, if the
Company does not complete such a transaction or obtain such
listing within ten years after its initial closing, to begin
selling its properties and other assets and distribute the net
proceeds to its investors.
The Company may only change these investment objectives upon a majority
vote of its shareholders. Decisions relating to the purchase or sale of
properties will be made by the Advisor, subject to approval by the Company's
board of directors.
ITEM 2. PROPERTIES
As of December 31, 2002, the Company had not acquired any properties.
Policies and Objectives With Respect to Certain Activities
The following is a discussion of the Company's policies with respect to
acquisitions and investment and financing activities. The policies with respect
to these activities have been determined by the Company's board of directors
and, although the board currently does not contemplate any changes to these
policies, it may change these policies without a vote or other approval of the
shareholders.
Acquisition and Investment Policies
The Company seeks to invest substantially all of the net proceeds of its
public offering in commercial real estate properties, consisting primarily of
high-quality industrial buildings triple-net leased to creditworthy corporate
tenants. Industrial properties generally provide generic storage and work space
suitable for and adaptable to a broad range of tenants and uses.
The Company seeks to invest in properties that will satisfy its primary
objective of providing cash dividends to its shareholders. However, because a
significant factor in the valuation of income-producing properties is their
potential for future income, the Company anticipates that the majority of
properties it will acquire will have both the potential to grow in value and
provide cash dividends to shareholders. To the extent feasible, the Company will
attempt to invest in a diversified portfolio of properties, in terms of
geography, type of property and industry group of its tenants, which will
satisfy the Company's investment objectives of maximizing cash available for
payment of dividends, preserving the Company's capital and realizing growth in
value upon the ultimate sale of the Company's properties.
Change in Investment Objectives and Limitations
The Company's articles of incorporation require that independent directors
review its investment policies at least annually to determine that the currently
existing policies are in the best interest of the shareholders. Each
determination and the basis therefore shall be set forth in the Company's
minutes. The methods of implementing the Company's investment policies also may
vary as new investment techniques are developed. The methods of implementing the
Company's investment objectives and policies, except as otherwise provided in
the organizational documents, may be altered by a majority of directors,
including a majority of the independent directors, without the approval of
shareholders.
Financing Policies
Under the Company's articles of incorporation, the Company has a limitation
on borrowing which precludes the Company from borrowing in the aggregate in
excess of 50% of the value of all of its properties or from borrowing in excess
of 75% of the value of any single property.
The Company may not borrow money from any of its directors or from the
Advisor or its affiliates for the purpose of acquiring properties. Any loans
2
made to the Company by such parties for other purposes must be approved by a
majority of the directors not otherwise interested in the transaction (including
a majority of the independent directors) as fair, competitive, commercially
reasonable and no less favorable to the Company than comparable loans between
unaffiliated parties.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
3
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Market Information
There is no established public trading market for the Company's common
stock. Based on the Company's current public offering, the estimated value of
the common stock is $10 per share.
On April 15, 2002, the Company filed an S-11 Registration Statement (the
"Registration Statement") with the Securities and Exchange Commission covering a
public offering of its common stock. The Registration Statement was declared
effective on July 17, 2002 and the Company received approval of its offering in
all 50 states in December 2002. The common stock is being offered at a price of
$10 per share on a 200,000 share minimum, 25,000,000 share maximum, best-efforts
basis. The Registration Statement also covers up to 4,000,000 shares available
pursuant to the Company's dividend reinvestment plan and up to 1,000,000 shares
issuable upon the exercise of warrants that may be sold to broker-dealers
participating in the offering. Until the Company received subscriptions covering
at least 200,000 shares from at least 100 non-affiliated investors, offering
proceeds were required to be held in escrow. The escrow conditions were
satisfied on February 10, 2003, at which time 226,567 shares of common stock
were issued to investors. As of March 26, 2003, 715,598 common shares were
issued and outstanding. As disclosed in the prospectus to the Registration
Statement (the "Prospectus"), the net proceeds from the sale of these securities
were transferred to the Partnership on a one-for-one basis for limited
partnership units.
In April 2002, the Company sold 200 shares of common stock to an affiliate
of the Advisor at the initial public offering price of $10 per share. The resale
of these shares is subject to the provisions of Rule 144 promulgated under the
Securities Act of 1933, as amended, which rule limits the number of shares that
may be sold at any one time and the manner of such resale. The affiliate of the
Advisor has agreed to abstain from voting any shares it now owns or hereafter
acquires in any vote for the election of directors or any vote regarding the
approval or termination of any contract with the Advisor or any of its
affiliates.
The Company will provide a dividend reinvestment plan and a share
repurchase plan to facilitate investment in the shares and to provide limited
liquidity for shareholders until such time as a market for the shares develops:
o The Company's dividend reinvestment program will, subject to certain
share ownership restrictions, allow shareholders to automatically
reinvest distributions by purchasing additional shares from the
Company at an amount, per share, equal to the fair market value on the
relevant distribution date less applicable fees and commissions. The
fair market value is equal to (i) if shares are listed on a national
securities exchange or over-the-counter market, the average closing
price per share for the previous 30 business days; (ii) if shares are
not so listed, the most recent offering price per share at which the
Company offered such shares during the previous 90 days or (iii) if
the Company has not offered shares of common stock within the last 90
days, such price per share as the management of the Company determines
in good faith. As of March 26, 2003, the fair market value, as
determined using the most recent offering price, was $10.00.
o The Company's share repurchase program may, subject to certain
restrictions, provide shareholders with limited liquidity by enabling
them to sell shares back to the Company. Provided that the shares are
not listed on a national securities exchange or over-the-counter
market, shareholders of the Company who have held their shares for at
least one year, may redeem (at the shareholder's option) their shares
at a purchase price equal to the lesser of (i) $10.00 per share, or
(ii) the purchase price actually paid for the shares. The Company
expects that the aggregate amount of redemptions under its share
repurchase program will not exceed aggregate proceeds received from
the sale of shares pursuant to the dividend reinvestment program. The
Company's board of directors may, at its sole discretion, choose to
use other sources of funds to redeem shares and to modify or terminate
the share repurchase program at anytime.
4
Shareholders
As of March 26, 2003, there were 320 shareholders of record of the Company.
Dividend Policy
The Company intends to qualify as a REIT for federal tax purposes
commencing with its taxable year ending December 31, 2003. In order to remain
qualified as a REIT, the Company is required to distribute at least 90% of its
annual taxable income to the Company's shareholders. The Company intends to
accrue and pay dividends on a quarterly basis. The Company will calculate its
dividends based upon daily record and dividend declaration dates so investors
will be eligible to earn dividends immediately upon purchasing shares. As of
December 31, 2002, the Company's board of directors had not declared any
dividends.
Partnership Units
In April 2002, the Partnership issued to the Company 200 general
partnership units in exchange for $2,000 representing a 1% general partnership
interest in the Partnership. Also in April 2002, the Partnership issued to the
Advisor 20,000 limited partnership units in exchange for $200,000 representing a
99% limited partnership interest in the Partnership. During the third quarter of
2002, the Partnership issued Dividend Capital Advisors Group LLC, the parent
company of the Advisor, special partnership units (the "Special Units") for
total consideration of $1,000.
Amounts distributable to the holder of the Special Units will depend on
operations and the amount of net sales proceeds received from property
dispositions. In general, after holders of regular partnership interests have
received cumulative distributions equal to their capital contributions plus a 7%
pre-tax cumulative non-compounded annual return on their net contributions, the
holder of the Special Units and the holders of regular partnership interests
will receive 15% and 85%, respectively, of the net sales proceeds received by
the Partnership upon the disposition of the Partnership's assets.
The Special Units will be redeemed by the Partnership for cash upon the
occurrence of specified events that result in a termination or non-renewal of
the Advisory Agreement. If the Advisory Agreement is terminated by the Company
for cause, the redemption price shall be $1. If the Company's shares are listed
for public trading or if the Advisory Agreement is terminated upon the
occurrence of certain other events, the redemption price of the Special Units
will be the amount which would have been distributed to the holder of the
Special Units in accordance with the partnership agreement of the Partnership
out of the net sales proceeds. Net sales proceeds will be determined by the
public market prices in the event of a listing of the Company's shares or by the
net sales proceeds received in the event of the disposition of the Company's
properties. In the case of certain other events, net sales proceeds will be
determined by the then fair market value of the Partnership's assets, as
determined by an appraisal, less all of its liabilities.
Stock Option Plans
The Company has adopted an independent director stock option plan which it
will use in an effort to attract and retain qualified independent directors (the
"Independent Director Option Plan"). The Company will grant non-qualified stock
options to purchase 10,000 shares to each independent director pursuant to the
Independent Director Option Plan upon the sale of 200,000 shares in Company's
public offering. In addition, the Company intends to issue options to purchase
5,000 shares to each independent director then in office on the date of each
annual shareholder's meeting. A total of 300,000 shares are authorized and
reserved for issuance under the Independent Director Option Plan. Options may
not be granted under the Independent Director Option Plan at any time when the
grant would cause the total number of options outstanding under the Independent
Director Option Plan and the Employee Option Plan (defined below) to exceed 10%
of the Company's issued and outstanding shares. The exercise price for options
to be issued under the Independent Director Option Plan shall be the greater of
(1) $12.00 per share or (2) the fair market value of the shares on the date they
are granted. As of December 31, 2002 there were no options outstanding under the
Independent Director Option Plan.
5
The Company has adopted an employee stock option plan (the "Employee Option
Plan"). The Employee Option Plan is designed to enable the Company, the Advisor
and the Property Manager to obtain or retain the services of employees (not to
include any person who is a sponsor or affiliate of the Company) considered
essential to the Company's long-term success and the success of the Advisor and
the Property Manager by offering such employees an opportunity to participate in
the growth of the Company through ownership of the Company's shares. The
Employee Option Plan will be administered by the Compensation Committee, which
is authorized to grant "non-qualified" stock options (the "Employee Options") to
selected employees of the Advisor and the Property Manager. Employee Options may
not be granted under the Employee Option Plan at any time when the grant would
cause the total number of options outstanding under the Employee Option Plan and
the Independent Director Option Plan to exceed 10% of the Company's issued and
outstanding shares. The exercise price for the Employee Options shall be the
greater of (1) $11.00 per share or (2) the fair market value of the shares on
the date the Employee Option is granted. A total of 750,000 shares are
authorized and reserved for issuance under the Employee Option Plan. The
Compensation Committee shall set the term of the Employee Options at its
discretion, which shall not exceed ten years. The Compensation Committee shall
set the period during which the right to exercise an Employee Option vests. No
Employee Option may be issued or exercised, however, if such issuance or
exercise would jeopardize the Company's status as a REIT under the Internal
Revenue Code or otherwise violate the ownership and transfer restrictions
imposed under the Company's articles of incorporation. In addition, no Employee
Option may be sold, pledged, assigned or transferred by an employee in any
manner other than by will or the laws of descent or distribution. As of December
31, 2002 there were no options outstanding under the Employee Option Plan.
Stock Warrants
The Company will issue to the Dealer Manager one soliciting dealer warrant
for $.001 for every 25 shares sold during the period of the Company's public
offering subject to a maximum of 1,000,000 soliciting dealer warrants. These
warrants, as well as the shares issuable upon their exercise, have been
registered in connection with the Company's public offering. The Dealer Manager
may retain or re-allow these warrants to broker-dealers participating in the
offering, unless such issuance of soliciting dealer warrants is prohibited by
either federal or state securities laws. The holder of a soliciting dealer
warrant will be entitled to purchase one share of common stock from the Company
at a price of $12 per share during the period beginning on July 17, 2003 and
ending on July 16, 2007. Subject to certain exceptions, a soliciting dealer
warrant may not be transferred, assigned, pledged or hypothecated for a period
of one year following the effective date of the Company's public offering.
Exercise of the soliciting dealer warrants is governed by the terms and
conditions detailed in the warrant purchase agreement.
Equity Compensation Plans
The Independent Director Option Plan and the Employee Option Plan were not
approved by the Company's shareholders. As of December 31, 2002 there were
300,000, 750,000 and 1,000,000 shares available for future issuance under the
Independent Director Option Plan, Employee Option Plan and the warrant purchase
agreement with the Dealer Manager, respectively. As of December 31, 2002, there
were no options outstanding under either plan and there were no outstanding
dealer warrants.
6
ITEM 6. SELECTED FINANCIAL DATA
2002 (1)
-----------
OPERATING DATA:
Revenue $ -
Net loss before minority interest $ (212,712)
Minority interest $ 200,000
Net loss $ (12,712)
Basic and dilutive loss per common share $ (63.56)
Dividends declared per common share $ -
Weighted average common shares outstanding -
Basic and dilutive 200
BALANCE SHEET DATA:
Total assets $ 751,678
Long-term obligations $ -
--------------------
(1) For the period from inception (April 12, 2002) through December 31,
2002 for operating data and as of December 31, 2002 for balance sheet
data.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the audited
consolidated financial statements and notes thereto as of December 31, 2002 and
for the period from inception (April 12, 2002) through December 31, 2002. This
report on Form 10-K contains certain forward-looking statements. When used in
this report, the words "may", "will", "expect", "anticipate", "continue",
"estimate", "project", "intend", "believe", and similar expressions are intended
to identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
There are various factors that could cause actual results to differ materially
from those which are expressed in, or implied by, such forward-looking
statements. Such factors include changes in general economic conditions, changes
in real estate conditions, changes in interest rates, the amount of equity
capital provided by the Company's public offering, the availability of debt
financing on terms that are favorable to the Company, the ability of the Company
to acquire and lease properties on favorable terms and the ability of tenants to
make payments under their respective leases. Readers of this report are
cautioned to consider these uncertainties in connection with all forward-looking
statements.
Overview
The Company was formed as a Maryland corporation in April 2002 in order to
invest in commercial real estate properties, consisting primarily of
high-quality industrial buildings triple-net leased to creditworthy corporate
tenants. The Company intends to qualify as a REIT for federal income tax
purposes commencing with its taxable year ending December 31, 2003. As of
December 31, 2002, the Company had engaged primarily in organizational and
offering activities and no shares had been sold in its public offering.
On April 15, 2002, the Company filed the Registration Statement with the
Securities and Exchange Commission covering a public offering of its common
stock. The Registration Statement was declared effective on July 17, 2002 and
the Company received approval of its offering in all 50 states in December 2002.
The Company's common stock is being offered at a price of $10 per share on a
200,000 share minimum, 25,000,000 share maximum, best-efforts basis. The
Registration Statement also covers up to 4,000,000 shares available pursuant to
the Company's dividend reinvestment plan and up to 1,000,000 shares issuable
upon the exercise of warrants that may be sold to broker-dealers participating
in the offering. Until the Company received subscriptions covering at least
200,000 shares from at least 100 non-affiliated investors, offering proceeds
were required to be held in escrow. The escrow conditions were satisfied on
February 10, 2003, at which time 226,567 shares of common stock were issued to
7
investors. As of March 26, 2003, 715,598 common shares were issued and
outstanding. As disclosed in the Prospectus, the net proceeds from the sale of
these securities were transferred to the Partnership on a one-for-one basis for
limited partnership units.
Critical Accounting Policies
General
The following discussion pertains to critical accounting policies
management believes are most "critical" to the portrayal of the Company's
financial condition and results of operations which require management's most
difficult, subjective or complex judgments. These judgments often result from
the need to make estimates about the effect of matters that are inherently
uncertain. This discussion addresses judgments known to management pertaining to
trends, events or uncertainties known which were taken into consideration upon
the application of those policies and the likelihood that materially different
amounts would be reported upon taking into consideration different conditions
and assumptions.
Valuation of Investment Property
Long-lived assets to be held and used will be carried at cost and evaluated
for impairment when events or changes in circumstances indicate such an
evaluation is warranted. The Company will also evaluate assets for potential
impairment when the Company deems them to be held for sale. Valuation of real
estate is considered a "critical accounting estimate" because the evaluation of
impairment and the determination of fair values involve a number of management
assumptions relating to future economic events that could materially affect the
determination of the ultimate value, and therefore, the carrying amounts of the
Company's real estate. Such assumptions include projecting vacancy rates, rental
rates, property operating expenses, capital expenditures and debt financing
rates, among other things. The capitalization rate is also a significant driving
factor in determining the property valuation which requires management's
judgment of factors such as market knowledge, historical experience, length of
leases, tenant financial strength, economy, demographics, environment, property
location, visibility, age, physical condition and investor return requirements,
among other things. Furthermore, every property to be acquired will be supported
by an independent appraisal. All of the aforementioned factors will be taken as
a whole by management in determining the valuation of investment property. The
valuation is sensitive to the actual results of any of these uncertain factors,
either individually or taken as a whole. Should the actual results differ from
management's judgment, the valuation could be negatively effected.
Valuation of Investment Acquisitions
Upon acquisition, the purchase price of a property will be allocated to
land, building, leasing commissions and other intangible assets and associated
liabilities as required by Statement of Financial Accounting Standards ("SFAS")
No. 141 "Business Combinations." The allocation to land will be based on
management's estimate of its fair value based on all available information
including appraisals. The allocation to leasing commissions, as required by SFAS
No. 141, represents the value associated with the in-place leases, including
leasing commission, legal and other related costs. Also required by SFAS No.
141, is the creation of an intangible asset or liability resulting from in-place
leases being above or below the market rental rates on the date of the
acquisition. This asset or liability will be amortized over the life of the
remaining in-place leases as an adjustment to revenue.
Valuation of Accounts and Rent Receivable
Periodically management will assess the collectability of accounts and rent
receivable balances in order to determine if an adjustment to the value of these
balances is necessary. Management will take into consideration certain factors
that require judgments to be made as to the collectability of receivables.
Collectability factors taken into consideration will be the amounts outstanding,
payment history and financial strength of the tenant, which taken as a whole,
determines the valuation.
8
New Accounting Principles
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145 "Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS
Statement No. 13, and Technical Corrections". The Company is required to adopt
SFAS No. 145 on January 1, 2003. SFAS No. 145 significantly limits the treatment
of losses associated with early extinguishment of debt as an extraordinary item.
Upon adoption, early extinguishments will not continue to qualify for
extraordinary item treatment. The Company does not anticipate that the adoption
of SFAS No. 145 will have a material impact on its financial position, results
of operations or cash flows.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities." The Company is required to adopt SFAS No. 146
on January 1, 2003. SFAS No. 146 requires that certain expenses associated with
restructuring charges be accrued as liabilities in the period in which the
liability is incurred. The Company does not anticipate the adoption of SFAS No.
146 will have a material impact on its financial position, results of operations
or cash flows.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." The Company is required to adopt SFAS No. 148 for financial statements for
fiscal years ending after December 15, 2002. As of December 31, 2002, the
Company had not issued any stock-based compensation. The Company does not
anticipate the adoption of SFAS No. 148 will have a material impact on its
financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities." The Company is required to adopt the Interpretation
for financial statements for the fiscal year or interim period beginning after
June 15, 2003. This Interpretation clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," and requires the
consolidation of results of variable interest entities in which the Company has
a majority variable interest. The Company has not yet determined the impact of
this Interpretation.
Liquidity and Capital Resources
In April 2002, the Company sold 200 shares of common stock to an affiliate
of the Advisor at the initial public offering price of $10 per share for total
consideration of $2,000. In April 2002, the Partnership issued to the Advisor
20,000 Partnership units in exchange for $200,000 representing a 99% limited
partnership interest in the Partnership. During the third quarter of 2002, the
Partnership issued Special Units to an affiliate of the Advisor for total
consideration of $1,000.
On February 10, 2003, the Company issued 226,567 shares of common stock in
the initial closing of the Company's public offering, which resulted in net
proceeds to the Company of $2,265,670. As of March 26, 2003, the Company had
sold 715,598 shares for gross proceeds of approximately $7.2 million. During
2003, the Company will continue to sell shares under the initial offering,
providing capital for operations and acquisitions. The Company may also obtain
debt financing or may cause the Partnership to issue limited partnership
interests to help fund property acquisitions.
Pursuant to the Advisory Agreement, the Advisor is obligated to advance all
of the Company's organization and offering costs, subject to its right to be
reimbursed for such costs by the Company in an amount up to 3% of gross offering
proceeds. In order to comply with certain state law requirements, the initial
proceeds of the offering were held in escrow until the aggregate amount of
proceeds from the offering exceeded $2,000,000 from at least 100 non-affiliated
investors. As no shares had been sold as of December 31, 2002, the Advisor was
obligated to reimburse the Company for organization and offering costs paid by
the Company. The Advisor reimbursed the Company for such costs in January 2003.
The Company is not aware of any material trends or uncertainties, favorable
or unfavorable, other than national economic conditions affecting real estate
generally, which it anticipates may have a material impact on either capital
resources or the revenues or income to be derived from the operation of real
estate properties.
9
Results of Operations
The Company had not commenced active operations as of the date of this
report. For the period from inception (April 12, 2002) through December 31,
2002, the Company incurred approximately $213,000 of expenses related to the
Company's development stage operations. Operating results in future periods will
be a function of the results of operations of the real estate properties that
are acquired by the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
If the Company obtains debt financing to fund property acquisitions it may
then be exposed to interest rate changes. The Company's interest rate risk
management objectives will be to limit the impact of interest rate changes on
earnings and cash flows and to lower its overall borrowing costs. To achieve its
objectives the Company may borrow primarily at fixed rates or variable rates
with the lowest margins available and in some cases, with the ability to convert
variable rates to fixed rates. The Company may enter into derivative financial
instruments such as interest rate swaps, caps and treasury locks in order to
mitigate any interest rate risk on a related financial instrument. The Company
does not enter into derivative or interest rate transactions for speculative
purposes.
10
ITEM 8. FINANCIAL STATEMENTS
DIVIDEND CAPITAL TRUST INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.................................................F-1
Consolidated Balance Sheets as of April 12, 2002 and
December 31, 2002..........................................................F-2
Consolidated Statement of Operations for the
Period from Inception (April 12, 2002) to December 31, 2002................F-3
Consolidated Statement of Shareholder's Equity (Deficit)
for the Period from Inception (April 12, 2002) to December 31, 2002........F-4
Consolidated Statement of Cash Flows for the Period from
Inception (April 12, 2002) to December 31, 2002............................F-5
Notes to Consolidated Financial Statements...................................F-6
11
INDEPENDENT AUDITORS' REPORT
Dividend Capital Trust Inc.:
We have audited the accompanying consolidated balance sheets of Dividend Capital
Trust Inc. (a Maryland corporation) and subsidiary (a development stage company)
as of April 12, 2002 and December 31, 2002, and the related consolidated
statements of operations, shareholder's equity (deficit), and cash flows for the
period from inception (April 12, 2002) to December 31, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dividend Capital
Trust Inc. and subsidiary (a development stage company) as of April 12, 2002 and
December 31, 2002, and the results of their operations and their cash flows for
the period from inception (April 12, 2002) to December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Denver, Colorado
March 26, 2003
F-1
Dividend Capital Trust Inc. and Subsidiary
(A Maryland Corporation in the Development Stage)
Consolidated Balance Sheets
As of As of
April 12, December 31,
2002 2002
------------ --------------
ASSETS:
Cash and cash equivalents $ 174,215 $ 11,055
Restricted cash - 681,890
Advance for offering costs, related party 27,785 52,923
Other assets - 5,810
--------- ---------
Total Assets $ 202,000 $ 751,678
========= =========
LIABILITIES & SHAREHOLDER'S EQUITY (DEFICIT):
Liabilities:
Accrued expenses $ - $ 79,500
Subscriptions for common shares - 681,890
--------- ---------
Total Liabilities - 761,390
Commitments and contingencies
Minority interest 200,000 1,000
Shareholder's equity (deficit):
Preferred shares
Authorized - 50,000,000 shares, none outstanding - -
Shares-in-trust
Authorized - 100,000,000 shares, none outstanding - -
Common shares, $0.01 par value
Authorized - 350,000,000 shares,
200 shares issued and outstanding 2 2
Additional paid-in capital 1,998 1,998
Accumulated deficit incurred during the development stage - (12,712)
--------- ---------
Total Shareholder's Equity (Deficit) 2,000 (10,712)
--------- ---------
Total Liabilities and Shareholder's Equity (Deficit) $ 202,000 $ 751,678
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
Dividend Capital Trust Inc. and Subsidiary
(A Maryland Corporation in the Development Stage)
Consolidated Statement of Operations
For the Period from Inception (April 12, 2002)
to December 31, 2002
REVENUE $ -
COSTS AND EXPENSES:
General and administrative 212,867
---------
Total Operating Expenses 212,867
---------
OTHER INCOME:
Interest income 155
---------
Total Other Income 155
---------
Net loss before minority interest (212,712)
Minority interest 200,000
---------
NET LOSS $ (12,712)
=========
NET LOSS PER COMMON SHARE
Basic and Diluted $ (63.56)
=========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic and Diluted 200
=========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
Dividend Capital Trust Inc. and Subsidiary
(A Maryland Corporation in the Development Stage)
Consolidated Statement of Shareholder's Equity (Deficit)
For the Period from Inception (April 12, 2002)
to December 31, 2002
Accumulated
Common Shares Additional Deficit Incurred Total
------------------- Paid-in During the Shareholder's
Shares Amount Capital Development Stage Equity (Deficit)
------ ------ ---------- ----------------- ----------------
Balances, Inception (April 12, 2002) $ - $ - $ - $ -
Contribution 200 2 1,998 - 2,000
Net loss - - - (12,712) (12,712)
----- ----- ------ -------- --------
Balances, December 31, 2002 200 $ 2 $1,998 $(12,712) $(10,712)
===== ===== ====== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Dividend Capital Trust Inc. and Subsidiary
(A Maryland Corporation in the Development Stage)
Consolidated Statement of Cash Flows
For the Period from Inception (April 12, 2002)
to December 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (12,712)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in advance for offering costs, related party (52,923)
Increase in other assets (5,810)
Increase in restricted cash (681,890)
Increase in accrued expenses 79,500
Minority interest (200,000)
---------
Net cash used in operating activities (873,835)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subscriptions for common shares 681,890
Proceeds from issuance of common shares to related party 2,000
Proceeds from issuance of Partnership units to related party 200,000
Proceeds from issuance of Special Units to related party 1,000
---------
Net cash provided by financing activities 884,890
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,055
CASH AND CASH EQUIVALENTS, Inception (April 12, 2002) -
---------
CASH AND CASH EQUIVALENTS, December 31, 2002 $ 11,055
=========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
Dividend Capital Trust Inc. and Subsidiary
(A Maryland Corporation in the Development Stage)
Notes to Consolidated Financial Statements
Note 1 - Organization
Dividend Capital Trust Inc. (the "Company") was formed as a Maryland
corporation in April 2002 in order to invest in commercial real estate
properties consisting primarily of high-quality industrial buildings triple-net
leased to creditworthy corporate tenants. The Company intends to qualify as a
real estate investment trust ("REIT") for federal tax purposes commencing with
its taxable year ending December 31, 2003. The Company is structured as an
umbrella partnership REIT ("UPREIT") under which substantially all of the
Company's current and future business is and will be conducted through a
majority owned subsidiary, Dividend Capital Operating Partnership LP (the
"Partnership"), a Delaware limited partnership.
The Company is managed by the Dividend Capital Advisors LLC (the "Advisor")
and the Company's property manager will be Dividend Capital Property Management
LLC (the "Property Manager"). Dividend Capital Securities LLC (the "Dealer
Manager") serves as the dealer manager of the Company's public offering. These
related parties receive compensation and fees for services relating to the
offering and for the investment and management of the Company's assets (see Note
9).
As of December 31, 2002 and through March 26, 2003, the Company had neither
purchased nor contracted to purchase any properties, nor has the Advisor
identified any properties in which there is a reasonable probability that the
Company will acquire. As a result, the Company is still in the development stage
and the accompanying consolidated financial statements are presented as such.
In April 2002, the Company sold 200 shares of common stock, $0.01 par
value, to an affiliate of the Advisor at a price of $10 per share. On April 15,
2002, the Company filed a Form S-11 Registration Statement (the "Registration
Statement") with the Securities and Exchange Commission covering a public
offering of its common stock. The Registration Statement was declared effective
on July 17, 2002 and the Company received approval of its offering in all fifty
states in December 2002. The common stock is being offered at a price of $10 per
share on a 200,000 share minimum, 25,000,000 share maximum, best-efforts basis.
The Registration Statement also covers up to 4,000,000 shares available pursuant
to the Company's dividend reinvestment plan and up to 1,000,000 shares issuable
upon the exercise of warrants that may be sold to broker-dealers participating
in the offering. Until the Company received subscriptions covering at least
200,000 shares from at least 100 non-affiliated investors, offering proceeds
were required to be held in escrow. The escrow conditions were satisfied on
February 10, 2003, at which time 226,567 shares of common stock were issued to
investors (see Note 13).
The Partnership issued to the Advisor 20,000 limited partnership units in
exchange for $200,000 representing a 99% limited partnership interest in the
Partnership. The Company contributed $2,000 to the Partnership in exchange for
200 general partnership units representing a 1% general partnership interest in
the Partnership. Subject to certain restrictions, the limited partners may
require the Partnership to redeem some or all of their operating partnership
units for the Company's common shares or, at the option of the Partnership, for
cash. The rights of the limited partners are limited and do not include the
ability to replace the general partner or to approve the sale, purchase or
refinancing of the Partnership's assets. Due to the Company's control of the
Partnership through its general partner interest and the limited rights of the
limited partners, the Partnership is consolidated with the Company and the
limited partnership interest not held by the Company is reflected as minority
interest in the accompanying consolidated financial statements.
Dividend Capital Advisors Group LLC, the parent company of the Advisor, has
invested $1,000 in the Partnership in exchange for 10,000 special partnership
units (the "Special Units"). Amounts distributable to the holder of the Special
Units will depend on operations and the amount of net sales proceeds received
from property dispositions or upon other events as further described below. In
general, after holders of regular partnership interests have received cumulative
distributions equal to their capital contributions plus a 7% cumulative
non-compounded annual return on their net contributions, the holder of the
F-6
Special Units and the holders of regular partnership interests will receive 15%
and 85%, respectively, of the net sales proceeds received by the Partnership
upon the disposition of the Partnership's assets.
The Special Units will be redeemed by the Partnership for cash upon the
occurrence of specified events that result in a termination or non-renewal of
the agreement between the Advisor and the Company (the "Advisory Agreement")
(see Note 9). If the Advisory Agreement is terminated by the Company for cause,
the redemption price shall be $1. If the Company's shares are listed for public
trading or if the Advisory Agreement is terminated upon the occurrence of
certain other events, the redemption price of the Special Units will be the
amount which would have been distributed to the holder of the Special Units in
accordance with the partnership agreement of the Partnership out of the net
sales proceeds. Net sales proceeds will be determined by the public market price
of the then listed stock in the event of a listing of the Company's shares or by
the net sales proceeds received in the event of the disposition of the Company's
properties. In the case of certain other events, net sales proceeds will be
determined by the then fair market value of the Partnership's assets, as
determined by an appraisal, less all of its liabilities.
Note 2 - Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The accounts of the Company and the Partnership, its controlled subsidiary,
are consolidated in the accompanying financial statements. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported in the
consolidated financial statements. Actual results could differ from those
estimates. Estimates and assumptions are reviewed periodically and the effects
of revision are reflected in the period they are determined to be necessary.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with maturities when
purchased of three months or less to be cash equivalents.
RESTRICTED CASH
On April 15, 2002, the Company filed the Registration Statement with the
Securities and Exchange Commission covering a public offering of its common
stock. The Registration Statement was declared effective on July 17, 2002 and
the Company received approval of its offering in all fifty states in December
2002. The Company's common stock is being offered at a price of $10 per share on
a 200,000 share minimum, 25,000,000 share maximum, best-efforts basis (see Note
1). Until the Company received subscriptions covering at least 200,000 shares
from at least 100 non-affiliated investors, offering proceeds were required to
be held in escrow. As of December 31, 2002, the proceeds received from the sale
of subscriptions are shown as restricted cash in the accompanying consolidated
financial statements. The escrow conditions were satisfied on February 10, 2003,
at which time 226,567 shares of common stock were issued to investors (see Note
13).
INVESTMENT IN REAL ESTATE
As of December 31, 2002, the Company had neither purchased nor contracted
to purchase any properties, nor had the Advisor identified any properties in
which there is a reasonable probability that the Company will acquire. Upon the
acquisition of real estate, the Company will capitalize direct and certain
related indirect costs associated with the successful acquisition, development
or improvement of real estate. Capitalized costs associated with unsuccessful
acquisition or development pursuits will be expensed at the time the pursuit is
abandoned.
F-7
Upon acquisition, the purchase price of a property will be allocated to
land, building, leasing commissions and other intangible assets and associated
liabilities as required by Statement of Financial Accounting Standards ("SFAS")
No. 141 "Business Combinations." The allocation to land will be based on the
Company's estimate of its fair value based on all available information
including appraisals. The allocation to leasing commissions, as required by SFAS
No. 141, represents the value associated with the in-place leases, including
leasing commission, legal and other related costs. Also required by SFAS No.
141, is the creation of an intangible asset or liability resulting from in-place
leases being above or below the market rental rates on the date of the
acquisition. This asset or liability will be amortized over the life of the
remaining in-place leases as an adjustment to revenue.
Real estate, property, and equipment will be stated at cost. Depreciation
and amortization will be computed on a straight-line basis over the estimated
useful lives as follows:
Description Estimated Useful Lives
----------- ----------------------
Land Not depreciated
Buildings 20 to 40 years
Equipment 5 to 7 years
Tenant improvements and lease commissions Term of lease
Maintenance and repairs will be expensed as incurred and improvements will
be capitalized. The cost of assets sold or retired and the related accumulated
depreciation and/or amortization will be removed from the accounts and the
resulting gain or loss will be reflected in operations in the period in which
such sale or retirement occurs.
LONG-LIVED ASSETS
Long-lived assets to be held and used by the Company will be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company will continually
evaluate the recoverability of its long-lived assets based on estimated future
cash flows and the estimated liquidation value of such long-lived assets, and
provide for impairment if such undiscounted cash flows are insufficient to
recover the carrying amount of the long-lived asset. If impaired, the long-lived
asset will be written down to its estimated fair value.
COSTS OF RAISING CAPITAL
Costs incurred in connection with the issuance of equity securities are
deducted from shareholder's equity.
REVENUE RECOGNITION
As of December 31, 2002, the Company had not recognized revenue. Upon the
acquisition of real estate, the properties may have certain leases that provide
for tenant occupancy during periods for which no rent is due or where minimum
rent payments increase during the term of the lease. The Company will record
rental revenue for the full term of each lease on a straight-line basis.
Accordingly, the Company will record a receivable from tenants that the Company
expects to collect over the remaining lease term rather than currently, which
will be recorded as deferred rents receivable. When the Company acquires a
property, the term of existing leases is considered to commence as of the
acquisition date for the purposes of this calculation.
INCOME TAXES
During 2002, the Company was taxed as a C corporation for federal and
state purposes. For 2002, the Company recognized nominal taxable income and will
be obligated to pay a nominal amount of federal and state income tax. The
Company intends to meet all the requirements to qualify for REIT status and will
make an election under Internal Revenue Code Section 856 for the taxable year
ending December 31, 2003. In order for a former C corporation to elect to be a
REIT, it must distribute 100% of its C corporation earnings and profits and
agree to be subject to federal tax at the corporate level to the extent of any
subsequently recognized built-in gains within a ten year period. The Company
does not anticipate that it will have any built-in gains at the time of its
F-8
conversion to REIT status. As a REIT, the Company generally will not be subject
to federal income taxation at the corporate level to the extent it distributes
annually all of its REIT taxable income, as defined in the Internal Revenue
Code, to its shareholders and satisfies other requirements. No provision has
been made for federal income taxes in the accompanying consolidated financial
statements.
STOCK-BASED COMPENSATION
The Company has two stock-based employee and director compensation plans,
which are fully described in Note 8. At December 31, 2002, the Company had not
granted any options under these plans. The Company intends to account for these
plans under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. No stock-based employee compensation cost will be reflected in
net income (loss) if all options granted under the plans have an exercise price
greater than or equal to the market value of the underlying common stock on the
date of grant. The Company will disclose the effect on net income (loss) and
earnings (loss) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to
stock-based employee compensation.
FAIR VALUE
The Company's financial instruments include an advance to an affiliate
relating to certain organizational and offering expenses and a liability for
investor subscriptions. The fair values of these financial instruments were not
materially different from their carrying or contract values as of December 31,
2002.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic net loss per common share is determined by dividing net loss
attributable to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted net loss per common share includes
the effects of potentially issuable common stock, but only if dilutive. There
were no dilutive instruments outstanding as of December 31, 2002.
NEW ACCOUNTING PRINCIPLES
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections". The Company is required to adopt
SFAS No. 145 on January 1, 2003. SFAS No. 145 significantly limits the treatment
of losses associated with early extinguishment of debt as an extraordinary item.
Upon adoption, early extinguishments will not continue to qualify for
extraordinary item treatment. The Company does not anticipate that the adoption
of SFAS No. 145 will have a material impact on its financial position, results
of operations or cash flows.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities." The Company is required to adopt SFAS No. 146
on January 1, 2003. SFAS No. 146 requires that certain expenses associated with
restructuring charges be accrued as liabilities in the period in which the
liability is incurred. The Company does not anticipate the adoption of SFAS No.
146 will have a material impact on its financial position, results of operations
or cash flows.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." The Company is required to adopt SFAS No. 148 for financial statements for
fiscal years ending after December 15, 2002. As of December 31, 2002, the
Company had not issued any stock-based compensation. The Company does not
anticipate the adoption of SFAS No. 148 will have a material impact on its
financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities." The Company is required to adopt the Interpretation
F-9
for financial statements for the fiscal year or interim period beginning after
June 15, 2003. This Interpretation clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," and requires the
consolidation of results of variable interest entities in which the Company has
a majority variable interest. The Company has not yet determined the impact of
this Interpretation.
Note 3 - Public Offering
In April 2002, the Company sold 200 shares of common stock, $0.01 par
value, to an affiliate of the Advisor at a price of $10 per share. On April 15,
2002, the Company filed the Registration Statement with the Securities and
Exchange Commission covering a public offering of its common stock. The
Registration Statement was declared effective on July 17, 2002 and the Company
received approval of its offering in all fifty states in December 2002. The
common stock is being offered at a price of $10 per share on a 200,000 share
minimum, 25,000,000 share maximum, best-efforts basis. The Registration
Statement also covers up to 4,000,000 shares available pursuant to the Company's
dividend reinvestment plan and up to 1,000,000 shares issuable upon the exercise
of warrants that may be sold to broker-dealers participating in the offering.
Until the Company received subscriptions covering at least 200,000 shares from
at least 100 non-affiliated investors, offering proceeds were required to be
held in escrow. The escrow conditions were satisfied on February 10, 2003, at
which time 226,567 shares of common stock were issued to investors (see Note
13). As of December 31, 2002, the Company had engaged primarily in
organizational and offering activities and no shares had been sold in the
offering.
Note 4 - Advance for Offering Costs
Offering expenses, to the extent they exceed 3% of gross offering proceeds,
will be the responsibility of and paid for by the Advisor. Offering expenses
include such costs as legal and accounting fees, printing costs, and other
offering expenses. As of April 12, 2002 and December 31, 2002 the Company had
recorded $27,785 and $52,923, respectively, as amounts due from the Advisor for
offering costs paid by the Company in excess of 3% of gross offering proceeds.
As of December 31, 2002 there had been no gross offering proceeds and as a
result, the Advisor is obligated to reimburse the Company for all of these costs
until such time gross offering proceeds have been received.
Note 5 - Subscription for Common Shares
The initial proceeds of the offering were held in escrow until
subscriptions for at least 200,000 shares were received from at least 100
non-affiliated investors. These requirements were met on February 10, 2003, and
at such time 226,567 of common shares were issued to investors (see Note 13). As
specified in the Prospectus, the net proceeds from the sale of these securities
were transferred to the Partnership on a one-for-one basis for limited
partnership units.
Note 6 - Shareholder's Equity
Preferred Shares
- ----------------
The board of directors, through the articles of incorporation, has the
authority to authorize the issuance of 50,000,000 preferred shares of any class
or series. The rights and terms of such preferred shares will be determined by
the board of directors. However, the voting rights of preferred shareholders
shall never exceed the voting rights of common shareholders. As of December 31,
2002, the Company had no outstanding shares of preferred stock.
Shares-in-Trust
- ---------------
The board of directors, through the articles of incorporation, has the
authority to authorize the issuance of shares-in-trust which are shares that are
automatically exchanged for common or preferred shares as a result of an event
that would cause an investor to own, beneficially or constructively, a number of
shares in excess of certain limitations. As of December 31, 2002, the Company
had no outstanding shares-in-trust.
F-10
Common Shares
- -------------
The holders of common stock are entitled to one vote per share on all
matters voted on by shareholders, including election of the Company's directors.
The articles of incorporation do not provide for cumulative voting in the
election of directors. Therefore, the holders of the majority of the outstanding
common shares can elect the entire board of directors. Subject to any
preferential rights of any outstanding series of preferred stock and to the
distribution of specified amounts upon liquidation with respect to
shares-in-trust, the holders of common stock are entitled to such dividends as
may be declared from time to time by the board of directors out of legally
available funds and, upon liquidation, are entitled to receive all assets
available for distribution to shareholders. All shares issued in the Company's
public offering will be fully paid and non-assessable shares of common stock.
Holders of shares of common stock will not have preemptive rights. As of
December 31, 2002, the Company had 200 shares of common stock outstanding.
Note 7 - Minority Interest
Minority interest consists of the following as of:
April 12, 2002 December 31, 2002
-------------- -----------------
Limited partnership units $ 200,000 $ -
Limited partnership special units - 1,000
--------- -------
Total $ 200,000 $ 1,000
========= =======
Limited Partnership Units
- -------------------------
At December 31, 2002, the Advisor owned approximately 99% of the
Partnership. Limited partnership units are redeemable at the option of the unit
holder. The Partnership has the option of redeeming the limited partnership
units with cash or with common shares. At inception (April 12, 2002) the
Partnership issued 20,000 limited partnership units to the Advisor for gross
proceeds of $200,000. The allocation of net loss to the limited partnership unit
holders for the period ended December 31, 2002 has reduced the minority interest
balance to zero. The excess loss attributable to the minority interest, $10,758,
will be applied to future income attributable to the minority interest.
Limited Partnership Special Units
- ---------------------------------
During the quarter ended September 30, 2002, the Partnership issued 10,000
Special Units to an affiliate of the Advisor for consideration of $1,000. The
holders of Special Units do not participate in the profits and losses of the
Partnership. Amounts distributable to the holder of the Special Units will
depend on operations and the amount of net sales proceeds received from property
dispositions or upon other events. In general, after holders of regular
partnership interests have received cumulative distributions equal to their
capital contributions plus a 7% cumulative non-compounded annual return on their
net contributions, the holder of the Special Units and the holders of regular
partnership interests will receive 15% and 85%, respectively, of the net sales
proceeds received by the Partnership upon the disposition of the Partnership's
assets.
Note 8 - Stock Option Plans and Warrants
Stock Option Plans
- ------------------
The Company has adopted an independent director stock option plan which it
will use in an effort to attract and retain qualified independent directors (the
"Independent Director Option Plan"). The Company intends to grant non-qualified
stock options to purchase 10,000 shares to each independent director pursuant to
the Independent Director Option Plan upon the sale of at least 200,000 shares in
the Company's initial offering. In addition, the Company intends to issue
options to purchase 5,000 shares to each independent director then in office on
the date of each annual shareholder's meeting. A total of 300,000 shares are
F-11
authorized and reserved for issuance under the Independent Director Option Plan.
Options may not be granted under the Independent Director Option Plan at any
time when the grant would cause the total number of options outstanding under
the Independent Director Option Plan and the Employee Option Plan to exceed 10%
of the Company's issued and outstanding shares. The exercise price for options
to be issued under the Independent Director Option Plan shall be the greater of
(1) $12.00 per share or (2) the fair market value of the shares on the date they
are granted. As of December 31, 2002, there were no options outstanding under
the Independent Director Option Plan.
The Company has adopted an employee stock option plan (the "Employee Option
Plan"). The Employee Option Plan is designed to enable the Company, the Advisor
and the Property Manager to obtain or retain the services of employees (not to
include any person who is a sponsor or affiliate of Dividend Capital Trust)
considered essential to the Company's long-term success and the success of the
Advisor and the Property Manager by offering such employees an opportunity to
participate in the growth of the Company through ownership of its shares. The
Employee Option Plan will be administered by the Compensation Committee, which
is authorized to grant "non-qualified" stock options (the "Employee Options") to
selected employees of the Advisor and the Property Manager. Employee Options may
not be granted under the Employee Option Plan at any time when the grant would
cause the total number of options outstanding under the Employee Option Plan and
the Independent Director Option Plan to exceed 10% of the Company's issued and
outstanding shares. The exercise price for the Employee Options shall be the
greater of (1) $11.00 per share or (2) the fair market value of the shares on
the date the Employee Option is granted. A total of 750,000 shares are
authorized and reserved for issuance under the Employee Option Plan. The
Compensation Committee shall set the term of the Employee Options at its
discretion, which shall not exceed ten years. The Compensation Committee shall
set the period during which the right to exercise an Employee Option vests. No
Employee Option may be issued or exercised, however, if such issuance or
exercise would jeopardize the Company's status as a REIT under the Internal
Revenue Code or otherwise violate the ownership and transfer restrictions
imposed under the Company's articles of incorporation. In addition, no Employee
Option may be sold, pledged, assigned or transferred by an employee in any
manner other than by will or the laws of descent or distribution. As of December
31, 2002, there were no options outstanding under the Employee Option Plan.
Stock Warrants
- --------------
The Company will issue to the Dealer Manager one soliciting dealer warrant
for $.001 for every 25 shares sold during the offering period subject to a
maximum of 1,000,000 soliciting dealer warrants. These warrants, as well as the
shares issuable upon their exercise, have been registered as part of this
offering. The Dealer Manager may retain or re-allow these warrants to
broker-dealers participating in the offering, unless such issuance of soliciting
dealer warrants is prohibited by either federal or state securities laws. The
holder of a soliciting dealer warrant will be entitled to purchase one share
from the Company at a price of $12 per share during the period beginning on the
first anniversary of the effective date of the offering (July 17, 2002) and
ending five years after the effective date of the offering (July 16, 2007).
Subject to certain exceptions, a soliciting dealer warrant may not be
transferred, assigned, pledged or hypothecated for a period of one year
following the effective date of this offering. Exercise of the soliciting dealer
warrants is governed by the terms and conditions detailed in the warrant
purchase agreement. As of December 31, 2002, there were no warrants outstanding
under the warrant purchase agreement.
Note 9 - Related Party Transactions
Advisory Agreement
- ------------------
The Company has entered into the Advisory Agreement with the Advisor
pursuant to which the Company will pay certain acquisition and advisory fees to
the Advisor. The Advisor is considered a related party as certain owners and
employees of the Advisor serve as executives of the Company. The amount of such
fees shall equal up to 3% of the aggregate purchase price of all properties
acquired by the Company. The Company has also agreed to reimburse the Advisor
for certain expenses incurred in connection with property acquisitions. Such
expense reimbursements shall equal up to 0.5% of the aggregate purchase price of
all properties acquired by the Company.
The Company will be responsible for the payment of all organization and
offering expenses not to exceed 3% of gross offering proceeds. The Advisor will
reimburse the Company for all organization and offering expenses in excess of 3%
of gross offering proceeds. As a result, the organization and offering expenses
F-12
paid to date by the Company are accounted for as an advance until such time that
the Company receives its initial proceeds from the offering (see Note 13). In
addition to the organization and offering costs paid by the Company, the Advisor
has paid approximately $3.4 million of organization and offering expenses as of
December 31, 2002.
The Advisor is obligated to reimburse the Company for the amount by which
operating expenses (as defined in the Advisory Agreement) of the Company exceed
the greater of 2% of Average Invested Assets or 25% of Net Income (as such terms
are defined in the Advisory Agreement) for a twelve-month period to be measured
each fiscal quarter (the "2%/25% Guidelines). If in any twelve month period the
operating expenses of the Company exceed the 2%/25% Guidelines, the Advisor will
have an obligation to reimburse the Company for such excess, subject to certain
conditions. If the Independent Directors find that such expenses were justified
based on any unusual and nonrecurring factors which they deem sufficient, the
Advisor may be reimbursed in future periods for the full amount or any portion
of such excess expense, but only to the extent that such reimbursement would not
cause the Company's operating expense to exceed the 2%/25% Guidelines in any
such year.
Dealer Manager Agreement
- ------------------------
The Company has entered into a dealer manager agreement with the Dealer
Manager pursuant to which the Company will pay up to 2.5% of gross offering
proceeds to the Dealer Manager as compensation for managing the offering. The
Dealer Manager may re-allow a portion of such fees to broker-dealers who
participate in the offering. The Company will also pay a 7% sales commission on
shares sold in the offering. The Dealer Manager has indicated that all of the
sales commissions are expected to be paid to participating broker-dealers who
are responsible for effecting sales.
Property Management Agreement
- -----------------------------
The Company has entered into a property management agreement with the
Property Manager pursuant to which the Company will pay certain property
management and leasing fees to the Property Manager. The amount of such fees
shall not exceed the lesser of 4.5% of the gross revenues or 0.6% of the net
asset value (as defined in the property management agreement) of properties
owned by the Company. The Company may also pay a separate fee for the one-time
lease-up of newly-constructed properties in an amount not to exceed the fee
customarily charged in arm's length transactions.
The Company may pay real estate commissions to the Advisor or its
affiliates in connection with the sale of properties by the Company. Such
commissions shall not exceed the lesser of 50% of the reasonable, customary and
competitive real estate brokerage commission paid for the sale of comparable
property or 3% of the contract price. The payments of such commissions are
deferred until distributions to investors equal 100% of their capital
contributions plus a 7% cumulative non-compounded return on their net
contributions.
Note 10 - Comprehensive Income
There are no adjustments necessary to net loss as presented in the
accompanying consolidated statement of operations to derive comprehensive income
in accordance with SFAS No. 130, "Reporting Comprehensive Income."
Note 11 - Income Taxes
During 2002, the Company was taxed as a C corporation for federal and state
purposes. For 2002, the Company recognized nominal taxable income and will be
obligated to pay a nominal amount of federal and state income tax. During 2003,
the Company intends to meet all the requirements to qualify for REIT status and
will make an election under Internal Revenue Code Section 856 for the taxable
year ending December 31, 2003. In order for a former C corporation to elect to
be a REIT, it must distribute 100% of its C corporation earnings and profits and
agree to be subject to federal tax at the corporate level to the extent of any
subsequently recognized built-in gains within a ten year period. The Company
does not anticipate that it will have any built-in gains at the time of it's
conversion to REIT status. As a REIT, the Company generally will not be subject
to federal income taxation at the corporate level to the extent it distributes
annually 100% of its REIT taxable income, as defined in the Internal Revenue
Code, to its shareholders and satisfies other requirements. No provision has
been made for federal income taxes in the accompanying consolidated financial
statements.
F-13
Note 12 - Commitments and Contingencies
The Company is not subject to any material pending legal proceedings.
Note 13 - Subsequent Event
On February 10, 2003 the Company satisfied the minimum offering requirement
established for its public offering by accepting subscriptions for at least
200,000 shares of common stock from at least 100 non-affiliated investors. At
the initial closing under the public offering, approximately $2,265,670 of gross
proceeds was released from escrow to the Company and 226,567 shares of common
stock were issued to investors. Upon satisfaction of this minimum offering
requirement, the Company paid the Advisor approximately $68,000 towards
reimbursement for offering and organization related costs.
Approximately $215,000 was paid to the Dealer Manager for commissions and
dealer manager fees. In addition to the dealer manager fees, The Dealer Manager
earned 9,062 soliciting dealer warrants. The Company intends to issue these
warrants, along with additional warrants earned in the first quarter of 2003, in
April 2003. The Company valued these warrants at approximately $0.33 each for
a total value of $2,981 using the Black-Scholes option-pricing model.
Note 14 - Quarterly Results (Unaudited)
The following table presents selected unaudited quarterly financial data
for each quarter during the period ending December 31, 2002:
For the Period
For the Period For the Quarter For the Quarter from Inception
from Inception Ended Ended (April 12, 2002)
(April 12, 2002) September 30, December 31, to December 31,
to June 30, 2002 2002 2002 2002
--------------- --------------- --------------- ----------------
Net loss before minority interest $ (13,300) $ (17,500) $ (181,912) $ (212,712)
Minority interest - - 200,000 200,000
--------- --------- ---------- ----------
Net income (loss) (13,300) (17,500) 18,088 (12,712)
========= ========= ========== ==========
Earnings (loss) per common share:
Basic and diluted $ (66.50) $ (87.50) $ 90.44 $ (63.56)
========= ========= ========== ==========
The Company allocated minority interest for the entire period from
inception (April 12, 2002) to December 31, 2002 in the quarter ended December
31, 2002 based on additional information obtained throughout the period. If
minority interest was allocated each quarter, the Company would have realized a
$12,404 loss, or $62.02 per share during the quarter ended December 31, 2002.
F-14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, their ages and their
positions and offices are as follows:
Name Position
---- --------
Thomas G. Wattles Chairman and Director
Evan H. Zucker Chief Executive Officer, President,
Secretary and Director
James R. Mulvihill Chief Financial Officer,
Treasurer and Director
Tripp H. Hardin Director
Robert F. Masten Director
John C. O'Keeffe Director
Lars O. Soderberg Director
Thomas G. Wattles, age 51, is the Chairman and director of Dividend Capital
Trust and is a manager and Chief Investment Officer of Dividend Capital Advisors
and a manager of Dividend Capital Property Management. Mr. Wattles is a
principal of Black Creek Capital, LLC which he joined in February 2003. From
November 1993 to March 1997, Mr. Wattles served as Co-Chairman and Chief
Investment Officer of ProLogis Trust (NYSE: PLD), and served as Chairman between
March 1997 and May 1998. ProLogis is a publicly-held industrial REIT, with total
assets of approximately $5.9 billion as of December 31, 2002, and operations in
North America, Europe and Japan. Mr. Wattles was a Managing Director of Security
Capital Group Incorporated ("Security Capital Group") and was with Security
Capital Group in various capacities including Chief Investment Officer from
January 1991 to December 2002. Mr. Wattles is a director of Regency Centers and
chairs the Investment Committee. Mr. Wattles holds a Bachelor's degree and an
MBA degree from Stanford University.
Evan H. Zucker, age 37, is the President, Secretary and a director of
Dividend Capital Trust Inc. Mr. Zucker is also a manager of both Dividend
Capital Advisors and Dividend Capital Property Management. Mr. Zucker is a
principal of Black Creek Capital, LLC, a Denver-based real estate investment
firm which he co-founded in 1993. He is also a managing partner of CapEx, LP, a
$60 million private equity fund co-founded by the principals of Black Creek
Capital in 1999. Mr. Zucker has been active in real estate acquisition,
development and redevelopment activities since 1989 and with Mr. Mulvihill and
Mr. Blumberg has directed the acquisition, development, redevelopment, financing
and sale of approximately 75 real estate projects with an aggregate value in
excess of approximately $503 million. In 1993 Mr. Zucker co-founded American
Real Estate Investment Corp. (now known as Keystone Property Trust, NYSE: KTR),
which is currently an industrial, office and logistics REIT traded on the New
York Stock Exchange with total assets of approximately $820 million as of June
30, 2002. Mr. Zucker served as the President and as a director of American Real
Estate Investment Corp. from 1993 through 1997 and as a director of Keystone
Property Trust from 1997 through 1999. Mr. Zucker graduated from Stanford
University with a Bachelor's degree in Economics.
James R. Mulvihill, age 38, is the Treasurer, Chief Financial Officer and a
director of Dividend Capital Trust. Mr. Mulvihill is also a manager of both
Dividend Capital Advisors and Dividend Capital Property Management. Mr.
Mulvihill is a principal of Black Creek Capital, LLC, a Denver-based real estate
investment firm which he co-founded in 1993. He is also a co-founder and
Chairman of the Board of Corporate Properties of the Americas ("CPA"). CPA, a
joint venture between an affiliate of Black Creek Capital and Equity
International Properties (a Sam Zell controlled investment company), is a
fully-integrated industrial real estate company that acquires, develops and
manages industrial properties throughout Mexico. To date, CPA has developed and
or acquired over 2.7 million square feet of industrial buildings and developed
two industrial parks totaling 445 acres. Mr. Mulvihill has been active in real
estate acquisition, development and redevelopment activities since 1992 and with
Mr. Zucker and other affiliates has directed the acquisition, development,
redevelopment, financing and sale of approximately 75 real estate projects with
13
an aggregate value in excess of approximately $503 million. In 1993 Mr.
Mulvihill co-founded American Real Estate Investment Corp. (now known as
Keystone Property Trust, NYSE: KTR) which is currently an industrial, office and
logistics REIT traded on the New York Stock Exchange with total assets of
approximately $820 million as of June 30, 2002. Mr. Mulvihill served as its
Chairman and as a director from 1993 through 1997 and as a director of Keystone
Property Trust from 1997 through 2001. Prior to co-founding Black Creek Capital,
Mr. Mulvihill served as Vice President of the Real Estate Banking and Investment
Banking Groups of Manufacturer's Hanover and subsequently Chemical Bank, where
his responsibilities included real estate syndication efforts, structured debt
underwritings and leveraged buyout real estate financings. Mr. Mulvihill holds a
Bachelor's degree from Stanford University in Political Science.
Independent Directors
Tripp H. Hardin, age 41, is an independent director of Dividend Capital
Trust. Mr. Hardin is a Vice President of Grubb & Ellis, and he has been active
in real estate activities since 1984, focusing primarily on the sale and leasing
of industrial, office and commercial properties. He has also been active in real
estate investment and build-to-suit transactions. Mr. Hardin graduated from
Stanford University with a Bachelor of Science Degree.
Robert F. Masten, age 53, is an independent director of Dividend Capital
Trust. Mr. Masten has been active in commercial real estate transactions and
title insurance matters since 1972. Since 1993 he has been a Senior Vice
President of North American Title Company, Denver, Colorado, where he has
provided title insurance for commercial real estate transactions. Prior to
joining North American Title Company he was with Land Title Guaranty Company for
16 years. Before joining Land Title, Mr. Masten leased, managed and sold
properties for 33 different syndicates for which Perry & Butler was the general
partner. Mr. Masten graduated from the University of Colorado with a Doctorate
Degree in Arts and Sciences.
John C. O'Keeffe, age 43, is an independent director of Dividend Capital
Trust. Mr. O'Keeffe has been active in real estate construction activities since
1987. Since 1987 he has served as a project manager for Wm. Blanchard Co.,
Springfield, New Jersey, where he has been responsible for the construction of
large healthcare projects. Mr. O'Keeffe graduated from Denison University with a
Bachelor's Degree in English Literature.
Lars O. Soderberg, age 43, is an independent director of Dividend Capital
Trust. Mr. Soderberg has been employed by Janus Funds since 1995. He is
currently a Vice President and Managing Director of Janus Institutional
Services, where he is responsible for the development, marketing and
distributions of Janus' investment products to the institutional market place.
Prior to joining Janus, Mr. Soderberg was employed by Fidelity Investments for
approximately 14 years. He is Treasurer and a member of the Board of Directors
of the National Defined Contribution Council and a member of the Association of
Investment Management Sales Executives. Mr. Soderberg graduated from the Denison
University with a Bachelor of Arts Degree in History.
On March 31, 2003, the Company's Board of Directors accepted the
resignation of John Blumberg as a director of the Company and as a member of the
Audit Committee and the resignation of Michael Dana as a director of the Company
and as a member of the Compensation Committee. Also on March 31, 2003, Thomas G.
Wattles was appointed as a director of the Company and as the Chairman of the
Board of Directors. Lars O. Soderberg was appointed to the Compensation
Committee on March 31, 2003.
ITEM 11. EXECUTIVE COMPENSATION
The Company currently has no paid employees. Day-to-day management
functions are performed by the Advisor, the Property Manager or their
affiliates.
The Company's executive officers are all employees of the Advisor. The
Company does not pay any of these individuals for serving in their respective
positions. For a discussion of fees paid to the Advisor and other affiliated
companies, see "Certain Relationships and Related Transactions" below.
The Company pays each of its independent directors $2,500 per quarter plus
$1,000 for each board meeting attended and $500 for each committee meeting
attended. All directors receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with attendance at meetings of the board of
directors. If a director also is an officer of the Company, no separate
compensation is paid for services rendered as a director.
14
The Company has also adopted the Independent Director Option Plan and
the Employee Option Plan. See "Market for Common Stock and related Shareholder
Matters" above. As of December 31, 2002, there were no options outstanding under
the Independent Director Option Plan and the Employee Option Plan.
During 2002, the Company's board of directors did not receive any
compensation. However, approximately $58,500 was accrued as of December 31, 2002
related to compensation to the independent board of directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The following table sets forth information as of March 26, 2003 regarding
the number and percentage of shares beneficially owned by: (i) each director;
(ii) each executive officer; (iii) all directors and executive officers as a
group; and (iv) as of March 26, 2003, any person known to the Company to be the
beneficial owner of more than 5% of the shares issued and outstanding.
Number of Shares
Beneficially Percent
Name of Beneficial Owner Owned (1) of Class
------------------------ ---------------- --------
Evan H. Zucker 200 *
* Less than 1%
---------------------
(1) Beneficial ownership includes outstanding shares and shares that any
person has the right to acquire within 60 days after the date of this
table. Except as pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with
respect to all shares beneficially owned by them.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Advisory Agreement
The Company has entered into the Advisory Agreement with the Advisor
pursuant to which the Company will pay certain acquisition and advisory fees to
the Advisor. The Advisor is considered a related party as certain employees of
the Advisor serve as executives of the Company. The amount of such fees shall
equal up to 3% of the aggregate purchase price of all properties acquired by the
Company. The Company has also agreed to reimburse the Advisor for certain
expenses incurred in connection with property acquisitions. Such expense
reimbursements shall equal up to 0.5% of the aggregate purchase price of all
properties acquired by the Company.
The Company will be responsible for the payment of all organization and
offering expenses not to exceed 3% of gross offering proceeds. The Advisor will
reimburse the Company for all organization and offering expenses in excess of 3%
of gross offering proceeds. As a result, the organization and offering expenses
paid to date by the Company are accounted for as an advance until such time that
the Company receives its initial proceeds from the offering (see Note 13). In
addition to the organization and offering costs paid by the Company, the Advisor
has paid approximately $3.4 million of organization and offering expenses as of
December 31, 2002.
The Advisor is obligated to reimburse the Company for the amount by which
operating expenses (as defined in the Advisory Agreement) of the Company exceed
the greater of 2% of Average Invested Assets or 25% of Net Income (as such terms
are defined in the Advisory Agreement) for a twelve-month period to be measured
each fiscal quarter (the "2%/25% Guidelines"). If in any twelve month period the
operating expenses of the Company exceed the 2%/25% Guidelines, the Advisor will
have an obligation to reimburse the Company for such excess, subject to certain
conditions. If the Independent Directors find that such expenses were justified
based on any unusual and nonrecurring factors which they deem sufficient, the
Advisor may be reimbursed in future periods for the full amount or any portion
of such excess expense, but only to the extent that such reimbursement would not
cause the Company's operating expense to exceed the 2%/25% Guidelines in any
such year.
15
Dealer Manager Agreement
The Company has entered into a dealer manager agreement with the Dealer
Manager pursuant to which the Company will pay up to 2.5% of gross offering
proceeds to the Dealer Manager as compensation for managing the offering. The
Dealer Manager may re-allow a portion of such fees to broker-dealers who
participate in the offering. The Company will also pay a 7% sales commission on
shares sold in the offering. The Dealer Manager has indicated that all of the
sales commissions are expected to be paid to participating broker-dealers who
are responsible for effecting sales.
Property Management Agreement
The Company has entered into a property management agreement with the
Property Manager pursuant to which the Company will pay certain property
management and leasing fees to the Property Manager. The amount of such fees
shall not exceed the lesser of 4.5% of the gross revenues or 0.6% of the net
asset value (as defined in the property management agreement) of properties
owned by the Company. The Company may also pay a separate fee for the one-time
lease-up of newly-constructed properties in an amount not to exceed the fee
customarily charged in arm's length transactions.
The Company may pay real estate commissions to the Advisor or its
affiliates in connection with the sale of properties by the Company. Such
commissions shall not exceed the lesser of 50% of the reasonable, customary and
competitive real estate brokerage commission paid for the sale of comparable
property or 3% of the contract price. The payments of such commissions are
deferred until distributions to investors equal 100% of their capital
contributions plus a 7% cumulative non-compounded return on their net
contributions.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with participation of Company
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rule 13a-14(c) and 15-14(c) under the Securities
Exchange Act of 1934). Based on their evaluation, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. Subsequent to the date of
their evaluation, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
16
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits.
See Index to Exhibits.
(b) Reports on Form 8-K.
None.
17
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIVIDEND CAPITAL TRUST INC.
By: /s/ Evan H. Zucker
-------------------------------------------------
Evan H. Zucker, Chief Executive Officer and President
Date: March 31, 2003
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Thomas G. Wattles Chairman and Director March 31, 2003
- ---------------------
Thomas G. Wattles
/s/ Evan H. Zucker Chief Executive Officer, President, March 31, 2003
- ------------------ Secretary and Director
Evan H. Zucker
/s/ James R. Mulvihill Chief Financial Officer, Treasurer March 31, 2003
- ---------------------- and Director
James R. Mulvihill
/s/ Tripp H. Hardin Director March 31, 2003
- -------------------
Tripp H. Hardin
/s/ Robert F. Masten Director March 31, 2003
- --------------------
Robert F. Masten
/s/ John C. O'Keeffe Director March 31, 2003
- --------------------
John C. O'Keeffe
/s/ Lars O. Soderberg Director March 31, 2003
- ---------------------
Lars O. Soderberg
18
Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
I, Evan H. Zucker, hereby certify that:
1. I have reviewed this annual report on Form 10-K of Dividend Capital Trust
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and of, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
March 31, 2003
By: /s/ Evan H. Zucker
-------------------------------------
Evan H. Zucker
Chief Executive Officer and President
19
Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
I, James R. Mulvihill, hereby certify that:
1. I have reviewed this annual report on Form 10-K of Dividend Capital Trust
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and of, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
March 31, 2003
By: /s/ James R. Mulvihill
-------------------------------------
James R. Mulvihill
Chief Financial Officer and Treasurer
20
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
*3.1 Dividend Capital Trust Inc. Articles of Incorporation (Exhibit
3.1 to Form S-11 Registration Statement of Dividend Capital
Trust Inc., as amended to date, Commission File No. 333-86234)
*3.2 Dividend Capital Trust Inc. Amended and Restated Articles of
Incorporation (Exhibit 3.1.1 to Form S-11 Registration Statement
of Dividend Capital Trust Inc., as amended to date, Commission
File No. 333-86234)
*3.3 Dividend Capital Trust Inc. Bylaws (Exhibit 3.2 to Form S-11
Registration Statement of Dividend Capital Trust Inc., as
amended to date, Commission File No. 333-86234)
*4.1 Form of Dividend Reinvestment Plan (Exhibit 4.2 to Form S-11
Registration Statement of Dividend Capital Trust Inc., as
amended to date, Commission File No. 333-86234)
*10.1 Advisory Agreement between Dividend Capital Trust Inc. and
Dividend Capital Advisors LLC dated July 11, 2002 (Exhibit 10.2
to Form S-11 Registration Statement of Dividend Capital Trust
Inc., as amended to date, Commission File No. 333-86234)
*10.2 Management Agreement between Dividend Capital Trust Inc. and
Dividend Capital Property Management LLC dated July 11, 2002
(Exhibit 10.3 to Form S- 11 Registration Statement of Dividend
Capital Trust Inc., as amended to date, Commission File No.
333-86234)
*10.3 Form of Indemnification Agreement between Dividend Capital Trust
Inc. and the officers and directors of Dividend Capital Trust
Inc. (Exhibit 10.4 to Form S-11 Registration Statement of
Dividend Capital Trust Inc., as amended to date, Commission File
No. 333-86234)
*10.4 Limited Partnership Agreement of Dividend Capital Operating
Partnership LP. (Exhibit 10.5 to Form S-11 Registration Statement
of Dividend Capital Trust Inc., as amended to date, Commission
File No. 333-86234)
*10.5 Dividend Capital Trust Inc. Employee Stock Option Plan (Exhibit
10.6.1 to Form S-11 Registration Statement of Dividend Capital
Trust Inc., as amended to date, Commission File No. 333-86234)
*10.6 Dividend Capital Trust Inc. Independent Director Stock Option
Plan(Exhibit 10.6.2 to Form S-11 Registration Statement of
Dividend Capital Trust Inc., as amended to date, Commission File
No. 333-86234)
+99.1 Certificate of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
+99.2 Certificate of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
- -------------------
+ Filed herewith.
* Incorporated herein by reference.
21